ENCUMBRANCES/LIENS

ENCUMBRANCES/LIENS

In this section, the principal types of encumbrances/liens are examined that may be imposed on a given parcel
of land/property without affecting the fee title to the owner’s real property as part of the owner’s estate. This

discussion includes the distinctions between the “lien” vs. “legal title” theories, and the fact that the “lien”
theory has been adopted by California and represents current law.

Definition- Encumbrance

An encumbrance may be defined very generally as any right or interest in land/property, possessed by a
stranger to the title, which affects the value of the owner’s estate, but does not prevent the owner from enjoying
and selling, transferring, or otherwise conveying the fee title.

Two categories of encumbrances exist: those affecting title and those affecting condition or use of the property.

Encumbrances that affect title. Most notably, these are liens. A lien is defined as a charge imposed on
property and made security for the payment of a monetary claim or the performance of an act in connection
therewith. Typically, the lien is imposed for the payment of a debt evidenced by a promissory note. Liens may
also be imposed solely for the performance of an act in the form of a performance deed of trust.

Liens may affect real or personal property and may be voluntary (e.g., a home mortgage to secure a loan) or
involuntary (e.g., imposed by law for overdue taxes). A lien may be specific, affecting only a particular
property (e.g., a trust deed, or a mechanic’s lien on a given property) or may be a general lien, affecting all
property of the owner not exempt by law (e.g., a money judgment, or a lien for overdue state or federal income
taxes). As previously mentioned in this chapter, all liens are encumbrances, but not all encumbrances are liens.

Encumbrances that affect the physical condition or use of the property. Examples are easements, building
restrictions and zoning requirements, and encroachments.

A buyer will commonly accept a deed to encumbered property, with the price adjusted accordingly. Often, the
encumbrance may not be objectionable, e.g., an easement for utility purposes. But sometimes a buyer may insist
that the encumbrance be removed or cleared from the public record before the transaction closes.

Cloud on the title. A “cloud on the title” is defined as any outstanding claim or encumbrance that would, if
valid, affect or impair the owner’s title to a particular property/estate. While the cloud remains, the owner is
prevented from selling transferring, or conveying marketable title. The ability to further encumber the title may
also be impaired by a “cloud on the title”.

Examples are: a mortgage paid off but without official recordation of that fact (a reconveyance of a deed of
trust); an apparent interest in the property which remains because one of a group of heirs fails to sign the deed
on sale of the property; or a notice of action (a lis pendens) which remains on the public record even after the
plaintiff and defendant have agreed to dismissal of the court action. Removal of a cloud may require time and
patience. Meanwhile, closing will be postponed until the persons requesting coverage obtain a title insurance
policy without reference to the cloud.

It is important to understand the distinction between the “lien” theory and the “legal title” theory and the impact
of these theories on the use of mortgages and deeds of trust as security devices/instruments for the repayment of
a monetary claim or the performance of an act.

LIEN THEORY VS. LEGAL TITLE THEORY

History. An essential concept of California Law is the ability to secure the repayment of monetary claims or the
performance of an act typically in connection therewith by a “lien” that does not impair the owner’s rights to
freely enjoy the benefits of the use and ownership of the property. These benefits include the right to sell,
transfer, or otherwise convey, or further encumber the title to the land/real property. It is settled law that
California is a “lien” and not a “legal title” theory state when imposing encumbrances/liens against the title of
real property.

California has a 150-year history of development and evolution in the way its courts have applied legal
principles to mortgages and deeds of trust. As of 2009, this 150-year history is split approximately in half,
creating two 75-year periods. The first 75-year period begins in 1859, ends in 1933, and is marked by the
California Supreme Court’s historic insistence that mortgages create “liens” and deeds of trust transfer “legal
title”. The Court held that the two instruments/security devices have no common features, and each are
controlled by different bodies of real property law (“Title Period”).

