Dealing with Mechanics’ Liens
by
Henry Spalding, Esq.
Filing and enforcing a mechanic’s lien can be a strong and effective way to minimize risk of lack of payment for work done on a project. Creditors, including general contractors, subcontractors and materials suppliers, routinely assert liens and file lawsuits to enforce these liens. A creature of statute, and the subject of numerous decisions from the Virginia Supreme Court, mechanic’s liens can be complex and subject to very technical legal requirements. Virginia construction attorneys are aware of a number of issues associated with filing and enforcing a mechanic’s lien.
By statute, all persons providing labor or materials for the construction, removal, repair or improvement of any permanent building or structure annexed to real estate are entitled to a mechanic’s lien. General contractors, subcontractors, and sub-subcontractors fall within the classes of those entitled to file a mechanic’s lien, as are architects and, presumably, engineers. A lien claimant’s recovery, however, may not have priority. For example, although Subcontractor A files his lien first, and then Subcontractor B files, the two subcontractors would take a pro rata share if there were any proceeds to be disbursed. Note, however, that the lien of a subcontractor takes priority over the lien of his general contractor. Other rules apply among lienors of different statuses. Of particular interest is that a mechanic’s lien has priority over a prior deed of trust on the property up to the amount of value of improvements on the property, but is inferior to a prior deed of trust as to the value of the unimproved land.
Careful attention must be paid as to when the lien is filed. By law, a lien claimant must file within 90 days from the last day of the month in which he last performed labor or furnished material. However, the lien may not be filed later than 90 days after the project is completed or the work has otherwise been terminated. This exception will typically have greater effect for later trades on a project. Questions will sometimes arise as to whether performing warranty or punch list work amounts to the last performance on the job for purposes of the 90-day filing period. This question has not been entirely answered by our courts, but the inquiry will focus on whether the work was undertaken in “good faith” or delayed in bad faith as well as how the contractor describes the remaining work.
It is very important to remember that the lien may only include the value of the labor or materials furnished within 150 days from the last day labor was performed prior to the filing of the lien. It can be a fatal defect to the lien if the value of labor or materials claimed includes amounts from more than 150 days before the lien was filed. If the lienor includes claims for this earlier work, the entire lien can be invalidated. There are limited exceptions, and the court has some discretion to reduce the amount of the lien rather than invalidate it in its entirety, but tread very carefully in this area.
Virginia Code §43-5 sets out the form which must be followed for both the memorandum and affidavit for the mechanic’s lien. These forms are also available online. A title search may be well advised to ascertain the name of the owner of record at the time the lien is filed. The lienor should also be careful to describe the type of work performed or materials furnished to distinguish itself from another claimant who did similar work. It is always a good idea to particularize work done and materials furnished. One should also take care to note the title of the person signing the affidavit (for example, president, vice-president), as well as stating that the affiant is also an agent of the lienor.
There are special notice requirements related to one-and two-family residential dwelling units. When a permit designates a mechanics’ lien agent, for example, additional notice procedures are required, including that notice be given to the mechanics’ lien agent within 30 days of first performing labor or providing materials to the project. The contents of the notice are dictated by statute.
Other pitfalls may arise where a contractor wants to assert a lien over multiple units or multiple lots. For example, one old Virginia Supreme Court case held that separate liens must be filed for each parcel of land where the work was performed. In a more recent case, the court held that a mechanic’s lien filed on a parcel where the contractor worked would invalidate the lien in its entirety. In short, keep in mind that a blanket lien should raise a red flag where multiple parcels are involved.
Filing the lien, in and of itself, may not be enough to get a contractor paid. Once again, the Code of Virginia sets forth what must be done to enforce the lien. The lienor is required to file a complaint itemizing the amount he is owed, the amount and character of work done or materials furnished, what was charged, what payments if any were made and the balance due. An affidavit verifying this information must also be filed. The suit must be filed where the property is located or where any owner of the property resides. Typically, claims such as breach of contract are also included in a mechanic’s lien complaint and are advisable in the event that the lien itself is held to be invalid. The timing for the suit is very short. The Code requires that any suit to enforce a mechanic’s lien must be filed within six months from the date that the lien was recorded or within 60 days from the time the building was completed or the work was terminated, whichever occurred last.
It is also critically important to name all necessary parties as defendants in a suit to enforce a mechanic’s lien. In addition to the owner, the law requires that other defendants must include any party with an interest in the property which may be adversely affected by the lienor’s claim. Such parties would include lenders, judgment creditors, trustees under deeds of trust, other mechanic’s lien holders and possibly others.
There are many other issues which can come into play in a mechanic lien setting, including lien waivers, releasing liens, bonding-off liens and the effect of bankruptcy. These matters will be the subject of discussion in a future article. In the meanwhile, should you have any questions, please feel free to contact the author.
About the Author:
Henry Spalding is a Virginia construction lawyer and insurance defense counsel for small and medium size businesses and their insurers. He is part of the blogging team at sandsandersonriskmanager.com and a member of the Risk Management team.
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