Mechanic’s Liens – Construction Law Musings- Richmond, VA

A Lien By Any Other Name Can Sound Just As Sweet

Originally posted 2014-08-04 09:00:11.

For this weeks Guest Post Friday here at Musings, we have our first three time guest poster. Scott Wolfe, Jr. (@scottwolfejr on Twitter) is a construction lawyer practicing in Washington, Oregon and Louisiana. He is the founding member of the bi-coastal construction law boutique practice, Wolfe Law Group. He is also the founder of Express Lien, a nationwide lien service that offers a free web-based preliminary notice and lien management software. Check out his great blogs on various areas of construction law.

Nearly everyone in the construction industry has heard the term “lien” thrown around on a project. Depending on the type of project being constructed, however, the lien-like remedies available to you may differ significantly.

This post discusses the types of lien or claim remedies available to contractors, suppliers and laborers on the three classes of construction projects: private, state and federal. This post discusses the concepts broadly, and does not focus on the law of any particular state. Remember that laws differ from state-to-state, and it’s important to consult the laws applicable to your project.

The Lien – Private Works

When you think of the term “lien,” you are likely thinking of the remedy available to unpaid parties on a private construction project.

In most states, when a party provides labor and/or materials to an improvement, and the party is not paid, the law allows that party to file a lien on the property itself and claim a privilege thereon (similar to a mortgage privilege held by a bank on mortgaged property).

This is the key difference between a private lien and a public claim. Unlike most public claims, a private lien actually gives the unpaid party a privilege upon the property. Most states then allow the lien claimant to bring a proceeding against the property owner to foreclose on the lien (and thus, the property).

To acquire this powerful privilege, many states require contractors to send pre-lien notices. The notice may be due before work begins or immediately thereafter, and other notices may be due immediately before filing the lien itself.

The first step to knowing the notice requirements in your state, however, is knowing the type of lien you’ll file on a project. It’s something you’ll want to understand from the start of your work.

Claims on State Projects

Most states do not allow “liens” to be taken against property owned by the state. Accordingly, the traditional “lien” that can be filed on a private work cannot be filed on a public work.

However, this does not leave unpaid contractors, suppliers and laborers without a remedy.

Normally, a state project will require the general contractor to post a bond in an amount sufficient to pay for the claims of all subcontractors, laborers and suppliers. In the event you’re unpaid on a state project, most states allow the unpaid party to file a claim against that bond.

Usually, this process is referred to as filing a claim, as opposed to filing a lien.

Three key things to keep in mind when working on a state project:

(1) Like a private lien, state projects may also require you to send pre-claim notices, so familiarize yourself with those requirements;

(2) Like a private lien, you will only have so long to assert your claim against the bond, so do it timely; and

(3) It’s important to know the name of the surety and the public entity in charge of the work, as you’ll be required to notify these parties of your claim. Have this information from the start of construction, or request it from the general (you’re entitled to know).

Claims on Federal Projects

Like property owned by the state, property owned by the federal government cannot be liened. Unpaid contractors, suppliers and laborers must bring a claim against the general contractor’s bond, through what is referred to as a “Miller Act Claim.”

To make a claim under the Miller Act, first tier subs and suppliers must bring suit against the bond within 1 year from last furnishing labor and/or materials, and must deliver notice to the owner and/or surety. Second tier subs and suppliers to first tier subs must deliver a Miller Act Notice to the prime contractor within 90 days from last furnishing labor and/or materials to the project, and a suit must be brought within 1 year of last furnishing labor and/or materials.

Again, as it is true with state projects, it’s important to know the name of the surety and the public entity in charge of the work. If it’s not provided to you, you can request it.

Conclusion

Regardless of what class of project you’re working on, a lien-like remedy is probably available to you in the event of non-payment. However, it’s critical to understand the different remedies available at the onset of construction, for each remedy carries different pre-lien or pre-claim requirements.

As always, both Scott and I encourage your comments below. I also encourage you to subscribe to keep up with this and other Guest Post Fridays at Construction Law Musings.

Bankruptcy and the Virginia Mechanic’s Lien

Originally posted 2015-04-06 09:00:30.

: Image via Wikipedia

Unfortunately, developer bankruptcies are very much in the news these days. This news, while unsurprising in today’s economy and given the housing issues that hit last year, can give heartburn to those contractors that perform the site work, pave the roads, and of course build the houses at these developments. Like Musings has discussed before, bankruptcy of an owner or developer is a real possibility for which contractors and subcontractors must prepare.

