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As any of you that read this construction law blog realize, the Virginia mechanic’s lien statute is near and dear to my heart.  Because of the already picky and statute driven nature of these powerful but detail oriented tools of collection, any change to the statute must be considered for its practical effect on the Virginia construction industry. HB 1265, introduced and out of committee for consideration during the 2012 Virginia General Assembly session, is just such a potential change.

The operative language of the bill would amend the basic filing and notice provisions for a mechanic’s lien in Virginia to add the following:

 At least 60 days prior to filing a memorandum of lien pursuant to this section, a lien claimant shall send a copy of the memorandum and written notice of the lien claimant’s intention to file the memorandum by certified mail, return receipt requested, to the owner of the property at the owner’s last known address. After the expiration of this 60-day period, the lien claimant may file a memorandum of lien. The lien claimant shall also file with the clerk a copy of the written notice sent to the property owner and certify that such notice was sent. The clerk shall not accept or record any memorandum of lien filed prior to the expiration of this 60-day period or that is not accompanied by a copy of the notice sent to the property owner.

In short, the proposed amendment would place yet another hurdle in front of a potential mechanic’s lien claimant in the form of the necessity of a notice to the owner of the property 60 days prior to the date of recording a memorandum of lien.  This notice would have to be sent certified, return receipt and contain a certification of mailing.  The notice would also have to be filed with the Clerk of the Virginia Circuit in which the property is located.  Furthermore, unlike the provisions of the statute that require notice to a mechanic’s lien agent in the residential setting only to protect residential homeowners that do not deal with contractors on a regular basis, this amendment does not make any distinction between commercial and residential projects.

While I really do try and keep this blog apolitical, I feel the need to voice my opinion on the practical consequences I see for my friends and clients in the Virginia construction industry.

My thoughts?  This bill puts an undue burden on both the Circuit Court Clerks and the construction professionals that at times need to file liens to protect their ability to collect for work properly performed.  Given that many construction contract payment terms require payment within 30 days, the amendment would force contractors and subcontractors to perform title searches, hire attorneys, and file notices of intent to lien on even the smoothest of projects, potentially prior to their entitlement to payment, in order to avoid running up against the 90 recording deadline.

This would increase the administrative and cost burden on all in the construction payment chain and turn a tool usually used as a last resort into one that, should the amendment pass, would require routine notices of intent to lien prior to any chance for negotiation before having to create a cloud on the title of the property with the business consequences on contractor and owner alike.  The potential souring of good business relationships because of statutory mandates (no one wants to have a lien recorded against their property) is yet another reason I don’t like this bill.  Of course this analysis does not even begin to take into account the potential burden on the great clerks of court that will have an additional paperwork burden beyond what they already carry.

While I fully understand the clear intent of this bill to protect owners and give them the ability to deal with potential liens prior to their recording (particularly in the present economy), this bill goes much too far in doing so in my opinion (along with the opinions of the AGC of Virginia and the Virginia ABC).  The noble goal is outweighed by the administrative, economic, and governmental burden it imposes.

As always, these are just my opinions.  What to you think?  Do you agree?  Disagree?  Agree, but for other reasons?  If so, please comment below or contact me with your thoughts.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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For this week’s Guest Post Friday here at Musings, we welcome back a good friend and fellow construction attorney, Scott Wolfe Jr.  Scott is a construction attorney who practices law through his firm Wolfe Law Group in California, Washington, Oregon and Louisiana.  He is also the founder of Zlien, a nationwide preliminary notice and mechanic’s lien filing service. He is the author of blogs Construction Law Monitor and the Construction Lien Blog.

A few years ago I wrote a blog post that is quite popular on our Construction Lien Blog, titled “Filing A Lien Is A Discipline, and Not A Knee Jerk Reaction.”  I love the title to this post, because it expresses a real truth about successfully making a mechanics lien claim.

Regardless of where you are furnishing labor or materials, the act of filing a mechanics lien is more than just shooting off a lien affidavit after you’re already owed money. For most in the construction industry, and in most jurisdictions, mechanic lien claims are something that develop over time. Unfortunately, this development often starts with the moment you begin furnishing to the project.

Since writing that “knee jerk” article, I’ve thought (and written) about the concept even further. Successfully filing a mechanics lien claim actually requires companies to employ some sort of “lien policy,” focusing on compliance with all notice requirements and lien deadlines.  And the start of preparing such a lien policy is an understanding of what I call the mechanics lien ecosystem, or the “life of a mechanics lien claim.”  

I’ve broken it down into three steps: Preserve, Perfect, Enforce.  