The second 75-year period begins in 1933, runs to the present, and is marked by the 180-degree reversal of
position in which the California Supreme Court currently insists that a deed trust is the functional equivalent of
a mortgage with power of sale. Therefore, both instruments (mortgages and deeds of trust) are governed by
mortgage laws (“Lien Period”). In these two periods, dramatically differing opinions on the same legal issue
were offered by California courts. These differing opinions evolved the law regarding deeds of trust over the
last 75 years to reconcile the law applicable to mortgages with power of sale, and thus established the “lien
theory” as the applicable California Law.

The most comprehensive analysis of distinctions in the legal status of deeds of trusts and mortgages during the
Title Period is contained in two California Law Review articles. The first published in 1915 by Professor Kidd
is Trust Deeds and Mortgages in California. See, A. M. Kidd, Trust Deeds and Mortgages in California, 3 Cal.
L. Rev 381 (1915).

The second analysis, Applications of the Distinction between Mortgages and Trust Deeds in California, was
published in 1938 and brings Professor Kidd’s 1915 article current through the watershed Bank of Italy II
decision in 1933. See, Joseph M. Cormack and James B. Irsfeld Jr., Applications of the Distinction between
Mortgages and Trust Deeds in California, 26 Cal. L. Rev. 206 (1938).

In the 1915 article, Professor Kidd identifies the paradoxical character of California mortgage and deed of trust
law, which applied the “lien” theory and “legal title” theory of real property security instruments in the same
state at the same time. The Title Period begins with the California Supreme Court’s decision in Koch v. Briggs,
14 Cal. 256 (1859.

The California Supreme Court held in the Koch v. Briggs case: “It [a deed of trust] has no feature in common
with a mortgage, except that it was executed to secure an indebtedness.” As the 1915 and 1938 articles detail,
the legal effect of seeking to impose the “lien” theory for mortgages and the “legal title” theory for deeds of
trust resulted in numerous distinctions that seemingly had no foundation in legal principle, since both
instruments were clearly real property instruments/security devices. These distinctions were most prominent in
substantive areas such as the right of redemption (none historically recognized for deeds of trust), the one form
of action rule, limitations on deficiencies, and negotiability of a note secured by a mortgage versus deed of
trust, the fiduciary duties imposed on foreclosure trustees, homestead exemptions, mechanics liens, and the
impact of bankruptcy.

As noted by the leading treatise on California real estate: “Creditors began using the deed of trust as a real
property security instrument during the 19th century because of the procedural inhibitions imposed on the
mortgage by the courts and the impediments attendant with judicial foreclosure of the debtor's equity of
redemption. The use of a conveyance to a trustee clothed with a power of sale offered the creditor several
advantages over the mortgage so that, by the time the distinctions between the two security instruments were
removed during the early part of the 20th century, the deed of trust had become the generally accepted and
preferred security device in California.”

“Except for some minor distinctions, for all practical purposes, a mortgage that contains a power of sale has a
similar legal effect and economic function as the deed of trust. Each is subject to the same procedures and
limitations on judicial and non-judicial foreclosure, each is subject to the same redemption provisions both
prior to and after the foreclosure sale, and each is subject to the same anti-deficiency limitations. Both are
intended by the parties to serve the same economic function of providing security for the performance of an
obligation.” See, Miller & Starr, California Real Estate 3d, § 10:1.

The depression era years of 1932 and 1933 were the turning point for beginning the process of reconciling
California mortgage and deed of trust law. Two California Supreme Court opinions arising from the same case
symbolize the fitful end of the “Legal Title” period and the beginning of the “Lien” period. Although Bank of
Italy II is universally cited as the seminal decision reconciling mortgage and deed of trust law, little attention is
paid to the fact that just six (6) months earlier, the California Supreme Court decided Bank of Italy Nat. Trust &
Savings Ass’n v. Bentley, 14 P. 2d 85 (1932) – Bank of Italy I.

In Bank of Italy I, the California Supreme Court held: “It must be considered as thoroughly settled in California
that a deed of trust is not a mortgage. Substantial differences between two types of security have been
recognized, and statutes applicable to mortgages have generally been held inapplicable to deeds of
trust…”.[citations omitted]…Stockwell v. Barnum, 7 Cal. App. 413, 94 P. 400 …Id., 14 P. 2d at 86.

