By Bruce Jervis
A mechanic’s lien is a contractor’s best form of payment security on a private construction project. State lien statutes specify the timely steps a contractor must take, from notice to filing to foreclosure. But, what determines the appropriate amount of a lien: the initial filed demand, the reasonable value of the work, or the contract price?
A California court recently addressed this question. A contractor recorded a lien in a stated amount and then attempted to recover an increased amount in foreclosure. The increase reflected work performed, but not yet billed, prior to recording the lien. The project owner argued the contractor was limited to recovery of the initial filed amount. The court said no. The contractor could recover for work performed under the contract prior to the lien filing. The recovery limit was the contract price, not the initial recorded demand.
At first glance, this appears unfair to project owners. Shouldn’t a recorded lien establish the maximum possible encumbrance against the property? The California court noted, however, that severe sanctions for willfully overstating a lien -- forfeiture of all lien rights -- cause claimants to understate their liens. If the work was performed within the scope of the contract and before the lien filing, shouldn’t the contractor be allowed to recover? I welcome your comments.