Preserve

Every state and the territories (and Canada!) all have mechanics lien statutes, providing to contractors, subcontractors, suppliers and professionals the right to file a lien against the property where materials and/or labor are furnished.

However, to quality for this lien protection, construction participants must take certain actions to preserve these rights.  These preservation requirements will change depending on where you’re furnishing, but they always require some action at the start of providing services or materials. Here are the most common preservation requirements:

Preliminary Notices / Notices to Owner by Those Who Did Not Contract With The Owner

When states are referred to as “notice states,” that is typically because they’ve adopted this very traditional notice requirement, which mandates that all parties who have no contractual privity with the property owner send a “preliminary notice” or “notice to owner” to the property owner within a specific number of days after first furnishing labor or materials.

These prelim notices are usually required within 10-45 days from first furnishing of materials or labor (check your state’s rules), and must contain certain information within the notice and be sent by a certain method (usually certified mail with return receipt requested).  Those who fail to send their notice on time will forfeit their lien rights, with limited exceptions.

Notices Required by General Contractors

While most states’ notice requirements focus on those who did not contract with the owner, there are some laws out there that require notices from only those who contracted with the owner.

Some examples include:

1. Louisiana requires general contractors to file a Notice of Contract before commencing work to qualify for lien rights.
2. On certain residential and commercial projects, Washington requires the delivery of a Model Disclosure Statement.
3. On Residential projects in Idaho, Iowa, Louisiana & Oregon, a Notice of Lien Rights must be provided to the owner.
4. In Utah, general contractors must file a “Notice of Commencement” at the start of work.

Failure to send these notices will also result in a forfeiture of lien rights.

Perfect

Preserving your mechanic lien rights requires compliance with certain notice prerequisites that apply when starting to furnish labor and/or materials. These notices must be delivered before any accounts are ever overdue, and indeed, before anyone is even owed money.  

The perfection requirements, however, come on the other side, when the contractor, supplier or professional has performed its work and is now due payment.

If lien rights were preserved, a contractor, supplier or professional can “perfect” it’s lien claim by filing the same with the county recorder or clerks office. Depending on your state, the filing can go by a number of names: Notice of Claim, Claim of Lien, Construction Lien Claim, Mechanics Lien Claim, Statement of Claim and Privilege, etc.  It’s all the same.  These are all documents that outline what work you performed, where, for who and the amount owed to you.

When filing your mechanics lien claim, it’s important to be very careful. Since these claims encumber real property, courts typically require strict compliance with the lien statutes, which means you better have all the required information in your claim.  There are lots of traps for the inexperienced, with the most common mistakes being a failure to identify the property with the legal property description and not including all of the statutorily required data.

Properly preparing and recording your mechanic lien claim, and then serving a copy of the same on the property owner and all other required parties within the statutory required time frame, will act to perfect your mechanic lien rights, and a mechanics lien claim will then encumber the property…until your deadline to enforce it.

Enforce

The third and final step in the life of a mechanics lien is the enforcement of the same.  One common misconception about liens is that they will encumber the property until paid.  That’s not true. After a mechanics lien claim is perfected by recording, it only remains enforceable for a specific period of time.

Therefore, if the mechanics lien doesn’t produce payment after filing, then you will be required to file a lawsuit to foreclose upon or enforce the claim.

Again, each state is different as to when this foreclosure action is necessary.  California, for example, is on the short end requiring a foreclosure lawsuit within 90 days from when the mechanics lien is filed. Ohio is on the long end, giving lien claimants 6 years from filing to have the lien enforced.  If there’s an average out there, it’s probably between 8 and 12 months.

While the timing is different, the general requirement is the same: After a certain period of time, you’re required to file a lawsuit to foreclose on the lien. Therein, you’ll need to prove your case and demonstrate you are owed the money you claim.  If you win, the court will order the property sold to pay your debt.

Scott and I welcome your comments below.  Also, please subscribe to keep up with this and other Guest Post Friday Musings.

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For this week’s Guest Post Friday at Construction Law Musings I welcome Matthew Evans.  Matt is the owner of Law Offices of Matthew S. Evans, III, LLC located in Annapolis, Maryland.  He has practiced construction, real estate and land use law in Maryland and D.C. for thirteen years.  Prior to opening his own firm in May 2011, Mr. Evans was a partner at a mid-sized firm in Anne Arundel County, Maryland. Mr. Evans lives in Historic Annapolis (only three short blocks from his office) with his wife Margaret, and three children, Matthew (5), Bo (4) and Peyton (2). 

Some of the most common calls I get are from irate contractor or subcontractor clients who have not been paid demanding that I “lien the property”.  Many times after calming the client down, I determine, to their dismay, that they are not entitled to a mechanic’s lien. In Maryland, the mechanic’s lien law is driven by statute, which contains specific requirements which must be met before the client is entitled to a lien.

The first question is whether the contractor or subcontractor is entitled to a lien for the work performed.  Under Maryland law, “every building erected and every building repaired, rebuilt, or improved to the extent of 15 percent of its value is subject to establishment of a lien…for the payment of all debts.”  It’s easy when dealing with new construction.  No matter how small your portion of the work, the property is subject to the establishment of a lien. It is more difficult to determine entitlement when there is either a total or partial renovation or other work.  The question becomes how do you determine the value of the building, and whether it has been improved “to the extent of 15 percent of its value.”  Believe me, I have seen creative and some not so creative methods of calculation used by counsel to prove that certain work does or does not meet the requirment.

The second determination that needs to be made is who is the “owner” of the property.  It is imperative to determine the correct owner or your lien claim may fail.  Sometimes the name of the “owner” in the contract documents is not the legal title owner of the  property.  Typically this is easily ascertained  through a title search.  However, even a title search can be deceiving.

In a case I tried many years ago, I represented a subcontractor who had performed about a million dollars’ worth of work on a new commercial distribution facility.  After there was a dispute over payment, I filed the requisite papers against the owner of the real property to establish a lien against the property.  The defense answered that I had no right to claim a lien because I had not proceeded against the proper owner.  As it turned out, the general contractor had contracted to build the facility for a tenant of the property who had executed a 99 year lease with the title owner of the property.  Turns out, in that instance, the “owner” is the tenant and my client was only entitled to a lien to the extent of the tenant’s interest. The owner is not always the owner.

Another question is whether or not your lien opportunity is barred by time.  In Maryland, a subcontractor (any contractor or material supplier who has not contracted directly with the owner) must serve a “Notice of Intention to Claim a Lien” on the owner of the property “within 120 days after doing work or furnishing materials”.    Whether a contractor or subcontractor, the petition for mechanic’s lien must be filed “within 180 days after the work has been finished or the materials furnished”.  One would be surprised at the number of issues that arise over when the last date of work occurred.  Does doing work or finishing work include going back 2 months later to fix a minor “punch list” item?  Calculating the real last date of work can be complex and is extremely important.

Finally, the required contents of the both the Notice of Intention to Claim a Lien and the Petition for Mechanic’s Lien are set forth specifically in the Maryland Code.  If certain information is omitted, a lien claim will fail.  The Maryland Code also requires that “copies of material papers or parts thereof, if any, which constitute the basis of the lien claim” be attached to the Petition when filed.  I have made many arguments in court on both sides regarding whether the attachments are sufficient to comply with the law.

This article only touches the tip of the iceberg so to speak on potential pitfalls in the mechanic’s lien process in Maryland. The mechanic’s lien in Maryland can be an effective tool to collect outstanding debts for your construction clients.  However, contractors must hire competent construction counsel who have experience in obtaining mechanic’s liens.  Some of the most experienced and knowledgeable attorneys I know (in other areas of the law)  contact me with questions about the mechanic’s lien process.  My advice to them is refer it to experienced construction counsel.  There are simply too many mistakes that can be made. The bottom line is don’t try this at home.

As always, Matt and I welcome your comments below.  Also, please subscribe to keep up with this and all of the Guest Post Fridays here at Musings.

© Construction Law Musings- Richmond, VA is licensed under a Creative Commons Attribution-No Derivative Works 3.0 U.S. license.

The economic downturn, the banking crisis and the resulting fallout in the construction industry have created more mechanic’s lien priority issues in the past 3 years than I’ve seen in the 20 years prior.

This situation is complicated by the fact that mechanic’s lien laws are based on statutes that can vary significantly from state to state.  For example, Kansas City sits on the state line between Missouri and Kansas.  Therefore, about half my work involves projects in Missouri and the other half involves projects in Kansas.  In many ways, no two adjoining states could be more different.

Missouri was a “slave state” and part of the Confederacy during the Civil War.  Kansas, on the other hand, was a “free state” and part of the Union.  Heck, the major universities of both states are now even in separate conferences (the University of Kansas and Kansas State University are part of the Big 12 Conference, while the University of Missouri is leaving to join the Southeastern Conference in 2012, despite the fact that KU and Mizzou have played about 120 football games against each other since 1892 – and even dispute the overall record!).

With respect to mechanic’s lien rights, filing requirements, and priorities, Missouri and Kansas are as different as their political and athletic histories.  For example, in Missouri, unpaid contractors have 6 months to file a mechanic’s lien, while in Kansas they only have 3 or 4 months, depending on whether they are a general contractor or subcontractor.  Similarly, in Missouri, mechanic’s lien claimants have to serve a pre-lien notice on the owner, while in Kansas there is no such requirement.  In addition, the itemization requirements are different in both states – Missouri requires a “just and true account” for subcontractor mechanic’s liens, while Kansas simply requires an itemization of the amount due.

But nowhere are Missouri and Kansas more different than on priorities.  Missouri has what is called the “first spade” rule, which generally means that all mechanic’s lien claimants have the same priority based on the “first spade” – that is, when construction commenced on the project.  § 429.060, RSMo.  Kansas, on the other hand, dates priority from the first day of work of the “earliest unsatisfied” mechanic’s lien claimant.  K.S.A. 60-1101.  Thus, an unpaid finish contractor in Missouri can rely on the first day of work by any contractor on the project, regardless of whether or not the earlier contractors have been paid, while the same unpaid finish contractor in Kansas can only rely on the first day of its own work or of the work by another contractor, but only if that other contractor has also not been paid.  In addition, the Missouri courts have developed what is called the “implied waiver” doctrine, whereby mechanic’s liens can have priority over a construction loan (regardless of the “first spade”), while Kansas just mechanically compares the priority of the mechanic’s lien to day the mortgage was recorded.

As the construction industry has tightened over the past couple years, more and more contractors are pursuing work outside their normal geographical scope.  As illustrated above, with what can sometimes be very different mechanic’s lien laws among the various states, it’s important to not only know what different rights and remedies there are in the state where a contractor is working, but also what specific notice requirements they might be.

As always, Rob and I welcome your comments below.  Please subscribe to keep up with this and other Guest Post Fridays at Construction Law Musings.

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It is not news that the recent construction economy has not been good.  Private money is not flowing into construction as it had been in the past and public projects are moving more slowly.  Payment disputes leading to mechanic’s lien claims and payment bond claims are rampant because of the shaky nature of the payment stream to subcontractors and suppliers.

In considering this reality for Virginia construction professionals, I realized that I had not discussed the picky nature of Virginia mechanic’s liens in a while.  Aside from time and value requirements, these liens, while powerful, are very specific and picky in their requirements.  The smallest deviation from these requirements can cause a mechanic’s lien or the suit to enforce that lien to be thrown out.

Anything from a poor property description that leaves the least bit of ambiguity to failure to identify the capacity of the person signing the memorandum affidavit to incorrect apportionment of your lien to a subdivided property can (and likely will) cause a Virginia Circuit Court to throw out the lien leaving you, as a Virginia contractor, without the security and leverage that comes with a high priority lien on the owner’s property.  In sum, these tricky beasts need to be handled with care.

As a quick checklist for construction contractors, here are some basic ways to avoid certain pitfalls (in no particular order of importance):

• Follow the statute and the basic requirements for a Virginia mechanic’s lien.
• Get a good title search to avoid property description and other property related issues.
• Properly account for your job payments by applying checks to the oldest invoices and work to avoid “150 day rule” issues.
• Be sure that what you’ve provided to the construction project is in fact lienable.
• Be sure to begin the lien process with plenty of time to avoid mistakes caused by time compression

Most importantly, get experienced legal counsel who deals with these finicky filings on a regular basis.  Not only will this last step give you the best chance to avoid certain pitfalls, it may save you time and money through an evaluation of the costs and benefits of a lien in your particular situation.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

© Construction Law Musings- Richmond, VA is licensed under a Creative Commons Attribution-No Derivative Works 3.0 U.S. license.

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In the past few weeks, I must have been asked one question on multiple occasions:  “What is Construction Law?”  When this question was asked, I realized that I’ve been Musing on this topic for almost three years and realized that I’ve posted on everything from why I enjoy being a construction lawyer, to various topics on the subject, to marketing a construction law practice, but have never attempted to define my own practice area.

Well, here’s my attempt to do just that, i.e. put a definition to the area of the law that I have practiced for so long-construction law.  In thinking about this topic when answering the questions from colleagues and friends (not to mention for my class at Solo Practice University), I realize that I don’t have a short answer.  The best “one liner” I could come up with is a mix of contract law, construction specific collection tools, psychology, and litigation.  Mix in some general business counseling for Virginia’s contractors and subcontractors and there you have it!

Not enough detail for you?  Here are a few of the basic components (many of which are pages here at Musings):

• Construction Contract Drafting and Evaluation
• Virginia Mechanic’s Liens
• Little Miller Act Claims
• Green Building Advising
• Incorporation Issues
• General Construction & Surety Litigation

While this is not all that I do for my construction clients (either here in Virginia or those from outside of the Commonwealth), I believe that this pretty well sums up what I believe to be the components of a construction law practice.

