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-day 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.
Update: The bill has been changed by the House and is set to go before the senate.
As always, I welcome your comments below. Please subscribe to keep up with this and other Construction Law Musings.
Wow! Been a bit disconnected from this session. This proposal is a disaster, thanks for sharing!
Thanks for checking in Tim. I just wanted to make sure that my construction buddies knew about this bill.
FYI – I have passed this along to some folks on my end spreading the word. Definitely problematic. Would force contractors to be gearing up for lien claims literally as soon as they walk off the job.
Thanks Tim. I hope some others pick up on it too!
Great comments Chris. I think state legislatures pass these bills out of boredom sometimes. I’m in complete agreement with you. While I understand the intent to protect property owners, in reality, all this legislation is going to do is hurt the purposes of the lien statues: to protect claimants. The 60 / 90 day framework would seriously impair VA claimants. A good alternative to this bill is to spend some money on lien education for consumers and those in the industry, and/or to implement a more user-friendly notice and lien system like Utah’s SCR. Great article. Hope this bill dies.
Thanks for checking in Scott.
I’d bet dollars to doughnuts this legislation was put in the hopper at the behest of mortgage lenders who are looking for all possible ways to defeat mechanics lien claims which, now that so many residential and commercial properties are “under water,” interfere with and complicate mortgage foreclosure proceedings and cut into distribution of the proceeds of judicial sales when foreclosure lawsuits are brought to fruition.
I’d “bank on” the suspicion that the banking and mortgage lending lobby is behind this bill, and that it will be pushed hard by those interests. Unless the construction industry mounts as aggressive a lobbying effort against the legislation, I predict easy passage, and a concomitant increase in banking industry donations to the campaign coffers of legislators voting “yes.”
Thanks for the thoughts James. I am happy to say that the state AGC and ABC are pushing hard against it. The practical issues could be disastrous.
Thanks for posting this.
Aside from what has already been stated, I’m somewhat concerned about the effect it will have on the ability to perfect a lien if the owner is now notified ahead of time. In other words, what happens if the owner transfers the property in order to avoid the lien during, what will amount to, the 60-day waiting period after the notice is served. Plus the fact, I suspect a lot of contractors are going to blow their lien rights, because they may not want to rock the boat by serving the owner with a pre-Memorandum notice so soon after they demobilize.
While I can understand the need to protect the owner against a cloud on the title, if this bill passes, it is likely going to put too much risk on the contractors and subs. Unless the project ends up being bonded, the subs are probably going to suffer most, particularly in today’s economy when contractors are going under left and right.
All good thoughts Jeff. One thing that is not clear is if the clerk is to record the lien notice or if it is just to sit there without a file number. If it’s recorded, you may end up with a cloud on the owner’s title in any event.
Chris, your post reads, “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.”
You meant “90-day recording deadline,” of course … but you don’t explain in this post about the 90 days. I guess that’s a provision in the already existing law and covered somewhere in the links that you provide, but I wonder if you could address the 90-day aspect within this post also? I gather that contractors are now squeezed between a 60-day notice requirement and a 90-day deadline after payment is due for filing a lien, which does indeed sound cumbersome if I understand correctly.
Ted, thanks for catching the typo. I’ve corrected it. As far as the 90 day rule is concerned, basically, a contractor has 90 days from the last date of work in which to record its lien. Check out the second of the links in the post for a basic outline of all of the requirements.
Thanks again
Chris-
The bill reads “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.”
I read that to mean that the notice (and presumably the certified mail return receipt) is not filed with the clerk contemporaneously with the original service of the notice, but is probably attached to the memorandum 60 days later to establish that the claimant has met this new requirement. So, I suspect, there would not be a cloud on the tile until the Memorandum of Lien is filed, rather than at the time the notice is sent. And I would think that the Clerk’s would not be docketing these notice letters, waiting to be joined with the Memorandum of Lien 60 days later.
The issue is that the sentence before that one states that “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.” I read this to mean the notice of intent has to be filed contemporaneously given that a notice of lien already has to be sent to the Owner and that these notices are often recorded along with the memorandum itself.
In any event, the fact that a Clerk cannot record a lien until after the 60 day notice period has expired is concerning. Also, will there have to be a new case number opened for each of these notices? The administrative issues are staggering.
Thanks to all that are commenting, I appreciate all of the input.