Can the subcontractor's place a lien on property if the contractor has already been paid?

Full Question:

If the owner paid the contractor in full, but the contractor fails to pay subcontractors or fails to pay for the materials, can the sub contractors or the store place a lien on the owner and property? The materials were taken from the store by the contractor who had an 'open' account.
04/07/2009   |   Category: Contractors ยป Construction...   |   State: California   |   #15905

Answer:

In order to preserve Mechanic’s Lien or Stop Notice rights when a laborer doesn't have a direct contract with the owner, a preliminary notice must be served with twenty (20) calendar days of the first date services or materials were performed or provided on the job.

A claimant, other than an original contractor, must record his claim of lien after he has ceased furnishing labor, services, equipment or materials, and before the expiration of (a) ninety (90) days after completion of the work of improvement, if no notice of completion or cessation has been recorded, or (b) thirty (30) days after the recording of a notice of completion or notice of cessation.

The owner is permitted to limit his liability to the amount of the original contract with the contractor if he files the original contract and records a payment bond. The owner also is allowed to protect his interest in cases where the contractor fails to perform under the contract or to make full payment by demanding such bond or security as he deems necessary.

The following may not claim a mechanics lien:

-Companies that sell equipment to a contractor, for example, selling a compressor to be used on the job. However, if the company leases the equipment, they are entitled to a lien.

-A material supplier who supplies to another material supplier. There is an exception if the materials are furnished to a supplier who is considered under California law to be a “subcontractor” on the job. This includes suppliers who have: (a) specially fabricated an item just for this job; or (b) provided some labor at the site for installation of the material. Merely supplying material that is the “stock in trade” or regular inventory of the second supplier doesn't qualify. Material suppliers must prove that the material was used or consumed in the actual improvement.

For further discussion, please see:

http://cauc2.home.att.net/hazards4.htm

A residential project is defined as one in which there are 4 or fewer dwelling units on a parcel of real estate, in which the owner lives in one of the units as that person’s principal place of residence. Only general contractors can record mechanics’ liens on residential property. All other persons, including subcontractors and suppliers, are not entitled to a mechanics lien on a residential project. However, there is an exception if the owner and general contractor are the same person, such as when the owner acts as his or her own contractor and deals directly with the subs, then subs and suppliers who have a direct contract with the owner can file a lien.

General contractors must serve the owner with a special notice by registered mail after completion of the job and receipt of the money under the contract, called a “Sworn Affidavit to Owner”. It represents that all persons on the project, including subs and suppliers, have been or will be paid within 10 days. It also includes a statement that the general will hold the owner harmless from any liens or lawsuits by subs and suppliers.

Please see the following TN statute:

66-11-146. "Residential real property" defined —
"General contractor" defined — Liens on residential real
property.

(a)
(1) As used in this subsection (a), "residential real
property" means a building consisting of one (1) dwelling
unit in which the owner of the real property intends to
reside or resides as the owner's principal place of
residence, including improvements to or on the parcel of
property where the residential building is located, and
also means a building consisting of two (2), three (3) or
four (4) dwelling units where the owner of the real
property intends to reside or resides in one (1) of the
units as the owner's principal place of residence,
including improvements to or on the parcel of property
where the residential building is located.

(2) Notwithstanding any other provision of law to the
contrary, except as provided in subsection (b), on
contracts to improve residential real property, a lien or
right of lien on the property shall exist only in favor of
a prime contractor.

(b)
(1) As used in this subsection (b):


(A) "Residential real property" means improvements to or on
a parcel of property upon which a building is constructed
or is to be constructed consisting of one (1) dwelling unit
intended as the principal place of residence of a person or
family; and

(B) "General contractor" means the person responsible for
the supervision or performance of substantially all of the
work, labor, and the furnishing of materials in furtherance
of the improvement to the property.

(2) When the owner of residential real property and the
general contractor are one and the same person, or a person
controls entities owning the property and a general
contracting business, a lien or right of lien upon the
property shall exist only in favor of the lienors in
contractual privity with the owner or general contractor: