Who is a Construction Lender: California’s New Preliminary 20-Day notice for General Contractors

 In Mechanic’s Lien Law Updates and News

 Most of us know that under the new California law fact if July 1, 2012, a general contractor must serve a preliminary twenty day notice if there is a construction lender. That is an absolute prerequisite to later filing a mechanic’s lien. But how do the California statues define a construction lender?

 First let us rule out what does not qualify as a lender:

 

  1. The owner or developer is using their own funds.
  2. The owner is receiving funds from friends or relatives.
  3. The owner receives a personal unsecured loan.  The loan must be secured by a deed of trust.
  4. Use of credit cards.
  5. The owner is receiving monies from an insurance claim that is not put in escrow.

 

The California statute on point states as follows:

 Civil Code 8006.  “Construction lender” means either of the following:   (a) A mortgagee or beneficiary under a deed of trust lending funds with which the cost of all or part of a work of improvement is to be paid, or the assignee or successor in interest of the mortgagee or beneficiary.    (b) An escrow holder or other person holding funds provided by an owner, lender, or another person as a fund for with which the cost of all or part of a work of improvement is to be paid.

 In the traditional sense, this would apply to a bank that has the owners sign a promissory note secured by a deed of trust or mortgage on the property.  But it also applies to builders control systems which act as an escrow holding the funds as they are distributed over progress draws as the job is inspected.  An example of the latter would be National Builders Control (www.nbc-inc.com), www.builderscontrol.com, or www.builderscontrolofcalifornia.com.  

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