A recent decision by the Court of Appeal in San Diego sounds a note of extreme caution in evaluating mechanic's lien releases. It turns out that the existence of a lien release on a stale lien claim doesn't preclude the claimant from recording another claim and foreclosing on it.
The case arose from the following sequence of events:August 5, 1993 -- Ford Wholesale Co. records a $4,241.06 mechanic's lien claim against Koudmani's property
November 1, 9993 -- Koudmani records a notice of completion
November 3, 1993 -- Ford's time in which to file a foreclosure action expires with no action being filed
November 16, 1993 -- Ford records a second claim of lien for $3,159.13, the balance due for the same materials that were the subject of the August 5 claim
November 17, 1993 -- Koudmani demands that Ford release its August 5 lien claim, which had become stale
November 29, 1993 -- Ford releases the first lien claim; the release states that it was "satisfied or otherwise released and discharged"
February 3, 1994 -- Koudmani files a petition to release his property from the lien
February 14, 1994 -- Ford's assignee files action to foreclose lien
The correct result seems clear enough. Ford's initial lien was stale, right? Right. And Ford released its lien, so it couldn't record a second claim and can't foreclose, right?
The Court of Appeal held that while failing to file a foreclosure action in 90 days absolutely bars a proceeding on the stale lien claim, the underlying constitutional right to a lien remains effective and may be exercised by recording a new lien claim as long as the new lien claim is timely (as Ford's was, because it recorded was within 15 days of Koudmani's notice of completion). The court further held that the language of Ford's release was not broad enough to accomplish a complete, unequivocal release of its lien right. The court distinguished this case from Santa Clara Land Title Co. v. Nowack & Associates, Inc. (1991)226 Cal.App.3d 1558, partly on the basis that the release in that case stated that the claim was "fully satisfied, released and discharged" (id. at p. 1556), rather than simply (as in Ford's case) "satisfied or otherwise released and discharged, " suggesting that this formulation does not state that the claim has actually been paid.
The message for title insurers is that lien releases are now suspect. Unless it is clearly too late for a lien claim to be recorded, one should assume that the lien right is still alive unless the lien release is absolutely unequivocal.
Robin Meadow is a partner of Greines, Martin, Stein & Richland, a firm that limits its practice exclusively to appellate law. Mr. Meadow is a member of the California Academy of Appellate Lawyers.