This holding of Bank of Italy I makes even more remarkable the reversal of position contained in Bank of Italy
II (only six months later in the same case before the same court): “This view, that deeds of trust, except for the
passage of title for the purpose of the trust, are practically and substantially only mortgages with a power of
sale…”. See, Bank of Italy Nat’l Trust and Savings Ass’n v. Bentley, 217 Cal. 644, 657 (1933).

Current Law. The California Supreme Court’s recognition in Bank of Italy II that deeds of trust are
“practically and substantially only mortgages with power of sale” renders obsolete all pre-1933 case law that
was built upon the legal foundation of Koch v. Briggs that holds a deed of trust “has no feature in common with
a mortgage, except that it was executed to secure an indebtedness.” In case after case published over the last 75
years, the California courts have reconciled any remaining distinctions between a deed of trust and mortgage
with power of sale. See, The 1989 California Supreme Court case of Monterey S.P. Partnership v. W.L.
Bingham, Inc., 261 Cal. 3d 454 (1989). (“Monterey”) reveals just how far the unification of trust deeds and
mortgages has come.

In Monterey, the court considered whether service of a complaint to the trustee of a deed of trust in a
mechanic’s lien foreclosure action is sufficient to bind the beneficiary of the deed of trust. In its holding, the
court makes it abundantly clear that a deed of trust creates a “lien” on the property and has the same legal effect
as a mortgage with a power of sale: “Although Whitney, supra, 10 Cal. 547, involved the effect of a mechanic’s
lien foreclosure on the rights of a mortgagee, the holding applies equally to a beneficiary under a deed of trust.
As explained in describing “the anomalous nature of deeds of trust in this state” (Bank of Italy etc. Assn. v.
Bentley (1933) 217 Cal. 644, 657, 20 P.2d 940), “deeds of trust, except for the passage of title for the purpose
of the trust, are practically and substantially only mortgages with a power of sale...”.

In practical effect, if not in legal parlance, a deed of trust is a “lien” on the property and not a transfer of fee
title to the trustee, i.e., establishing and adopting the “lien” theory vs. the “legal title” theory. It would be
inconsistent with Bank of Italy, supra, 217 Cal. 644, 20 P.2d 940, to deny the beneficiaries the rights of
mortgagees recognized in Whitney, supra, 10 Cal. 547, merely because the beneficiaries’ security interest took
the form of a deed of trust, which conveys “title” to a trustee. The deed of trust conveys “title” to the trustee
“only so far as may be necessary to the execution of the trust.” (Lupertino v. Carbahal (1973) 35 Cal.App.3d
742, 748, 111 Cal.Rptr. 112.)

The Court of Appeal also relied on Johnson v. Curley (1927) 83 Cal.App. 627, 257 P. 163, which held that
beneficiaries under a deed of trust were not necessary parties to an action to have that deed declared void for
fraud. However, as plaintiff Monterey and amici curiae on its behalf point out, the Court of Appeal’s reliance
on Johnson was misplaced for several reasons. First, Johnson was decided before the court clarified that a
deed of trust is tantamount to a mortgage with a power of sale. (Bank of Italy, supra, 217 Cal. at p. 657, 20
P.2d 940.) Id., at 590-591 (emphasis added).

As Monterey makes clear, pre-Bank of Italy II cases premised on the distinction between trust deeds and
mortgages are no longer good law. The same result was recently reached in Aviel v. Ng, 161 Cal. App. 4th 809
(2008). In Aviel, the court considered whether a subordination agreement subordinating a lease to “mortgages”
also subordinated the lease to a deed of trust beneficiary that had foreclosed on the lessor’s property. The lessee
argued strenuously that the perceived distinctions between a mortgage and a deed of trust should result in the
court finding that the subordination did not apply to the deed of trust. The court rejected the arguments as
follows:

Here there was a subordination clause within the lease rendering the lease subordinate to “mortgages which
may now or hereafter affect” the real property. The Ngs, however, emphasize distinctions between mortgages
and deeds of trust that are either illusory or unimportant. For example, they underscore that a deed of trust
conveys legal title, and, citing Anglo-California T. Co. v. Oakland Rys. (1924), 193 Cal. 451, 225 P. 452, urge
that “the interest in the property [vests] as an estate and not as a lien.” Anglo-California T. Co. predates Bank of

Italy and is predicated on the obsolete “lien” versus “legal title” theory historically relied on to differentiate the
two security devices/instruments. That theory has been discredited by the more contemporary jurisprudence
discussed above which functionally equates the two instruments and recognizes that a deed of trust, for all
practical purposes, is a “lien” on the property. Also See, Domarad v. Fisher & Burke, Inc., 270 Cal.App.2d
543, 553 (1969).

These authorities and many more since 1933 confirm that any pre-Bank of Italy II authorities are premised on
the distinction between deeds of trust and mortgages with power of sale are no longer good law. These earlier
decisions have been rendered obsolete based on the evolution of California Law and the consistently applied
holding that mortgages and deeds of trust are functionally equivalent and trust deeds are evaluated under
general mortgage law. Also See, Cornelison v. Kornbluth, 15 Cal.3d 590 (1975).

MECHANIC’S LIEN

California law expressly provides that persons furnishing labor or material for the improvement of real estate
may file liens upon the property affected, if the persons furnishing labor or material are not timely paid. Thus,
an unpaid contractor, or a craftsman employed by the contractor to work on a building project, but who has not
been paid by the owner or contractor may protect their right as an unpaid contractor or craftsman employed by
a contractor, to receive payment by filing a lien against the property in a manner prescribed by law. Any person
who has furnished material such as lumber, plumbing, or roofing holds the same right, if the claim is not timely
paid. It is because of the possibility of these liens being recorded that an owner employing a contractor often
requires that a bond be furnished to guarantee payment of possible mechanics’ lien claims.

DESIGN PROFESSIONAL’S LIEN

Effective January 1, 1991, California Civil Code Sections 3081.1 through 3081.10 provide for the filing of a
design professional’s lien.

For this purpose, a “design professional” is defined as a certificated architect, a registered professional
engineer, or a licensed land surveyor who furnishes services, pursuant to a written contract with a landowner
(property owner) for the design, engineering, or planning of a work of improvement.

If a landowner (property owner) defaults under a written contract with a design professional, a 10-day written
demand for payment must be made on the landowner (property owner) prior to the recordation of a design
professional’s lien. Section 3081.3 requires the 10-day written demand for payment be mailed by first-class
registered or certified mail, postage prepaid, addressed to the landowner (property owner), which notice of and
demand for payment shall specify that a default has occurred (pursuant to the contract or agreement) and the
amount of the default. Subsequently, the design professional may record a notice of lien against the real
property on which a work of improvement is to be constructed, with the notice of lien describing the real
property being improved, and further specifying the building permit or other governmental approval of the
work as a condition of recording the notice of lien. See Civil Code Section 3081.2 and 3081.3.

The design professional’s lien will not take priority over the interests of record of a purchaser/
buyer/lessee/encumbrancer, if the interests of the foregoing in question was duly recorded prior to the recording
of the design professional’s lien. See Civil Code Section 3081.9. The design professional’s lien does not apply
to the work of an improvement related to a single-family owner occupied residence where the construction
costs are less than $100,000 in value. See Civil Code Section 3081.10.

Except as previously discussed, the statutes provide for enforcement of a design professional’s lien in the same
manner as a mechanic’s lien.

Definition

A lien is a charge imposed in some way, other than by a transfer in trust upon specific property by which it is
made security for the performance of an act. A mechanic’s lien is a lien that secures payment to persons who
have furnished material, performed labor, or expended skill in the improvement of real property belonging to
another. See Title 15 of the Civil Code, commencing with Section 3082.

It is helpful to keep in mind while reading and thinking about this material on mechanics’ liens that:

• The mechanic’s lien claimant’s fundamental objective is to get paid; and

• The claim of mechanic’s lien is the claimant’s security used to reach the objective of payment.

To convert the security for the lien into money requires:

1. Timely recordation of a notice and claim of lien (one document) in the county recorder’s office in which
the work of improvement is located;

2. Perfection of the recorded notice and claim of lien by the filing of an action (a lawsuit) in the right court;

3. Recordation of a lis pendens (a written notice that a lawsuit has been filed concerning real property,
involving either the title to the property or a claimed ownership in the property);

4. Timely pursuit of the lawsuit to judgment; and

5. Enforcement of that judgment by a mechanic’s lien foreclosure sale.

Origin

The basic lien rights of mechanics, materialmen, artisans and laborers is found at Article XIV, Section 3 of the
California State Constitution:

“Sec. 3. Mechanics, persons furnishing materials, artisans, and laborers of every class, shall have a lien upon
the property upon which they have bestowed labor or furnished material for the value of such labor done and
material furnished; and the Legislature shall provide, by law, for the speedy and efficient enforcement of such
liens.”

The statutes enacted pursuant to this constitutional provision are, as previously mentioned found in Title 15,
Division 3, Part 4, of the Civil Code, commencing with Section 3082. This Section of the law is entitled,
“WORKS OF IMPROVEMENT”.

The Theory

The mechanic’s lien law is based on the theory that improvements to real property contribute additional value
to land; therefore, it is only equitable to impose a charge on the land/property equal to such increase in value.
This charge may exist in the absence of any direct contract relationship between the lien claimant and the
landowner. The lien must, however, be founded upon a valid contract with the contractor, subcontractor,
material house, supplier, lessee or vendee. Also, ordinarily the lien is valid only to the extent of labor and
materials furnished for and actually used in the job.

Public Policy

The mechanics’ lien statutes and the decisions of the courts interpreting and construing them reflect a strong
public policy of providing extraordinary rights to unpaid contributors of services and material in the property
they were instrumental in improving, and in the funds intended for payment for the improvements. The rights of
these unpaid contributors accrue and may be enforced against the property, even though (in certain fact
situations) the owner of the property has not contracted with the claimant and no personal liability exists to the
claimant.

The mechanic’s lien device is the traditional remedy giving security to people who improve the property of
others. However, owners are given means within the California statutes to protect against the burdening of their
land/property with improper liens. The basic elements of California’s system of protection for mechanics’
lienors and owners are:

1. Mechanic’s lien;

2. Stop notice on private work;

3. Stop notice on public work;

4. Payment bond on private work;

5. Payment bond on public work;

6. Contractor’s license bond; and

7. Notice of nonresponsibility.

Persons Entitled to a Mechanic’s Lien

The constitutional guarantee of the right to a mechanic’s lien upon the property is provided to mechanics,
materialmen, contractors, subcontractors, lessors of equipment, artisans, design professionals, machinists,
builders, teamsters, draymen, and all persons and laborers of every class performing labor upon or bestowing
skill or other necessary services upon, or bestowing materials, or leasing equipment to be used or consumed in
or furnishing appliances, teams, or power contributing to works of improvement. See Section 3110 of the Civil
Code. Persons specifically entitled to mechanics’ liens by virtue of the constitution and the statutes include the
following:

Mechanics Registered Engineers
Materialmen Licensed Land Surveyors
Contractors Machinists
Subcontractors Builders
Lessors of Equipment Artisans Teamsters Draymen
Architects Union Trust Fund

See Section 3111 of the Civil Code

Property Subject to Mechanics’ Liens

The land/property that may be subject to a claim of mechanic’s lien should be the property described in a
recorded claim of mechanic’s lien. Perhaps the only safe exception to this is real property owned and used by
the public. No lien for work or material attaches to a “public work.” See Los Angeles Stone Co. v. National
Surety Co., 178 C 247, 173 P 79 (1918). In situations in which private enterprise undertakes improvement of
public lands/properties, a claim of lien could be sustained against the improvements, although it would be
invalid as to the land/property. See Western Electric Co. Inc. v. Colley, 79 CA 770, 251 P 331 (1926).

