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🛑 Stop Payment Notices (California)

On public projects, you can't file a mechanics lien against government property. A stop payment notice is your primary remedy — it freezes construction funds until your claim is resolved.

Key Principle

Stop payment notices freeze construction funds. On public works they're your primary remedy. On private work with a construction loan, they're a powerful supplement to your mechanics lien.

What Is a Stop Payment Notice?​

Under California Civil Code §§8500-8538 (private) and §§9350-9364 (public), a stop payment notice is a written demand served on:

  • The public entity (on public works)
  • The construction lender (on private projects with a construction loan)

It directs them to withhold funds sufficient to pay your claim. Unlike a mechanics lien, it doesn't attach to property — it freezes money owed to the contractor.

When Stop Payment Notices Apply​

Public Works Projects​

Use on any government-funded project in Silicon Valley:

  • City of San Jose, Sunnyvale, Palo Alto, Mountain View projects
  • Santa Clara County projects
  • Caltrans and state projects
  • School districts (SCCOE, individual districts)
  • Special districts (VTA, Valley Water, etc.)

Why: You can't lien government property, so stop payment notices (along with payment bond claims) are your remedy.

Private Projects with Construction Loans​

Use on private projects when a construction lender is involved:

  • Served on the construction lender, not the owner
  • Freezes undisbursed loan funds
  • Must be served before the lender disburses remaining funds
Silicon Valley Context

Most large commercial projects in Silicon Valley have construction loans. A bonded stop payment notice served on the lender is extremely effective — the lender MUST withhold funds, and the GC can't get paid until your claim is resolved.

On private work, you typically use both lien AND stop payment notice for maximum leverage.

Types of Stop Notices​

Unbonded Stop Notice​

  • No bond required
  • Must be released if disputed
  • Less powerful
  • Good for preliminary protection

Bonded Stop Notice​

  • You post bond (typically 125% of claim)
  • Cannot be released without resolution
  • Owner/lender must withhold funds
  • Much more powerful
  • Costs money (bond premium)

Stop Notice Requirements​

Who Can Serve​

  • General contractors
  • Subcontractors
  • Sub-subcontractors
  • Material suppliers
  • Equipment lessors

Preliminary Notice​

Most states require:

  • Preliminary notice before stop notice
  • Served within 20 days of starting work
  • Protects your right to serve stop notice

Check your state's requirements!

Timing​

Serve within:

  • During the project: Usually any time
  • After completion: Check state deadline (often 30-90 days)

Key dates to track:

  • Your last day of work
  • Project completion date
  • Stop notice deadline

How to Serve a Stop Notice​

Step 1: Verify Eligibility​

  • Preliminary notice sent (if required)
  • Within deadline
  • Valid claim (money owed)
  • Proper claimant (performed work or supplied materials)

Step 2: Prepare the Notice​

Include:

  • Claimant name and address
  • Project description and location
  • Name of person who hired you
  • General contractor name
  • Description of work or materials
  • Amount claimed
  • Statement that claim is unpaid

Step 3: Serve the Notice​

Serve on:

  • Public owner (agency)
  • And/or construction lender
  • Often: GC as well (courtesy copy)

Service methods:

  • Personal delivery
  • Certified mail, return receipt
  • Follow state requirements exactly

Step 4: If Bonded​

  • Obtain stop notice bond
  • Attach bond to stop notice
  • Increases your leverage significantly

Stop Notice Process Timeline​

Day 1:    Work performed, not paid
          ↓
Day 30:   Invoice past due
          ↓
Day 45:   Demand letter sent
          ↓
Day 60:   Still unpaid - serve stop notice
          ↓
Day 65:   Owner receives, withholds funds
          ↓
Day 90:   GC disputes or pays
          ↓
Resolution: Payment, settlement, or lawsuit

Stop Notice vs. Mechanics Lien​

FeatureStop NoticeMechanics Lien
Applies toPublic + private with lenderPrivate property
Attaches toFundsProperty
Requires foreclosureNoYes
Preliminary noticeUsually requiredUsually required
Bond optionYesSome states
RecoveryFrom withheld fundsFrom property sale

California-Specific Rules​

Public Works (Civil Code §§9350-9364)​

RuleDetail
Preliminary notice requiredWithin 20 days of first furnishing
Deadline (with NOC)30 days after Notice of Completion recorded
Deadline (no NOC)90 days from cessation of work
Unbonded effectPublic entity should withhold, but may release if GC disputes
Bonded effectPublic entity MUST withhold — cannot release without resolution
Bond amount125% of claim amount
Lawsuit deadline90 days after lien period expires

Private Works with Lender (Civil Code §§8500-8538)​

RuleDetail
Preliminary notice requiredWithin 20 days of first furnishing
Served onConstruction lender (NOT the owner)
Unbonded effectLender may choose to withhold
Bonded effectLender MUST withhold undisbursed loan funds
Bond amount125% of claim amount
FreezesUndisbursed construction loan funds

Prompt Payment Interaction​

If you've served a stop payment notice AND the GC is violating California's prompt payment laws (Civil Code §§8800-8814), you have additional leverage:

  • GC owes 2% per month penalty on wrongfully withheld amounts
  • Undisputed amounts must be paid regardless of disputes on other items
  • Document the prompt payment violation in your demand letter

When to Use Stop Notices​

Good Candidates​

  • Public project, significant amount owed
  • Private project with construction loan
  • You've sent preliminary notice
  • Negotiations have failed
  • Deadline approaching

Think Twice​

  • Small amounts (bond cost not worth it)
  • Working relationship you want to preserve
  • Dispute about quality (claim may be reduced)
  • You missed preliminary notice deadline

Effectiveness and Leverage​

Why Stop Notices Work​

  1. Owner withholds payment from GC
  2. GC can't get paid until resolved
  3. GC pressure increases to pay you
  4. Funds are available when resolved

Bonded vs. Unbonded​

Unbonded:

  • Owner may release if GC disputes
  • Weaker leverage
  • No cost to you
  • Good for initial pressure

Bonded:

  • Owner MUST withhold
  • Cannot release until resolved
  • Costs 1-2% of claim
  • Maximum leverage

Common Mistakes​

1. Missing Preliminary Notice​

Problem: Stop notice may be invalid without it Solution: Always serve prelim within 20 days

2. Missing Deadline​

Problem: Stop notice rights expire Solution: Track all deadlines from day one

3. Improper Service​

Problem: Notice may be invalid Solution: Follow exact service requirements

4. Wrong Amount​

Problem: Inflated claims lose credibility Solution: Claim actual amount owed

5. Not Following Up​

Problem: Stop notice sits without action Solution: Follow with demand, then lawsuit if needed

After Serving Stop Notice​

If They Pay​

  1. Verify payment clears
  2. Provide release of stop notice
  3. Provide lien waiver
  4. Document resolution

If They Dispute​

  1. Review their objections
  2. Negotiate if appropriate
  3. Consider mediation
  4. File lawsuit to enforce if needed

Release of Stop Notice​

Provide release when:

  • You've been paid in full
  • You've settled
  • Claim was invalid

Use proper form - same formality as stop notice