Top 10 Mistakes: Preliminary 20-Day Notice

By Suzanne Ervine, Construction Commando

1. Failing to Provide a Preliminary Notice at All. Any subcontractor who enters into a contractual relationship exceeding $400 is required by law to prepare and serve a Preliminary Notice. Failure to do so constitutes grounds for disciplinary action by the Registrar of Contractors.

2. Serving the Notice Too Late. To preserve Mechanic’s Lien or Stop Notice rights, a Preliminary Notice must be served within 20 calendar days of the first date services were performed or materials were provided on a job. If the Preliminary Notice is served later than 20 days after you first worked on a job, you are entitled to Lien or Stop Notice rights only for work performed within the 20 days prior to serving the Notice.

3. Waiting Until the 19th Day to Prepare the Notice. Putting off the preparation of a Preliminary Notice leaves little time to resolve any problems that may arise, such as difficulty reaching the prime contractor to request additional information, or delays at the governmental offices where you need to verify information in recorded documents and/or building permits. Furthermore, because the law requires the Notice to be sent via certified or registered mail, simply arriving at the Post Office even 5 minutes after the counter closes could result in missing the cutoff. Plan ahead!

4. Mailing the Notice by Regular First Class Mail. The Preliminary Notice may only be served by personal delivery, or by first class certified or registered mail. Sending the Notice by regular first class mail is not sufficient, and the courts have ruled against contractors who did not comply with the strict requirements of the statute. In IGA Aluminum Products, Inc. v. Manufacturers Bank, the court ruled, “The statute clearly states that proper notice is a prerequisite to perfecting a mechanic's lien, and that if service of the notice is accomplished by mail, the notice must be sent by registered or certified mail.” Proof that the Notice was served by mail in accordance with the statute must be accompanied by either the return receipt of certified or registered mail, or by a copy of the record of delivery; or in the event of nondelivery, by the returned envelope itself.

5. Providing an Arbitrary Estimate of the Total Price for the Job. While the law requires a Preliminary Notice to contain an estimate of the total price of a job, any such estimate must be a good faith estimate. The estimate must be “a derived figure, arrived at by rational analysis.” (Rental Equipment, Inc. v. McDaniel Builders, Inc..) Estimates that are “made up out of whole cloth” are insufficient.

6. Deviating from the Required Language in the “Notice to Property Owner” (private works only). California law is very specific about the language required in a Preliminary Notice for private works of improvement. The California Civil Code sets forth the exact language required in the “Notice to Property Owner” contained on the face of the Preliminary Notice. California courts have long held that deviation from this language will render your Notice invalid. In Harold L. James, Inc. v. Five Points Ranch, Inc., the court held that, “Where the Legislature has provided a detailed and specific mandate as to the manner or form of serving notice upon an affected party that its property interests are at stake, any deviation from the statutory mandate will be viewed with extreme disfavor” (emphasis added).

7. Failing to Verify Proper Identities of Notice Recipients. Many subcontractors rely on information obtained from the prime contractor. However, this is insufficient and could render your Notice invalid, thus barring any future mechanic’s lien or stop notice legal action. Contractors seeking to enforce a lien or stop notice remedy have a duty to inspect readily available public records to determine the identities of a property owner or construction lender. In Romak Iron Works v. Prudential Ins. Co., the court held that Civil Code section 3097, subsections (i) and (j) “impose on a prospective stop notice claimant the duty to examine…the building permit and the specially-indexed official records of the county.” The court further ruled that, “If he fails to examine the two sources, subdivisions (i) and (j) operate to charge him with constructive notice of the information recorded in either.” Ignorance is no excuse – make sure you check the official public records!

8. Failing to File the Preliminary Notice with the County Recorder. Although not required by law, filing a copy of the Notice with the County Recorder can help contractors ensure that mechanic’s lien or stop notice rights are fully protected. If a contractor has filed a Preliminary Notice, the County Recorder is required to notify him of any subsequently filed Notice of Completion or Notice of Cessation. If a property owner files either of these documents, the time within which to file a mechanic’s lien or stop notice action is shortened to just 60 days for prime contractors, or 30 days for subcontractors and suppliers. Notification of this shortened time frame enables you to seek legal counsel and initiate legal action before the deadline. Please note, however, that the County Recorder’s failure to notify a potential claimant of a Notice of Completion or Cessation does not extend the amount of time you have to initiate litigation to perfect the lien or stop notice.

9. Failing to Send a Copy of the Notice to the Surety Company. To enforce a claim on a payment bond, notice must be given to the bond surety and bond principal within 15 days of the recording of a Notice of Completion or Notice of Cessation (or within 75 days after completion of the work if neither Notice is recorded). This payment bond notice can be accomplished by simply serving the bond surety with the Preliminary Notice, and further ensures that a very short 15-day deadline is not missed.

