If you’ve attended a Cummins & White’s construction seminar or listened to one of its webinars recently, you are well aware that after the recording of your mechanics lien, you have ninety (90) days in which to perfect that lien. After that ninety-day period, by operation of law, your lien is null and void if you have not filed a lawsuit.
Believe it or not, sometimes a property owner and its contractor have a good relationship even though the contractor has not been paid. Once in a while, an agreement is reached between the property owner and the contractor to extend the time of the original mechanics lien recorded on the property. I know it sounds wacky but it is true – there is a provision in California (California Civil Code §8460) that allows this to happen. The actual form or agreement is called a Notice of Credit. This gets recorded just like the original Mechanics Lien did. Basically, the owner knows that the contractor can file a lawsuit against him/her, doesn’t want that to happen, so an agreement is reached between the parties to “stretch out” the time that the lien is valid. The contractor would be avoiding the expense of a foreclosure action as well. In most instances, the owner agrees on the amount due and owing the contractor and promises to pay the claim over time. It is, more or less, a credit agreement with the claimant. The Notice of Credit must be signed by the property owner and cannot extend the mechanics lien to be effective for any longer than one year after completion of the work of improvement.
California Civil Code Section 8460 states:
(a) The claimant shall commence an action to enforce a lien within 90 days after recordation of the claim of lien. If the claimant does not commence an action to enforce the lien within that time, the claim of lien expires and is unenforceable. (b) Subdivision (a) does not apply if the claimant and owner agree to extend credit, and notice of the fact and terms of the extension of credit is recorded (1) within 90 days after recordation of the claim of lien or (2) more than 90 days after recordation of the claim of lien but before a purchaser or encumbrancer for value and in good faith acquires rights in the property. In that event the claimant shall commence an action to enforce the lien within 90 days after the expiration of the credit, but in no case later than one year after completion of the work of improvement. If the claimant does not commence an action to enforce the lien within that time, the claim of lien expires and is unenforceable.