A person that has a lien right under Chapter 4 (commencing with Section 8400) may give a construction lender a stop payment notice.
Article 3Stop Payment Notice to Construction Lender
Section § 8530
If someone is entitled to a lien because they did work or provided materials for construction, they can tell the construction lender to withhold further payments by giving them a stop payment notice.
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Section § 8532
If you're claiming money from someone funding a construction project (a construction lender), you can send them a stop payment notice, but you must include a bond worth 125% of your claim. This bond guarantees that if the court sides with the lender or other related parties instead of you, you'll cover their costs and any damages caused by your notice, up to the bond's worth.
A claimant may give a construction lender a stop payment notice accompanied by a bond in an amount equal to 125 percent of the amount of the claim. The bond shall be conditioned that if the defendant recovers judgment in an action to enforce payment of the claim stated in the stop payment notice or to enforce a claim of lien recorded by the claimant, the claimant will pay all costs that are awarded the owner, direct
contractor, or construction lender, and all damages to the owner, direct contractor, or construction lender that result from the stop payment notice or recordation of the claim of lien, not exceeding the amount of the bond.
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Section § 8534
If a construction lender thinks the sureties on a bond are not good enough, they must inform the person who sent the stop payment notice within 20 days. If the person doesn't replace the bond with one backed by a licensed insurer within 10 days of being notified, the lender can ignore the stop payment notice and release the money they were holding back.
(a)CA Civil Law Code § 8534(a) A construction lender that objects to the sufficiency of sureties on the bond given with a bonded stop payment notice shall give notice to the claimant of the objection, within 20 days after the bonded stop payment notice is given. The notice shall comply with the requirements of Chapter 2 (commencing with Section 8100) of Title 1.
(b)CA Civil Law Code § 8534(b) The claimant may within 10 days after notice of the objection is given substitute for the initial bond a bond executed by an admitted surety insurer. If the claimant does not substitute a bond executed by an admitted surety insurer, the construction lender may disregard the bonded stop payment notice and release all funds withheld in response to that notice.
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Section § 8536
This law states that when a construction lender receives a notice to stop payment, they must hold back enough money from the construction fund to cover the claim. However, the lender can choose not to withhold funds if the stop payment notice doesn't have a bond, or if it's from someone other than the main contractor and a payment bond was already recorded before the notice was received.
(a)CA Civil Law Code § 8536(a) Except as provided in subdivision (b), on receipt of a stop payment notice a construction lender shall withhold from the borrower or other person to whom the lender or the owner is obligated to make payments or advancement out of the construction fund sufficient funds to pay the claim stated in the notice.
(b)CA Civil Law Code § 8536(b) The construction lender
may, at its option, elect not to withhold funds in any of the following circumstances:
(1)CA Civil Law Code § 8536(b)(1) The stop payment notice is unbonded.
(2)CA Civil Law Code § 8536(b)(2) The stop payment notice is given by a claimant other than a direct contractor, and a payment bond is recorded before the lender is given any stop payment notice.
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Section § 8538
If someone wants to be informed when a construction lender decides not to hold back funds after receiving a stop payment notice, they need to send a written request along with a preaddressed, stamped envelope at that time. If the lender decides not to withhold funds, they must notify the requester within 30 days, sending a notice that meets specific requirements. If the decision is based on a payment bond being recorded, the lender must include the bond with the notice. However, if a lender neglects to include the bond due to an honest mistake, they are not liable as long as they have procedures to avoid such errors and correct the mistake within 20 days of discovering it.
(a)CA Civil Law Code § 8538(a) The claimant may make a written request for notice of an election by the construction lender under Section 8536 not to withhold funds. The request shall be made at the time the claimant gives the construction lender the stop payment notice and shall be accompanied by a preaddressed, stamped envelope.
(b)CA Civil Law Code § 8538(b) If the construction lender
elects not to withhold funds under Section 8536, the lender shall, within 30 days after making the election, give notice of that fact to a claimant who has requested notice of the election under subdivision (a). The notice shall comply with the requirements of Chapter 2 (commencing with Section 8100) of Title 1. If the basis of the election is the recordation of a payment bond under Section 8600, the construction lender shall include a copy of the bond with the notice.
(c)CA Civil Law Code § 8538(c) A construction lender is not liable for failure to include a copy of the bond with the notice under this section if all of the following conditions are satisfied:
(1)CA Civil Law Code § 8538(c)(1) The failure was not intentional and resulted from a bona fide error.
(2)CA Civil Law Code § 8538(c)(2) The lender maintains reasonable procedures to avoid an error of that type.
(3)CA Civil Law Code § 8538(c)(3) The lender corrected the error not later than 20 days after the date the lender discovered the violation.
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