November 2018 – Law and Civil Engineering

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The Mechanic’s Lien and Arbitration
by Eugene Bass

In a prior article, it was pointed out that a lawsuit for foreclosure of a mechanics’ lien had to be filed within 90 days of the date of recording of the lien and that failure to meet that time limit could result in loss of the ability to sue to enforce the mechanics’ lien. Several alternate strategies were also noted whereby the lien could be kept alive until the lawsuit to foreclose could be filed at a later date. One of the options mentioned was to file another mechanics’ lien to replace the old one. This required that the lien filing period had not yet lapsed when the replacement lien was recorded. It also required that the old lien be released. Another option was to record a “Notice of Credit” which could extend the period for filing the foreclosure action to one year.

It is not uncommon for there to be an arbitration clause in the agreement out of which the a construction dispute and prospect for a mechanic’s’ lien may arise. The parties may wish to pursue arbitration and not file a lawsuit. They are met with a dilemma, however, where the law requires that a lawsuit be filed within 90 days (or within agreed time limits) or the lien will become invalid. A further complication arises from the fact that the filing of a lawsuit is deemed to be a waiver of the right to arbitrate.

California law provides a resolution of the dilemma and allows for the preservation of the right to arbitrate while still filing an action for foreclosure of a mechanics’ lien. The dispute is resolved in arbitration, however, and not in a court action. The law requires that the lawsuit that is filed for foreclosure of a mechanics’ lien include an allegation that the plaintiff does not intend to waive any right of arbitration, and intends to make a motion to the court, within 30 days after service of the summons and complaint, for an order to stay further proceedings in the lawsuit. In addition, at the same time that the complaint is filed, the plaintiff must file an application with the court requesting that the lawsuit be stayed pending arbitration. Finally, within 30 days after service of the summons and complaint, the plaintiff must make a motion to the court to stay the lawsuit pending the completion of the arbitration. If the procedures are not followed, the filing of the lawsuit will be deemed a waiver of the right to compel arbitration.

The legal procedures for being able to arbitrate a dispute that may result in foreclosure of a mechanics’ lien are fairly complex and should be handled through legal counsel. Preservation of mechanics’ lien rights can be critical to eventually getting paid, however, and can be worth the additional inconvenience and expense.

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