California Court of Appeal allowed a contractor to foreclose on the lien, basing its ruling on the lack of prejudice to the lender

In a recent case, the California Court of Appeal held that a contractor could foreclose a mechanic's lien, over the project owner's objection, even though the contractor had not provided a preliminary notice of lien to the project owner's construction lender.[1] The court based its decision on the lack of prejudice to the lender.

California law requires contractors to provide a preliminary notice of mechanic's lien to any lender on the project at issue.[2] The notice is a prerequisite to the lien's validity.[3] In the case at issue, the contractor did not provide the lender with a preliminary notice. When the owner did not pay the contractor, the contractor sought to foreclose its lien. The owner opposed the foreclosure on the ground that the lien was invalid because the preliminary notice had not been given to the lender, who had a trust deed.[4]

Court Decision and a Key Takeaway

The court noted that after the contractor recorded its lien, the lender required the owner to obtain a release of lien bond. Once the owner did so, the owner's real property was released from the mechanic's lien, and the bond became the contractor's sole recourse in the event of a default. Accordingly, the lender was not prejudiced by the lack of preliminary notice because the mechanic's lien did not put the real property at risk. Additionally, the court held that an owner cannot defeat a contractor's lien claim by arguing that the contractor failed to give a preliminary notice to someone other than the owner, as that would be an overly formalistic application of the lien statutes.[5]

This case illustrates that while it is important for contractors to give all required preliminary lien notices, owners should not expect a court to invalidate a lien just because a notice was not given to someone other than the owner. While California courts will generally construe the lien statutes strictly, there are still limits.