With every statutory increase in the designation of those contributors of services and material entitled to a claim
of mechanic’s lien, there has usually been a corresponding broadening of the land/property interests that may be
subjected to a claim of mechanic’s lien. Today, under appropriate circumstances, a claim of mechanic’s lien
may attach to only a building or structure; only to land/property beneath a building or structure; to both
land/property and the building or structure; or, to a parcel of land upon/property for which there is no structure.

Public Works

This discussion of the mechanic’s lien law applies only to private works of improvement. Sections 3179
through 3214 and Sections 3247 through 3252 of the Civil Code should be consulted in connection with any
question or problem arising from the contribution of labor or material to a public work of improvement. A
“public work of improvement” means any work of improvement contracted for by a public entity. “Public
entity” means the state, Regents of the University of California, a county, a city, district, public authority,
public agency, and any other political subdivision or public corporation in the state. See Civil Code Sections
3099 and 3100.

Work of Improvement

Mechanics’ liens are triggered by the commencement of a work of improvement. A work of improvement is
defined in Section 3106 of the Civil Code as including the construction, alteration, addition to, or repair of a
building or structure. The structure could be a bridge, ditch, well, fence, etc. It may also include activities not
directly associated with a building or structure such as seeding, sodding, planting, or grading. A work of
improvement includes “site improvements” such as trees or other vegetation located on the land/property, the
drilling of test holes, grading, filling, or otherwise improving the land/property as well as the street, highway, or
sidewalk in front of adjoining the land/property. “Site improvements” also improve constructing or installing
sewers or other public utilities, the construction of areas, vaults, cellars, or rooms under the land/property
including sidewalks and demolishing or removing of any improvements on the land/property. See Civil Code
Section 3102.

Lender’s Priority

If commencement of work has occurred on a project prior to recordation of a mortgage or deed of trust, all
mechanics’ liens are prior to the recorded instrument of encumbrance. The lender’s margin of security for
repayment of a construction loan is jeopardized by the commencement of work on the project prior to
recordation of the instrument of encumbrance. If any mechanic’s lien claimant can show that commencement of
work occurred prior to recordation of the lender’s instrument of encumbrance, all mechanic’s lienors will take
priority over the lender if the real property/land subject to the work of improvement is sold at sheriff’s sale. See
Civil Code Section 3134.

Preliminary 20-Day Notice

The right to claim a lien and to assert the privileges of a mechanic’s lien claimant is dependent on compliance
with numerous statutory procedural requirements.

The initial step in the perfection of a claim of mechanic’s lien for all claimants, except one under direct contract
with the owner, one performing actual labor for wages or an express labor trust fund, as defined in Civil Code
Section 3111, is to give the preliminary 20-day notice specified in Section 3097 of the Civil Code. That is,
before recording a mechanic’s lien, the lien claimant gives a written notice to certain persons, depending on the
relationship of the lien claimant to the work of improvement and the owner of the real property/land on which
the work has been done or will be done. The notice may be given any time after the contract has been entered
into, but it must be given no later than 20 days after claimant has first furnished labor, services, equipment or
materials to the job site. This 20-day notice is preliminary to the recording of a mechanic’s lien. It is a
prerequisite to the validity of a claim of mechanic’s lien. The persons who are entitled to receive the notice
depends on the relationship of the mechanic’s lien claimant to the owner of the property. Thus:

1. If the claimant has a direct contract with the owner, the notice needs to be given only to the construction
lender, if any, or to the reputed construction lender, if any. See Section 3097(b) of the Civil Code.

2. If the claimant does not have a direct contract with the owner, the notice is required to be given to the
following persons. See Section 3097 (a) of the Civil Code:

a. The owner, or reputed owner;

b. The original contractor, or reputed contractor; and

c. The construction lender, or reputed construction lender.

d. Any subcontractors with whom the claimant has contracted.