Did I forget anything?  Is there a service you believe I could be providing that should be added to this list?  Let me know.

As always, I welcome and encourage your comments below, please share your thoughts.  Also, please subscribe to keep up with the latest Construction Law Musings.

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Recently, I discussed some issues with a non-Virginia contractor.  Its principal had some great questions that reminded me that construction law here in the Commonwealth of Virginia can be a bit different from that in other states.  This fact is not only true for mechanic’s lien and “Little Miller Act” claims, but for registration of businesses, occupational safety, construction contract claims, and other state law specific items.

While this list is far from exhaustive, even this short recitation of state law specific items shows the need for contractors and subcontractors bidding for and performing work in Virginia to consult a local Virginia construction attorney early on in the construction process.  This is true even if you have a general counsel in your home state (if you don’t have counsel in your state, I recommend you find an attorney to help you out) to assist you with your construction contracts.

Aside from a firm grasp on the Virginia construction law landscape, a Virginia-based construction attorney can, among other functions, act as a registered agent for your company as required by the VA State Corporation Commission.  Also, he or she may give you some “home field advantage” through his or her connections with and knowledge of the local courts and regulatory agencies.  Such local knowledge can assist you in dealing with claims and issues quickly and efficiently (and possibly informally).

Having a Virginia lawyer on your side will help you take advantage of local knowledge when you begin work in Virginia just as a local attorney will help in any state in which you perform construction work.

As always, I welcome and encourage your comments below, please share your thoughts.  Also, please subscribe to keep up with the latest Construction Law Musings.

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Mechanic’s liens are a powerful tool when used correctly. However, as I have discussed on numerous occasions here and elsewhere, these tools must be wielded correctly if they are to be effective.

Another case in point occurred recently in the Hanover, VA Circuit Court. In Dallan Construction Co. v. Super Structures General Contractors Inc. (Harris, J.) No. CL08-473, Jan. 30, 2009, the Court considered the question of what can be included in a mechanics lien.

Super Structures filed a mechanic’s lien for the value of work performed and materials that it ordered in preparation for doing work for Dallan Construction. Dallan canceled the project before Super Structures began work or delivered any materials to the site.

The Court determined that Super Structures’ lien was invalid because Super Structures had not provided labor or materials to the site. In short, unless you have labor or materials incorporated into or delivered to a job site you cannot properly file a mechanic’s lien in Virginia.

While this case is a Circuit Court (trial court) case, I think that it is fundamentally correct. A mechanic’s lien is a remedy that is meant to allow a construction professional to recover for the labor provided to improve a piece of property. Unless your materials and labor actively improve the real estate at the project site (for example, providing silt fencing allowing the project to commence), you should not be able to lien that project.

A lien is not a substitute for a breach of contract suit. A contract generally contains remedies that are unavailable by pursuing a mechanic’s lien and vice versa. Many times the two actions are simultaneous (and, for reasons that I will leave for a later date, many times must be enforced simultaneously if you wish to pursue both). Because a lien remedy and a contract remedy are separate, you can pursue your contract remedy even if you cannot pursue a lien.

My suggestions? Talk to an experienced construction attorney early in the construction process so that you can evaluate your options. Also, if you do in fact have lien rights, file earlier rather than later in today’s economic climate.

Please let me know your thoughts with a comment below.  I encourage you to subscribe to keep up with the latest Construction Law Musings.

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Each of the last two years, I have attended the Virginia State Bar Construction Law and Public Contracts Section Seminar.  This year it was held at the Boar’s Head Inn in Charlottesville, VA.

While there, I have the pleasure of talking with friends (among them Tim Hughes aka @vaconstruction and main force behind the Virginia Real Estate Land Use and Construction Law Blog) and others.  This networking opportunity is a great way to meet other construction attorneys, discuss cases, and make new friends.  Such opportunities make a great “real world” addition to Web 2.0 efforts.

Of course, the topics are great also.  This year, they ranged from green building, to mechanic’s liens, bankruptcy and recent developments in construction law.  I was happy to see that many of the cases that my friend Tom Wolfe of LeClairRyan cited have been discussed in various places on this blog.

Tom listed cases on waiver of arbitration clauses, recovery of delay damages on public projects, the economic loss rule, and the validity of mechanics liens that have been discussed here at Musings.

While it is gratifying to find out that someone else finds these developments in construction law important, I enjoy the opportunity to hear from other lawyers with slightly different specialties.  Learning is a good thing and I look forward to next year’s seminar.

As always, I encourage your comments below.  Also, please subscribe to keep up with the latest Construction Law Musings.

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