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I. What is a Mechanic's Lien?

A. Does NOT give mechanic the right to a debt

1. Debt must have foundation in contract

2. Contract can be written, oral or implied by performance

B. Provides a remedy to mechanic for speedier collection of debt

1. Also provides collateral on open account

2. Numerous mechanic's liens besides construction to land

3. Can be enforced on real estate by suit in Circuit Court

II. Who can file a mechanic's lien and on what?

A. The lien right

1. Labor and/or material greater than $50.00

2. To construct, repair or demolish any structure affixed to land

B. Parties possessing mechanic's lien rights

1. Workers or material suppliers

2. General Contractor

3. Sub-contractor

4. Sub-subcontractor

5. Surveyors, Engineers, Architects, Security agencies, Demolition contractor

C. Property subject to mechanic's lien

1. Must be actual improvements to land, not merely planned

2. Some personalty (machinery essential to structure although legally not a "fixture")

3. Specific examples

a. Railroad track

b. Swimming pool

c. Parking lot

d. Well

e. Curb/gutter

f. Water or septic system

4. Repairs to existing structures without direct contract with legal owner, but must be ratified by owner

a. Real estate agent

b. Contractual purchaser prior to closing

c. Lessee (Tenant)

5. Multiple contracts, lots and buildings

6. Condominiums

a. On specific unit and its interest in common areas if contract with individual owner

b. On all units and common areas if materials attributable to all by common element ownership percentage

7. United States, State, Local and governmental authority property IS NOT subject to mechanic's lien statute

III. When and how is mechanic's lien filed and what does it include?

A. When to file

1. Must be after work done/materials furnished OR building completed or work terminated

2. Payment must be due and owing

3. Mechanic's lien must be filed within 90 days of last day of month in which last labor or material furnished, but in no event later than 90 days after completion of entire building

a. Warranty work does not toll running of 90 days

b. Intentionally failing to complete all aspects of contract does not toll

B. How to file

1. Must include statutory requirements

a. Owner's name and address

b. Claimant's name and address

c. Type of materials or labor furnished

d. Amount due

e. Type of structure built

f. Description and location of property sufficient to "reasonably identify" it

h. List of all contractors and subs in tier chain

i. Date from which interest accrues

2. Must be sworn to by claimant or agent of claimant

3. Must send notice to owner of property liened via certified mail

4. Must send notice to general contractor via certified mail if sub-sub is filing mechanic's lien

5. Record in Circuit Court Clerk's Office (like a deed) where structure is built, Clerk's fee is $21.00.

C. What mechanic's lien includes

1. Contractual price of material and labor furnished in last 150 days.

2. Interest on above items

3. Clerk's fee to file mechanic's lien

4. Does NOT include attorney's fees, even if provided for in contract between parties

5. Mechanic's lien is only valid to the amount (if any) which owner is indebted to general contractor for (and general contractor indebted to sub if claimant is sub-sub)

IV. What is effect of filed mechanic's lien?

A. Lien on owner's real estate

B. Impediment against construction process on job to general and/or sub if filed by sub or sub-sub

C. Potentially can stop draws on construction loan until resolved

1. Attorney of owner will report to title company and construction lender

2. If missed, mechanic's lien amount could have priority over amounts advanced by construction lender

D. Is prior to unfiled United States tax lien and Virginia tax lien

E. Priority among multiple mechanic's liens depends solely on tier of claimant

1. Sub-sub tier prior to sub tier prior to general tier

2. No priority within tier, paid ratably

F. Is secured claim in bankruptcy of owner

1. Can be filed after bankruptcy

2. Mechanic's Lien is stayed by bankruptcy for suit enforcement purposes- statute of limitations is tolled until discharge order

G. Filed mechanic's lien is NOT judgment, must file suit to obtain judgment within 6 months of filing

V. How is lien of mechanic's lien enforced?

A. Suit filed on equity side of Circuit Court where structure is or owner resides

1. Absolutely must be filed within 6 months from time lien filed OR within 60 days of completion of structure, whichever is last

2. If mechanic's lien is upheld and matures into a judgment, Court can order sale of property to pay mechanic's lien and grant personal judgment against owner and higher tier parties in procurement chain

3. Even if mechanic's lien not upheld, Court can grant personal judgment against owner, general or higher tier sub

VI. Personal Liability and Criminal Sanctions under the Mechanic's Lien Statutes

A. 43-11. How a remote party can obtain direct personal liability

1. Subcontractor can make owner and/or general contractor liable by filing a pre-notice stating nature and probable amount of contract

2. Use of second notice with affidavit of account to obtain personal liability

a. Must contain "a correct account" of amount due

b. Must act within 30 days after completion of structure or termination of work

c. Certified mail-return receipt to owner or owner and general

d. Option, can serve affidavit as would a suit and record sheriffs return in Circuit Court Clerks? Office

3. Usual Mechanic's Lien rule applies that owner and general must be indebted to lower tier

B. 43-13. A general or sub who uses construction funds for their own purposes before fully paying lower tiers can be criminally prosecuted

1. Mere use of funds while labor or material is unpaid is prima facie "intent to defraud"

2. Amount under $200 is misdemeanor of petty larceny (up to 12 months jail and/or $1,000 fine)

3. Amount of $200 or more is felony of grand larceny (up to 20 years prison)

C. 43-13.1. One who forges a mechanic's lien waiver may be prosecuted for a felony

VII. Owner/General Defenses to a Mechanic's Lien

A. If owner has paid all contractual amounts due, mechanic's lien will be barred

1. If owner owes less than amount of mechanic's lien, lien cannot rise above amount owed

2. Same rules apply to general contractor (payment defense)

B. Amounts owner pays to finish structure due to general contractor default have super priority over any filed mechanic's liens

1. Only applies to general or subcontractor on default of lower tier if contract provides for right of offset

2. Lower tier needs to be aware of payment realities prior to filing lien

C. Any party may demand prompt court hearing pursuant to § 43-17.1 to challenge validity of filed lien

1. If lien invalid on its face, court can order release

2. If disputable issues exist they must be resolved by the normal enforcement process, usually Commissioner's Hearing

D. Any party can always bond filed mechanic's lien off of property

1. Cash or surety bond

2. Court order required-is almost perfunctory

3. Mechanic's lien claimant loses direct leverage on construction process

a. Must name surety as party to enforcement suit

b. Judgment by claimant will result in prompt payment


© 2015 Eugene W. Shannon, PLC 


 

Eugene W. Shannon, PLC
ATTORNEY AT LAW

Suite 200
426 East Freemason Street
Norfolk, Virginia 23510

Phone: 757-625-1771
 
Fax: 757-622-1703


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