CSLB Law & Business ExamInsurance and LiensMedium
A material supplier wants to compel a construction lender to withhold funds from the general contractor because the supplier has not been paid. Which remedy should the supplier pursue?
- AServing a stop payment notice on the construction lender
- BFiling a small claims action against the property owner
- CRecording a mechanics lien against the owner's title
- DRecording a Notice of Completion
Show answer & explanationAnswer & explanation
Correct answer: A. Serving a stop payment notice on the construction lender
A stop payment notice is served on the construction lender (or owner on private jobs) to require withholding of construction funds sufficient to cover the unpaid claim, separate from a mechanics lien against real property.
Why the other options are wrong
- B. Small claims court does not compel a lender to withhold construction funds.
- C. A mechanics lien attaches to the property title, but does not directly compel the lender to withhold loan funds.
- D. A Notice of Completion is recorded by the owner to shorten lien deadlines, not to withhold funds.
Stop Payment Notice
A notice served on a construction lender or owner requiring them to withhold sufficient funds to cover an unpaid claim from a contractor, subcontractor, or supplier.
- Targets undisbursed construction loan funds or owner funds
- Requires a valid preliminary notice to have been served (except direct contractors)
- Different remedy from a mechanics lien, though often used together
Memory trick: Stop notice stops the lender's cash flow to the contractor.