Fullerton & Knowles Construction Law, attorneys, lawyers, law firm

Attorneys and Counselors at Law in Virginia, Maryland, Pennsylvania and the District of Columbia
Martindale Hubbell Peer Rated AV® Preeminent™ Law Firm

FacebookMySpaceTwitterDiggDeliciousStumbleuponGoogle Bookmarks

New Deadlines on Virginia Mechanic's Lien

The immediate risk to the Virginia Mechanic’s Lien Statute discussed below is over for this year.   Jim Fullerton and several members of the Southern Building Materials Association testified before the Virginia Senate Courts & Justice Committee, which tabled the Bill #1265. 

The original Virginia House of Delegates Bill #1265 required any mechanic’s lien claimant on any commercial or residential project in the state to provide notice sixty (60) days before filing a mechanic’s lien.  As approved by the House of Delegates on Tuesday February 14, Bill #1265 required any mechanic’s lien claimant only on a one- or two-family residential project to provide notice thirty (30) days before filing a mechanic’s lien.   It looked like it will pass in some form.  It is a testament to the active involvement by members of the construction industry, t hat the bill was passed over to next year.  The industry can expect that this issue will return in some form next year. 

As approved by the Virginia House of Delegates on Tuesday February 14, Bill #1265 required any mechanic’s lien claimant on a one- or two-family residential project to provide notice thirty (30) days before filing a mechanic’s lien (the “30 day pre-lien notice”).

  • House Bill #1265 applies only to one- or two-family residential projects, the same projects to which the Mechanic’s Lien Agent (MLA) statute applies.  House Bill #1265 does not apply and there is no change to mechanic’s lien law on commercial projects.
  • However, House Bill #1265 applies whether or not an MLA agent was named.  In other words, even if there is no MLA and you did not need to send an MLA notice because there was no MLA identified on the building permit, you must still send the 30 day pre-lien notice on a one- or two-family residential project.
  • The status is not clear on subdivision infrastructure or site development [Virginia Code Section 43-3(B)] projects.  It is still clear that the MLA statute does not apply to a Virginia Code Section 43-3(B) project.  However, if the claimant later intends to perfect a lien against a one- or two-family residential dwelling unit for subdivision infrastructure work, it may be necessary to send the 30 day pre-lien notice to the owner thirty (30) days before filing the mechanic’s lien.  This could use some clarification by the legislature.
  • This can effectively give a lien claimant a deadline of sixty (60) days after last work to preserve mechanic’s lien rights.   The deadline to file a mechanic’s lien in Virginia is at least ninety (90) days after last work, but a claimant must now send the additional 30 day pre-lien notice at least thirty (30) days before filing the lien.
  • The 30 day pre-lien notice must be sent by registered or certified mail to the MLA agent or, if no MLA has been designated, to the owner of the property.   House Bill #1265 as currently written says that “any person intending to perfect a lien . . shall notify . . . at least 30 days prior to filing a memorandum of lien.”  This makes it sound like the 30 day pre-lien notice must be received at least 30 days prior to lien filing, not just mailed at least 30 days prior to lien filing. This could use some clarification by the legislature.  This could also shorten the deadline to act to less than 60days after delivery.
  • Payment may not even be past due at the time a claimant must send this additional 30 day pre-lien notice.  The mechanic’s lien deadline counts from the date of delivery, not the date of invoice.  This may especially be a problem for retention amounts or sums held because of “pay when paid” clauses, both of which have no impact on deadlines to file a lien.
  • What if the amount of the debt changes from the time of the pre-lien notice to the time of the actual lien filing.   Under current law, the owner has the obligation to freeze payments to the general contractor once a lien claimant serves the owner notice of the actual lien filing.  Will the owner now have the obligation to freeze payments at the time of the 30 day pre-lien notice?  Can the owner defeat the suppliers’ lien rights by paying the general contractor after the pre-lien notice and until the lien is actually filed?   The Bill must be amended to clarify that the 30 day pre-lien notice will freeze any further payments.
  • House Bill #1265 as currently written says that the 30 day pre-lien notice must contain “the amount for which the person sending such notice intends to file a memorandum of lien.”  Does the lien claimant lose lien rights by delivering more material or by receiving payment, because the claimant did not accurately state the amount of the claim thirty days earlier?   This needs some clarification.
  • Subcontractor and suppliers claimants may have a hard time determining the name or address of the owner or MLA within this deadline.          Now, it is all the more important for subcontractor and suppliers to collect this information before agreeing to supply labor or material to a project.   We recommend that subcontractor and suppliers obtain a copy of the building permit before any deliveries.
  • House Bill #1265 seems to apply to a general contractor that has a contract directly with an owner, in addition to subcontractors and suppliers.  What is the purpose of requiring a general contractor to notify the owner 30 days prior to filing a lien that the owner has not paid the general contractor?  The owner knows that the owner has not paid the general contractor and/or that there is a payment dispute.

Click on this link to see the current version of House Bill #1265:

http://lis.virginia.gov/cgi-bin/legp604.exe?121+ful+HB1265H1

This firm has sent a letter to the Virginia Senate.  The full test of that letter appears below.

The Virginia Senate still needs to vote on this House Bill #1265.  Contact your Senator to express your opinion.  Click on this link to get the capital office phone number and email of legislators: http://conview.state.va.us/whosmy.nsf/main?openform

Please review the Construction Law Survival Manual, Chapter 9 for more information on the current Virginia law: 

 

Dear Senator:

I wanted to write to express my grave concerns regarding the Virginia House of Delegates Bill #1265, which I understand is now coming up for a vote in your Senate.   I have practiced construction law in the State of Virginia for over 25 years, representing owners, banks, contractors and suppliers.  This bill will significantly impact commerce within the construction industry in Virginia, with benefits that are limited and illusory.

We must remember the nation’s first mechanic’s lien law was passed in 1791 at the urging of two Virginians Thomas Jefferson and James Madison to facilitate the speedy construction of the new capital city of Washington.  Payment security for the supply of labor and material for construction is essential to economic activity.  The Virginia Little Miller Act, as well as the federal Miller Act, covering public projects were passed for the same purposes.

These objectives and Virginia’ mechanic’s lien statute have held fairly steady for over two hundred (200) years and I have not heard any argument to the contrary.  The apparent problem is that some innocent Virginia homeowners, and perhaps one member of the house of delegates personally,  get drawn into disputes involving construction projects.

A mechanic’s lien in Virginia is only valid to the extent that the owner owes funds to the general contractor at the time that the owner receives notice of the mechanic’s lien.  The owner is only required to pay for the project once.  Once the owner has paid, the owner has a complete defense to any mechanic’s lien.  In other words, the debate is not about whether a poor homeowner can be required to pay for the same labor or material twice.  The debate is about whether the unpaid contractor or supplier has a priority claim against any funds held by the owner.  If they have no rights to the fund of money they generated by supplying labor and material, contractors and suppliers are in a much riskier position and must charge every homeowner a premium to cover this risk.

I do understand that homeowners do not like being drawn into legal disputes.  However, a homeowner is in a position to manage this risk by requiring lien waivers or other evidence of payment to all suppliers, as is done on public Little Miller Act Projects.   It may be enough to say that it is impossible to entirely avoid problems when engaging in a construction project as a homeowner.   A homeowner does still have the right to a prompt hearing on the validity of any lien and/or can bond any lien off in short order.  In any event, the benefits in allowing homeowners to ignore management of their construction projects are limited, while the costs to the construction industry as a whole are large.

I do not think we need House Bill #1265 in any form.   I can tell you from experience that the deadlines to file a mechanic’s lien are already frightfully short.  House Bill #1265 will effectively shorten the deadline by another thirty (30) days. Claimants will usually need to take legal action before payment is even past due.  This would disrupt projects and business relations, generate legal fees and consume court resources towards no end.

Payment may not even be past due at the time a claimant must send this additional 30 day pre-lien notice.  The mechanic’s lien deadline counts from the date of delivery, not the date of invoice.  This is already a problem for retention amounts or sums held because of “pay when paid” clauses, both of which have no impact on deadlines to file a lien.  Contractors must disrupt projects by filing a lien if they wish to remain secured.   This will happen much more frequently if the deadline to act is shortened another 30 days.   Subcontractor and suppliers claimants will also have a hard time determining the name or address of the owner or MLA within this deadline, again effectively eliminating legal rights.

I respectfully submit that this additional notice to homeowners thirty (30) days prior to a lien filing will not benefit homeowners.  I can tell you from experience that thirty days is not enough time to get a general contractor to admit that it has not paid subcontractors or suppliers and arrange any resolution to the problem. If a general contractor is in financial trouble, they become non-communicative and will sometimes become disingenuous.  This additional notice will only eliminate mechanic’s lien rights for a larger segment of the contractor population.

In any event, House Bill #1265 as currently drafted has some conceptual problems, although it is a dramatic improvement from the original House bill.  The amendments limit application to residential projects, but also create conflicts and some confusion.  As approved by the Virginia House of Delegates on Tuesday February 14, Bill #1265 requires any mechanic’s lien claimant on a one- or two-family residential project to provide notice thirty (30) days before filing a mechanic’s lien (the “30 day pre-lien notice”).

The 30 day pre-lien notice must be sent by registered or certified mail to the MLA agent or, if no MLA has been designated, to the owner of the property.   House Bill #1265 as currently written says that “any person intending to perfect a lien . . shall notify . . . at least 30 days prior to filing a memorandum of lien.”  This makes it sound like the 30 day pre-lien notice must be received at least 30 days prior to lien filing, not just mailed at least 30 days prior to lien filing. This could use some clarification by the legislature.  This could also shorten the deadline to act to less than 60 days after delivery, creates more uncertainty and will exacerbate the timing problems discussed above.

