A Pro-Claimant Mechanic’s Lien Case from the Virginia Supreme Court

The Virginia Supreme Court has just issued a striking mechanic’s lien opinion in Ulka Desai v. A. R. Design Grp., Inc., 293 Va. 426, 799 S.E.2d 506 (2017) (“Desai”). This can only be described as the most pro-claimant mechanic’s lien opinion from the Virginia Supreme Court in a generation.

Like many other state supreme courts, Virginia has “strictly construed” its mechanic’s lien code, especially in the last thirty years. This means that a mechanic’s lien claimant must precisely comply with all requirements of the Virginia Code in order to perfect a valid mechanic’s lien. Even if the mechanic’s lien code was not changing, mechanic’s liens were found invalid in one case after another on grounds previously unknown. This has been a cumulative and expanding trend. It has become increasingly difficult to file a valid mechanic’s lien.

Section 43-15 has been in the Virginia Code since at least 1919,[1] but has almost never found its way into judicial consideration in order to find a lien valid. Section 43-15 states:

No inaccuracy in the memorandum filed, or in the description of the property to be covered by the lien, shall invalidate the lien, if the property can be reasonably identified by the description given and the memorandum conforms substantially to the requirements of §§ 43-5, 43-8 and 43-10, respectively, and is not willfully false.

In Desai, the Supreme Court has now employed Section 43-15, to find that the claimant had substantially complied with code requirements and that the challenged mechanic’s lien was valid.

The Virginia Code provides forms to use to draft a mechanic’s lien in §§ 43-5, 43-8 and 43-10, one of which was used by the claimant in Desai to file two memoranda of mechanic’s lien. Code section 43-5 states that:

The memorandum and affidavit required by § 43-4 shall be sufficient if substantially in form and effect as follows:

Memorandum for Mechanic's Lien Claimed by General Contractor.

Name of owner:.........................................................…

Address of owner:......................................................…

Name of claimant:......................................................…

Address of claimant:...................................................…

Contractor license or certificate number of claimant
(if applicable):.................................................…

Issuance date of license or certificate
(if applicable):.................................................…

Expiration date of license or certificate
(if applicable):.................................................…

If no contractor license or certificate number is included, the claimant
certifies that such a valid license or certificate is not required by law for
the work done for which the benefit of a lien is claimed.

Type of materials or services furnished:.........................…
Amount claimed: $................................................…
Type of structure on which work done or materials furnished:.....…
Brief description and location of real property:.................................................
Date from which interest on the above amount is claimed: ...................…

Date: ...................…

It is the intent of the claimant to claim the benefit of a lien.

The undersigned hereby certifies that he has mailed a copy of this
memorandum of lien to the owner of the property at the owner's last known
address: ..................................(address), on ....… (date of
mailing).
.......................................................… (Name of claimant).

Affidavit.

State of Virginia,

County (or city) of .................., to wit:

I, ...................… (notary or other officer) for the county (or city) aforesaid, do certify that ..................… claimant, or ................, agent for claimant, this day made oath before me in my county (or city) aforesaid that .................… (the owner) is justly indebted to claimant in the sum of ..........… dollars, for the
consideration stated in the foregoing memorandum, and that the same is payable
as therein stated.

Given under my hand this the ....… day of ................., 20…
......................................(Notary Public or Magistrate, et cetera.)

This Desai opinion gives us confirmation that these forms do operate as a “safe harbor.”

Virginia Code § 43-4 specifies the steps necessary to perfect a mechanic's lien: when it must be filed, where to file it, and what must be included in the memorandum of mechanic's lien. “Strictly construing” § 43-4 has led the Virginia Supreme Court to find many mechanic’s liens invalid. Amongst other things, § 43-4 requires the claimant to:

show the names of the owner of the property sought to be charged, and of the claimant of the lien, the amount and consideration of his claim, and the time or times when the same is or will be due and payable, verified by the oath of the claimant, or his agent.

In Desai, the owner contended that memoranda did not properly identify the owner, did not show when the claim became due or when interest began to run and did not have a proper verification by oath of the claimant. However, the Supreme Court found that the memoranda substantially complied with the Code and were valid.

The real estate in Desai was owned by a trust, rather than any individual or other entity. One mechanic’s lien filed did not identify the trust as the owner and only identified an individual, Ulka Desai, as owner. Although she was, the memorandum did not state that Ulka Desai was the trustee of the owner trust. The Supreme Court found that “legal title” to the real estate was in the name of the trustee Ulka Desai. For this reason, the lien properly identified the owner of the real estate. The absence of the word "trustee" after her name would not have negatively impacted a land records index search.

There was also a problem with the claimant signature on both liens. Code Section 43-4 requires that the debt be verified by the oath of the claimant, or his agent. The wrong blank was filled in the safe harbor form so that the affiant (person swearing oath) was incorrectly identified as the “claimant” rather than the “agent of claimant.” The Supreme Court found that the memoranda still substantially complied with the Code.

Code Section 43-4 also requires that the memorandum of mechanic’s lien “show. . . the time or times when the [claim] is or will be due and payable.” The safe harbor form provides a blank to fill in reading: Date from which interest on the above amount is claimed: ...................… This is an interesting twitch in the code, at least for lawyers, because Sec 43-4 very definitely requires one thing, while the safe harbor form portions of the code say that a memorandum substantially complies if it provides different information.

However, the memoranda in Desai did not provide either. They were silent about the date from which interest was claimed or the date the claim became due. However, the claimant took the position that it was not claiming interest. The affidavit provided in the safe harbor form used by the claimant does say in the affidavit that the sum listed was "payable as therein stated." The Supreme Court found that this language constituted substantial compliance with the Code requirements, at least if a claimant was not claiming interest. The Court stated that a lienholder who is not claiming any interest does not fall within the plain language of Code § 43-5. The memoranda were sufficient to alert the owner that the lien claimant was seeking amounts presently due, rather than amounts "not yet due."

In the past, many would not have been surprised to see the Virginia Supreme Court find these memoranda of lien invalid on any of the three grounds argued by the owner in Desai. It is noteworthy that the claimant’s arguments were accepted on all three. However, the most striking part of the Desai opinion is the adoption of the “substantial compliance” standard in Section 43-15 to evaluate lien validity and the apparent need to find “prejudice” (damage) from the Code noncompliance. The Supreme Court held that the word "substantial" means "something of moment: an important or material matter, thing, or part." The Court held that a defect in a memorandum of mechanic's lien is substantial if it would prejudice a party or if it would thwart one of the purposes underlying the statute. Does any property owner now need to show that they were somehow damaged by missing or incorrect information in a mechanic’s lien or show that the Code’s purposes were somehow thwarted in order to argue a lien invalid?

[1] The current § 43-15 has been in the Virginia Code unchanged since 1919. However an apparently similar predecessor code section is discussed in Gilman v. Ryan, 95 Va. 494, 497, 28 S.E. 875, 876 (1898)[By section 2478 a substantial compliance is declared to be sufficient, but nothing less than a substantial compliance will answer. It provides that "no inaccuracy in the account filed * * * * shall invalidate the lien if * * * * the account conform substantially to the requirements" of the statute "and is not willfully false”].