However, contractors in Virginia may have a silver lining for the bankruptcy cloud. Virginia mechanic’s liens, being creatures of statute, survive bankruptcy and remain in force even after the owner of the property files for bankruptcy. Even more importantly, the 6 month statute of limitations on filing a case to enforce your mechanic’s lien stops running as of the date that bankruptcy is filed.

Even more importantly, aside from certain specific situations, mechanic’s liens in Virginia gain priority over all other secured liens.

In short, in today’s climate, contractors should not feel that they are completely helpless in the bankruptcy fight. Filing a mechanic’s lien after consultation with an experienced attorney can put a contractor or subcontractor in as good a position as possible should he owner of a project file for bankruptcy.

Please comment below, or subscribe to Musings if you find this of interest.

Back Posting with Thoughts on Lien Waivers

Originally posted 2015-05-18 09:00:46.

The seals of the Commonwealth of Virginia (Photo credit: Wikipedia)

After a week of being unable to post due to the rigors of my solo construction practice, I’m back on the blogging train. For those of you that missed my new musings this past week, I hope that you had a chance to look through some of the past Guest Post Friday posts for some good stuff to read.

During the course of my busy week last week, a question came up regarding the mechanic’s lien waivers that commercial construction companies routinely execute as part of the payment process. The waiver forms vary, but each essentially states that in exchange for payment the payee, whether a subcontractor or supplier (or even general contractor) waives its future rights to record a mechanic’s lien for the work that is covered by the payment received. Most if not all of these forms further require a certification that the funds paid will either be used to pay suppliers or that suppliers have already been paid. This general description is not the reason for this post.

Continue reading Back Posting with Thoughts on Lien Waivers

Mechanic’s Liens- Big Exception

Originally posted 2012-11-12 09:00:03.

Image via Wikipedia

Musings has discussed mechanic’s liens on numerous occasions.

As we discussed in earlier posts, the general rule is that a mechanic’s lien jumps to the head of the line of liens when filed. This is true in most instances. In the typical case, a contractor puts up a building and, when the owner refuses payment, it files a mechanic’s lien that takes priority over all other liens on that property, including the construction loan deed of trust (or mortgage, depending on your state’s property laws).

However, in Virginia, an exception exists. The Virginia Code provides that in a case where there is a loan on the land with a deed of trust, and then a construction loan with its own security in the land, the first lien holder can enforce its lien up to the value of the original and unimproved land on which it placed its lien. The mechanic’s lien holder takes priority on any value added to the property based on any improvements (i. e. the building itself) over any other liens.

When the construction loan is secured by the same deed of trust as the purchase loan, the mechanic’s lien takes precedence. Of course, these are the general rules. Your particular situation must be examined carefully by an attorney or other professional experienced in mechanic’s liens to determine the priority of your lien.

As always, please comment below and/or subscribe to receive updates on this and other topics here at Musings.

Do We Really Want Courts Deciding if Our Construction Contracts are Fair?

Originally posted 2015-03-17 10:06:56.

Virginia General Assembly (Photo credit: Wikipedia)

As I posted recently, the Virginia General Assembly has passed, and I can see no reason why the governor won’t sign, a bill that would essentially invalidate preemptive contractual waivers of lien rights as they relate to subcontractors and material suppliers. It does not apply to General Contractors, but it is a step in what many (including those attorneys that represent subcontractors and suppliers) believe is the right direction.

Of course, as soon as I posted last week, my friend and colleague Scott Wolfe (@scottwolfejr) commented on that post and then gave his two cents worth at his Zlien blog. The gist of the comments here at Musings and the post over at his blog was essentially that these contractual provisions were inherently unfair and therefore should be abolished because of both a relative disparity in leverage between the Owner or GC and the Subcontractor when it comes to negotiations and the fact that subcontractors often don’t read their contracts or discuss them with a construction attorney prior to signing them. I hear this first of his arguments often when I am reviewing a contract after the fact and a client or potential client acts surprised that a provision will be enforced and the courts of the Commonwealth of Virginia will actually enforce them. As to Scott’s second reason, I have always warned here at Musings that you should read your contracts carefully because they will be the law of your business relationship in the future.

Continue reading Do We Really Want Courts Deciding if Our Construction Contracts are Fair?