Investing in California real estate often involves renovations or new construction. Unless a real estate investor plans on taking a very do-it-yourself approach, this will require the assistance of contractors, suppliers, and design professionals like architects or structural engineers. You may even want to find a real estate agent with experience in renovations. In the event that someone who worked on a real estate project believes they have not received the contracted payment, California law allows them to file a mechanics lien on the property.
Mechanics liens can be troublesome for California real estate investors. They take priority over other liens, and state law sets a very short timeline for enforcement. Perhaps the most concerning feature for real estate investors is the ability of subcontractors to file a lien when the general contractor does not pay them. In that situation, the property owner is not at fault, but must still deal with the lien.
What Is a Mechanics Lien?
A lien is a legal claim that places a hold on real property, affecting any attempt to sell the property or obtain financing. Perhaps the most common type of lien is the one held by a mortgage lender on the property purchased with the lender’s money. If the property owner defaults on the loan, the lender can foreclose on the property. Foreclosure of a mechanics lien seeks to recover money owed to a person who worked on a real estate project.