The purpose of the notice is to inform the owner, original contractor, and construction lender, if any, prior to
the time of recording a claim of lien, that the improved property may be subject to liens arising out of a contract
to which they are parties. See Wand Corp. v. San Gabriel Valley Lumber Co. 236 CA2d 855, 46 Cal. Rptr. 486
(1965).

The preliminary 20-day notice shall contain all of the following:

1. Name and address of the person furnishing the labor, service, equipment, or materials;

2. Name of the person who contracted for purchase of the labor, service, equipment, or materials;

3. A description of the job site sufficient for identification (e.g., common street address of the job site or legal
description);

4. A general description of the labor, service, equipment, or materials furnished, or to be furnished and an
estimate of the total price thereof; and

5. A Notice To Property Owner in bold face type as required by law.

See Civil Code Section 3097.

An up-to-date form should be used since a failure to use a current form that complies with the statute may cause
the court to disregard the preliminary 20-day notice. See Harold James Inc. v. Five Points Ranch, Inc., 158
CA3 1, 204 CR 494 (1984).

Every written contract entered into between a land/property owner and an original contractor shall provide
space for the owner to enter his name and address of residence and place of business. The original contractor
must make available the name and address of residence of the owner and the name and address of the
construction lender or lenders to any person seeking to serve a preliminary 20-day notice. See Section 3097 (m)
of the Civil Code.

If one or more construction loans are obtained after commencement of construction, the property owner must
provide the name and address of the construction lender or lenders to each person who has given to the property
owner a preliminary 20-day notice. See Section 3097 (n) of the Civil Code.

Filing a Preliminary 20-day Notice

Each person serving a preliminary 20-day notice may file (not record) that notice with the county recorder in
which any portion of the real property is located. The filed preliminary 20-day notice is not a recordable
document and, hence, is not entered into the county recorder’s indexes that impart constructive notice. The
recorder is to maintain a separate and distinct index of the filings of the preliminary 20-day notice that does not
impart actual or constructive notice to any person of the existence (or contents) of the filed 20-day notice. No
duty of inquiry on the part of any party to determine the existence or contents of the preliminary 20-day notice
is imposed by the filing. See Civil Code Section 3079(o).

The purpose of filing the preliminary 20-day notice is limited. It is intended to provide the necessary
information for the county recorder to issue notices of recorded notices of completion and of cessation to those
persons who filed the 20-day notice. Once the county recorder’s office records either a notice of completion or
cessation, it must mail to those persons who filed a preliminary 20-day notice, notification that a notice of
completion or cessation has been recorded and the date of recording of the foregoing. See Section 3097 (o) (2)
of the Civil Code.

Failure of the county recorder to mail the notices required by law to the person who filed the preliminary 20-
day notice, or the failure of those persons to receive such notices shall not affect the period within which a
claim of lien is required to be recorded. However, the county recorder is to make a good faith effort to mail
within 5 days after the recording of a notice of completion or cessation notices thereof to those persons who
filed the preliminary 20-day notice. See Section 3079 (o)(3) of the Civil Code.

Determination of Completion Time

Fixing the time of completion, to the exact day, is critical to establishing whether a given claim of lien
(mechanic’s or design professional’s lien) has been recorded within the time limit fixed by law. The
determination of completion of works of improvement can be complex under California law. Generally, any
one of the following alternatives is recognized by the law as equivalent to completion:

l. Occupation or use by the owner or owner’s agent, accompanied by cessation of labor on the work of
improvement;

2. Acceptance by the owner or owner’s agent of the work of improvement;

3. A cessation of labor on the work of improvement for a continuous period of 60 days; or

4. A cessation of labor on the work of improvement for a continuous period of 30 days or more, if the owner
records in the county recorder’s office a prescribed notice of cessation. See Section 3092 of the Civil Code.

If the work of improvement is subject to acceptance by any public entity, the completion date is considered as
the date of acceptance or a cessation of labor for a continuous period of 30 days. See Civil Code Section 3086.