10. Serving Only One Notice if Multiple Notices Are Required. Generally, a contractor must serve only one Preliminary Notice per job, regardless of the length of time or amount of materials and services provided. However, if you are providing services or materials to a jobsite under multiple contracts with multiple subcontractors, a separate Notice must be prepared and served pursuant to the contract with you have with each subcontractor. This most often occurs with suppliers who provide materials to many contractors for the same job.

About the Author: Suzanne Ervine is a Registered Legal Document Assistant and owner of Construction Commando. A trained paralegal and bookkeeper, Ms. Ervine specializes in assisting contractors with preliminary notices, mechanic’s liens, stop notices, bond claims, and bookkeeping. She is a member of the American Institute of Professional Bookkeepers and the California Association of Legal Document Assistants. Together with her husband Roger, she owns and operates Fidelity Electric, a full-service electrical contracting company. Contact Suzanne at suzanne@constructioncommando.com.

The Red Flags of Scams

While schemes and scams take infinite forms, there are a few basic principles underlying all of them. Knowing the common danger signals and ways to defend yourself can save you time and money.

Be alert for these red flags:

-- A deal that sounds much better than any being advertised by firms you know to be legitimate (offers that are "too good to be true");

-- A sales promoter who is not based locally and provides no telephone number and uses a P.O. Box or mail drop rather than a full street address;

-- A name and/or logo that closely mimics a well-known respected brand or business;
-- Sales literature that uses pressure words, such as "urgent" or "final deadline;"

-- Undue pressure, threats or harassment either in writing, in e-mail, during a phone call or in personal contact;

-- An immediate request or demand for a check, money order or cash to be picked up by a courier or to be sent to a mail drop or P.O. Box;

-- Vague answers or none at all to key questions you ask about the offer;

-- Insistence that you finalize a deal orally without a written contract or other documentation in writing;

-- A demand for personal information, such as your Social Security number or credit-card number.

Be your own best protector. Even with all the consumer protection agencies and laws on the books, you must protect yourself and investigate before you invest. There is no stronger remedy for fraud than a consumer who refuses to be conned. The BBB recommends the following tips:

-- Take your time and read thoroughly before you sign. Fully understand any contract and make sure it matches what the salesperson told you.

-- If asked to purchase goods sight unseen, compare the prices and warranties with those offered by local stores. You run a risk of getting inferior merchandise when you order products from unfamiliar businesses without being able to inspect them first.

-- Be firm in the face of pressure. Say "no" and just hang up the phone. Thieves are stealing more than money -- they're stealing people's hopes and dreams and their security.

-- Protect your privacy. Never provide personal information unless you know who's requesting it, why and how it will be used.

-- Don't believe it just because you saw it on the Internet. Obtain the company's physical address and phone number and check the company out with the BBB.

Please visit www.sd.bbb.org for additional tips, warnings, and scam alerts.

Voting on California Ballot Propositions

I am often asked by clients, friends and relatives for recommendations on how to vote on ballot initiatives. In the upcoming general election, California voters will be asked to make decisions on 13 different initiatives. My goal in this article is to provide a brief summary of each law and my recommendation on each measure.

Bond Issues:

As a general rule, I vote no on nearly all bond issues. It is all too common for the legislature to recommend a bond issue when dealing with a perceived problem. Instead of paying to repair things out of the current budget, a bond issue means that the state is borrowing the money and pledging our future taxes dollars as collateral on the loan. As any consumer knows, there is only so much that one can borrow before the cost of the debt service becomes a burden on future budgets and causes budget cuts.

Proposition 1A: This measure is designed to protect gas tax revenues dedicated to the Transportation Infrastructure Fund (created in 2002) from being used for any purpose other than transportation improvements. The proposal places limits on the ability of measure would also prohibit the Legislature from diverting funds and requires repayment plus interest within three years. This measure is designed to prevent revenue from a previously approved bond for other projects or other budgetary needs. In order to protect the integrity of this previously approved bond measure, I recommend a "yes" vote.

Proposition 1B: The bond proposal would provide $19.9 billion to be used for highway improvements, public transit, air pollution reduction, and port security. I believe bond issues are a sign of bad fiscal planning and are used too much. I recommend a "no" vote.

Proposition 1C: This bond proposal would provide $2.8 billion to be used for housing and emergency shelter for battered women, low-income seniors, and homeownership assistance. While the goal is admirable, the money for this project can be obtained without borrowing. I recommend a "no" vote.

Proposition 1D: This bond proposal would provide $10.4 billion to be used for kindergarten-university school repairs, overcrowding reduction, and earthquake safety. This is a "one size fits all" bond proposal. The need for this type of bond can be decided and approved at the local level, so I recommend a no vote.

Proposition 1E: This bond proposal would provide $4.09 billion to be used for disaster preparedness and flood prevention. The money can for this project can be obtained without borrowing money. I recommend a "no" vote.

