New Case Covering Property Subject to a Mechanic’s Lien and Inclusion of Interest and Prejudgment Interest in the Mechanic’s Lien Amount
By Larry Lubka
Hot off the presses. In a comprehensive opinion, the court in Carmel Development Company v. Larry Anderson discusses at length the issue of what property a lien attaches to and whether interest and prejudgment interest are recoverable using a mechanic’s lien. The answer is that a determination of what property a mechanic’s lien attaches to requires a detailed analysis, that interest is not recoverable using a mechanic’s lien, but that prejudgment interest is recoverable.
In this case, the contractor had a long-term oral agreement to construct water and site improvements for a large residential development in Monterey County. The developer stopped paying the contractor and agreed to pay 10% interest on late payments. The developer and contractor agreed at one point to allocate amounts due only to unsold properties, avoiding further claims and charges on properties that had already been sold. Eventually the contractor filed a lawsuit, including a foreclosure of its mechanics lien against the developer and several of the development’s investors. The facts of the case suggest that the mechanic’s lien was the only possible source of a recovery.
There were two mechanic’s liens. One for a water system, including a reverse osmosis plant and another for site improvements located on two of the development’s several phases.
Judgment in the trial court allowed the entire claim to be assessed against the unsold houses, added interest as agreed to by the parties to the judgment and included prejudgment interest.
The appeal’s court goes through a lengthy and interesting review of cases regarding application of payments made to the contractor and addressing which lots within the development the mechanic’s liens applied to. Please call me if you need the details.
Where a project has multiple residences or multiple phases, a thorough analysis needs to be done to consider which properties are subject to a mechanic’s lien. As in the Carmel case, failure to do so can result in the claimant only obtaining a partial recovery.
On the issue of interest, the court reaffirmed prior precedent. Interest is not recoverable using a mechanic’s lien.
The court did allow recovery of prejudgment interest. Recovery of prejudgment interest can be a challenge, since it is granted in the discretion of the trial judge. The contractor overcame the usual challenges to obtaining an award of prejudgment interest. Prejudgment interest was allowed both against all defendants, including the third-party investors. The court applied a 7% interest rate, rather than the 10% for breach of contract. It seems to me that it should be 7% against the investors and 10% against the developer.
Every once in a while, you read an opinion that has lots to teach.