Thereafter, generally within 10-days the owner may file the notice of completion. If properly drawn, it will
show the date of completion, the name and address of the owner, the nature of the interest or estate of the
owner, a description of the land/property (which includes the official street address of the property, if it has
one, or a sufficient legal description of the site), and the name of the original contractor, if any. If the notice is
given only of completion of a contract for a particular portion of the total work of improvement, then the notice
will also generally state the kind of work done or materials furnished.

As previously mentioned, the notice of completion should be filed with the recorder of the county where the
property is situated within 10 days after completion of the work of improvement. See Civil Code Sections 3093
and 3117.

A mechanic’s claim of lien may be filed:

1. By the original contractor within 60 days after the date of filing for record of the notice of completion or
of cessation. An original contractor is one who contracts directly with the owner or owner’s agent to do the
work and furnish materials for the entire job, or for a particular portion of the work of construction. The
owner may enter into different original contracts, for example, framing, plumbing, painting, or papering. A
material supplier, as such, is not an original contractor. (It should be noted that contracting with more than
one original contractor may be subject to applicable provisions of the Contractors State License Law. See
Business and Professions Code Section 7000 et seq).

2. By any claimant, other than the original contractor, within 30 days after filing for record of the notice of
completion or of cessation.

3. If the notice of completion or cessation is not recorded, the original contractor (as defined) or any other
claimant must file/record a claim of mechanic’s lien within 90 days after completion of the work of
improvement. See Civil Code Section 3106.

If there are two or more original contractors, as defined, and a notice of completion or cessation is properly
recorded as to one of them, the original contractor under the contract covered by the notice must, within 60
days after recording of such notice, file/record the claim of mechanic’s lien. The claimant under the contract for
which notice of completion or cessation has been recorded must, within 30 days after the recording of the
notice, file/record the claim of a mechanic’s lien. Each original contractor and any claimants under the contract
with the original contractor are subject to their own notice of completion or cessation and the recording of a
claim of mechanic’s lien within the periods prescribed by applicable law. If no notice of completion or
cessation has been recorded, the period of recording claims of mechanic’s liens is the 90 days specified in
Sections 3115 and 3116. See Sections 3114, 3115, 3116, and 3117 of the Civil Code.

Termination of the Lien

Voluntary release of a mechanic’s lien, normally after payment of the underlying debt, will terminate the lien.
But even in the absence of release, the lien does not endure indefinitely. If a mechanic’s lien claimant fails to
commence an action to foreclose the claim of lien within 90 days after recording the claim of lien and if within
that time no extended credit is recorded, the lien is automatically null, void and of no further force and effect.
(Section 3144(b), Civil Code) When credit is extended for purposes of this limitation, it may not extend for
more than one year from the time of completion of the work. Moreover, a notice of the fact and terms of the
credit must be filed for record within the 90-day lien period.

If the lien is foreclosed by court action, there may ultimately be a judicial sale of the property and payment to
the lienholder out of the proceeds.

Notice of Nonresponsibility

The owner or any person having or claiming any interest in the land may, within 10 days after obtaining
knowledge of construction, alteration, or repair, give notice that he or she will not be responsible for the work
by posting a notice in some conspicuous place on the property and recording a verified copy thereof. The notice
must contain a description of the property; the name of the person giving notice and the nature of his/her title or
interest; the name of the purchaser under the contract, if any, or lessee if known; and a statement that the person
giving the notice will not be responsible for any claims arising from the work of improvement. If such notice is
posted, the owner of the interest in the land may not have his/her interest liened, provided the notice is recorded
within the ten-day period.

The validity of a notice of nonresponsibility cannot be determined from the official county records since they
will not disclose whether compliance has been made with the code requirements as to posting on the premises.
If such posting has not been made, a recorded notice affords no protection from a mechanic’s lien.

Release of Lien Bond

Owners and contractors disputing the correctness or the validity of a recorded claim of mechanic’s lien may
record, either before or after the commencement of an action to enforce the claim of lien, a lien release bond in
accordance with the provisions of Civil Code Section 3143. A proper lien release bond, properly recorded, is
effective to “lift” or release the claim of lien from the real property described in the lien release bond as well as
any pending action brought to foreclose the claim of lien.