Proposition 83: Commonly know as "Jessica's Law", this measure is designed to improve monitoring and increase penalties for convicted sex offenders. Some data suggestions that as many as one quarter of registered sex offenders fail to keep their addresses up to date, effectively dropping out of sight. The new law would increase penalties for violent and habitual sex offenders and child molesters, restricts how close to schools and parks they may live, and requires lifetime Global Positioning System monitoring for felony registered sex offenders. I recommend a "yes" vote on this measure.

Proposition 84: This is another bond proposal that would provide $5.4 billion to be used for water quality and supply, safety, flood control, and state and local park improvements. I believe the state legislature should go back to the "pay as you go" approach and better prioritize how it spends our tax dollars. I recommend a "no" vote on this measure.

Proposition 85: Under California law, a minor child can obtain an abortion without parental permission. Proposition 85 would not require parental permission, but it would require the physician to notify at least one parent with certain exceptions. A doctor would not be required to give parental notification in the case of a medical emergency or an appropriate court order. Proposition 85 would also impose a 48-hour waiting period before the procedure could take place in order to provide for a girl and her parents to discuss the planned abortion and obtain counseling. I do not believe any medical procedure should be allowed on a minor child without parental permission unless a true emergency exists. This measure is a step in the right direction, so I recommend a "yes" vote.

Proposition 86: This measure would add a $2.60 per pack tax on cigarettes to support hospitals, health programs, smoking prevention plans and tobacco regulation. This is yet another new tax. Less than 10% of the tax revenues go toward helping smokers quit or keeping kids from starting. The largest share, almost 40%, goes to hospitals, many of which are funding the campaign for the new tax. I recommend a "no" vote on this measure.

Proposition 87: This measure would creates a 1.5 percent to 6 percent tax (depending on oil price per barrel) on producers of oil extracted in California to fund a $4 billion program to reduce petroleum consumption by 25 percent. This is essentially a tax increase to encourage reduced gas consumption. Gas prices are already too high and it would damage California's economy and drive more businesses away, so I recommend a "no" vote.

Proposition 88: This measure would create a $50 tax on each real-property parcel, excluding certain elderly and disabled homeowners, to fund K-12 education. This measure would open up yet another way to circumvent Proposition 13 and there are no protections or controls on how the money will be spent. I recommend a "no" vote on this measure.

Proposition 89: This measure would impose a .2 percent income-tax increase on corporations and financial institutions to fund political campaigns and would imposes new limits on campaign contributions and creates eligibility requirements for state elective offices. I have never been a fan of publicly funded campaigns and the measure appears to impose unconstitutional limits on campaign spending. I recommend a "no" vote on this measure.

Proposition 90: This measure was in response to a controversial decision by the U.S. Supreme Court that gives the states broad authority to take private property for private economic development using the power of eminent domain. This measure would bar local governments from using the notion of increased tax revenue to condemn private property and turn it over to private developers. The measure would also increase payments to property owners who experience "substantial economic loss" as a result of new government rules and regulations. I have never supported the idea of using government power to take a private property unless it was for a true public purpose such as roads, libraries or police and fire stations. I believe this measure is a step in the right direction, so I recommend a "yes" vote on Proposition 90.

San Diego ADA Lawyer Strikes Again

In another example of ADA lawsuit abuse, San Diego attorney Theodore A. Pinnock has filed another series of predatory lawsuits under the Americans With Disabilities Act ("ADA"). Mr. Pinnock was recently in the news for threatening the entire community of Julian with a class action ADA lawsuit. One Julian business decided to close down rather than fight the threatened lawsuit. Mr. Pinnock's latest victims are businesses in the City of La Mesa.

According to a story recently aired by Channel 8 News, Mr. Pinnock has filed a lawsuit against Reed's Hobby Shop and 5 neighboring businesses. Rather than notifying a business of any alleged noncompliance with the ADA, Mr. Pinnock adopts the "shoot first, ask questions latter" approach to litigation. Instead of allowing a business owner to make modifications, he files a lawsuit and demands money before providing a specific list of repairs. Mr. Pinnock's lawsuits are often filled with vague, boilerplate language that provides no specific guidance to a business owner regarding the alleged ADA violations.

While the Americans with Disabilities Act has been around since 1990, there is no government agency really set up to enforce the law or to educate the public regarding ADA requirements. This leaves a vacuum that allows inventive lawyers to sue businesses that are not in full compliance. There is a common misperception that older buildings and businesses are protected by a "grand father" clause, but this is simply not the case. Attorneys like Mr. Pinnock use this misconception as a method to exploit small businesses owners by demanding thousands of dollars in unnecessary legal fees.

No reasonable person would be intentionally noncompliant with the ADA. In fact, being ADA-compliant increases the potential customer base for a business. 99% of business owners would gladly correctly any ADA violations. Because of this, it is my belief that Congress should amend the law to allow a business cited for ADA violations a respite of 90 days to correct problems and avoid lawsuits. This change in the law would encourage voluntarily compliance with the ADA while preventing unnecessary litigation that is financially devastating to small business owners.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.