Orange County Branch Newsletter
Law & CE
Securing Your Payment and Your Future: Liens 101
Although your passion and career focuses on providing a top quality service, payment is a critical issue in today’s economic environment. And while engineers might have foregone certain actions in the past to secure their financial interests because of sensitivities over how owners or architects would perceive those actions, today’s economic environment may demand a more active role in securing payment. Security interests, otherwise known as liens, may provide you with the most effective way to ensure payment for your work.
This article focuses on what liens are and how to preserve your right to them. Liens are a security interest in real property to anyone who furnishes labor, services, equipment or materials for use in a work of improvement, including civil engineers.
The first step is understanding your rights. There are two types of liens available to civil engineers on private works projects: Design Professionals’ liens and Mechanics’ liens. These liens both provide security interests in the work, but a right to a Design Professionals’ lien arises before the construction work has commenced, while a right to a Mechanics’ lien arises after the project has broken ground. The common scenario in which a Design Professionals’ lien is helpful is when the design professional has completed his or her plans, yet construction has stalled as a result of unrelated problems, financial or otherwise. At this point, a civil engineer has the right to a Design Professionals’ lien and may secure his or her interest ahead of later creditors.
Obtaining either type of lien has numerous advantages. A valid security interest can provide leverage to persuade the debtor to discuss settlement. It permits you to foreclose on the property, force the sale, and receive a portion of the proceeds. It places a cloud on the title for the property, which prevents the owner from selling the property and splitting with the proceeds. A security interest also places you in line ahead of other creditors, even if the debtor files for bankruptcy.
With this in mind, we must note that liens are not the end-all to this problem, they are subject to limitations. Liens are only as good as the equity in the property and may be subordinated to other interests in the property, like the first trust deed or previously recorded liens.
Secondly, it is important to develop internal procedures to protect your rights to later record liens and ultimately, your right to payment for your services. The most important consideration is that you contract with the Owner of the Real Property. If you don’t, you will have to serve a 20-day preliminary notice to the owner and all other necessary parties to protect your interest. We know from conversations with engineers that serving this notice is a rarity given the sensitivities to how it would be perceived by owners and the architects who may have retained you. More and more, however, in today’s difficult economic environment, these sensitivities are being overcome.
There are details and strict timing requirements associated with preserving and enforcing lien rights that are beyond the scope of this short article that will need careful consideration for each project. Nonetheless, by protecting and preserving your lien rights on the front end of the project, you can put yourself in a better position to get paid later on.
Michele L. Gamble, Esq. Christian E. Bredeson, Esq.
750 The City Drive, Suite 400 750 The City Drive, Suite 400
Orange, CA 92868 Orange, CA 92868
Phone: (714) 823-4100 Phone: (714) 823-4100
Fax: (714) 823-4111 Fax: (714) 823-4111
[email protected] [email protected]
Nothing contained within this article should be considered the rendering of legal advice. Anyone who reads this article should always consult with an attorney before acting on anything contained in this or any other article on legal matters, as facts and circumstances will vary from case to case.