House Bill #1265 seems to apply to a general contractor that has a contract directly with an owner, in addition to subcontractors and suppliers.  I understand frustration with a lien filing by a supplier of lumber to a general contractor, but what is the purpose of requiring a general contractor to notify the owner that the owner has not paid the general contractor?  The owner knows that the owner has not paid the general contractor and/or that there is a payment dispute.  This additional notice for general contractors only increases costs, eliminates legal rights and helps owners avoid paying legitimate debts.

What if the amount of the debt changes from the time of the pre-lien notice to the time of the actual lien filing?  Under current law, the owner has the obligation to freeze payments to the general contractor once a lien claimant serves the owner notice of the actual lien filing.  Will the owner now have the obligation to freeze payments at the time of the 30 day pre-lien notice?  Can the owner defeat the suppliers’ lien rights by paying the general contractor after the pre-lien notice and until the lien is actually filed?   The Bill must be amended to clarify that the 30 day pre-lien notice will freeze any further payments.

Does the lien claimant lose lien rights by delivering more material or by receiving payment, because the claimant did not accurately state the amount of the claim thirty days earlier?   House Bill #1265 as currently written says that the 30 day pre-lien notice shall contain “the amount for which the person sending such notice intends to file a memorandum of lien.”  There is no apparent reason to require this statement of amount of the future lien.  It would seem sufficient to state that the claimant intends to file a lien or to state the “current amount of the claim as of this day.”

House Bill #1265 applies only to one- or two-family residential projects, the same projects to which the Mechanic’s Lien Agent (MLA) statute applies.  However, House Bill #1265 applies whether or not an MLA agent was named.  In other words, even if there is no MLA and you did not need to send an MLA notice because there was no MLA identified on the building permit, you must still send the 30 day pre-lien notice on a one- or two-family residential project.  The Bill would do less damage and create less uncertainty if it simply applied any time the MLA Notice requirements apply.  A homeowner can always protect themselves by naming an MLA on the building permit.  If a contractor has complied with the MLA notice, it would be less additional burden to comply with the 30 day pre-lien notice.

The status is not clear on subdivision infrastructure or site development [Virginia Code Section 43-3(B)] projects.  To the extent this is intended as a consumer protection measure, why would it also apply to a project by a developer for a large subdivision?  It is still clear that the MLA statute does not apply to a Virginia Code Section 43-3(B) project.  However, if the claimant later intends to perfect a lien against a one- or two-family residential dwelling unit for subdivision infrastructure work, it may be necessary to send the 30 day pre-lien notice to the owner thirty (30) days before filing the mechanic’s lien.  This could also use some clarification by the legislature.  This uncertainty can again be eliminated by simply stating that this 30 day pre-lien notice applies any time the MLA Notice requirements apply.

Any homeowner engaging in a construction project has the option under the current statute of identifying a Mechanic’s Lien Agent on the building permit.  If this is done, the homeowner would have received notice from all suppliers that wanted to preserve lien rights within thirty (30) days after they began deliveries.  I assume the Delegate or homeowner involved did not name an MLA on the building permit or did nothing with the information received that certain suppliers wished to assert mechanic’s lien rights.  Any named MLA receives notice from all suppliers much sooner than the sixty days after deliveries as currently proposed under House Bill #1265.

This current MLA regime provides sufficient information to require lien waivers from all suppliers on any project.  Indeed, the most immediate problem with the current MLA statute is that the MLA and the owner are not required to do anything with the notices they receive.  House Bill #1265 makes a beneficial change in this regard, actually requiring an MLA to forward to an owner any notices received.   It would be beneficial to go even further to require an owner or settlement agent to obtain lien waivers from all contactors that have sent an MLA notice, before an owner pays a general contractor in full or before a settlement agent completes a sale from a builder to a homeowner.  This kind of impetus appears in the Florida and California mechanic’s lien statutes that require a pre notice like the Virginia MLA notice.    Potential claimants have extra hurdles, but are more likely to get paid.  Disputes are avoided. The Virginia MLA notice regime creates more hurdles that only increase costs and eliminates legal rights.  House Bill #1265 makes this yet worse.

Again, I respectfully submit that we do not need House Bill #1265 in any form.   I believe that it will only eliminate legitimate legal rights, disrupt projects and business relations, generate legal fees and consume court resources for limited or no purpose.    In any event, it needs some work and clarifications.  If you have any questions or would like to discuss anything further, please feel free to contact me.

Sincerely,

 

James D. Fullerton

 

Mon Tue Wed Thu Fri Sat Sun
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
^