Filing a memorandum of mechanic’s lien appears so simple: a one-page form with requirements for basic information such as the names of the property owner and the lien claimant, a description of the property to be liened, and the amount claimed. Yet, as any attorney who regularly files or defends against mechanic’s liens knows, there are numerous traps that must be avoided. By no means all-inclusive of such pitfalls, here are my top 5 steps to a valid lien in Virginia:
1. The “90-Day Rule.” A memorandum of lien must be recorded in the clerk’s office of the circuit court where the property to be liened is located. A memorandum of lien may be filed at any time after work has begun or materials have been furnished to a construction project, but not later than 90 days from the last day of the month in which the claimant last furnished labor or material to the project, and in no event later than 90 days from the date the project is completed or work on the project is terminated. If the lien claimant is working on the project when he files the lien, the 90-Day Rule will not be an issue. If the claimant has stopped or finished working, however, he must first identify the last date he performed substantive work on the project, then count forward 90 days (not three months). To be safe, the memorandum should be filed before the 90th day. If the project is not complete, the contractor can begin counting 90 days from the last day of the month in which he last performed work to determine the absolute deadline. Any lien filed outside of the 90-day window is invalid.
2. The “150-Day Look-Back Rule.” This rule dictates the dollar amount that can be included in any memorandum of lien. Under this rule, no lien memorandum can include amounts for labor or materials furnished more than 150 days prior to the last day the claimant last performed work or provided materials at the project. The claimant should again determine the last date he performed substantive work or furnished materials to the project. Beginning with the first day preceding that date, the claimant must count back 150 days in time. The memorandum of lien can only include amounts due for labor or materials that were actually furnished to the project during this 150-day window. This rule requires the claimant to examine invoices, time cards, job cost reports, and other data to determine whether the liened-for work was done during the 150-day period. If a claimant includes any amount in his lien for work/materials furnished prior to the 150-day period, the entire lien is invalid. Note that retainage of up to 10 percent of the contract price is excluded from the rule.
3. Notice. Written notice is extremely important and central to the mechanic’s lien process. A lien claimant who is a general contractor (by definition, one who contracts with the owner of the project) must file with the clerk of court, along with a proper memorandum of lien, a certification that he has mailed a copy of the memorandum to the owner of the property at the owner’s last known address. Failure to comply with this requirement renders the lien invalid.
A subcontractor (by definition, one who contracts with a contractor) must give written notice of the recording of the lien memorandum to the property owner. There is no time limitation for giving this notice, but until the notice is given, the owner of the project may pay the general contractor for work performed without consequence. If the owner pays the general for the subcontractor’s work that is the subject of a lien before the owner has notice of the subcontractor’s lien, the lien will be invalid to the extent of such payment. The prudent subcontractor therefore will send notice of his lien to the owner as soon as possible following the recording of the lien memorandum.
A sub-subcontractor (by definition, one who contracts with a subcontractor) must give written notice of his lien to the owner and the general contractor. For the same reasons as the subcontractor’s notice, the sub-subcontractor’s notice should be sent promptly following the recording of the lien.
A lien claimant on a one or two family residential unit has an additional notice requirement. If the owner of that project has designated a mechanic’s lien agent on the building permit, a potential lien claimant must give a specialized notice to the agent within the first 30 days of providing labor or materials or a lien filed later will be invalid.
4. Property Identification. The memorandum must reasonably identify the property to be liened. An inaccuracy in the property description will not invalidate the lien unless the wrong property is identified or the property description includes property not benefited by labor or materials which are the subject of the lien. The best practice is to research the title of the property and include its legal description in the memorandum. If the legal description includes multiple parcels, however, analysis must be performed to determine whether the liened-for work was provided to all parcels on the deed or only some of the parcels. Including in the property description parcels not worked on, liening for work performed outside of the boundary of the described property, or omitting parcels worked on, can render the entire lien invalid.
5. Property Owner Identification. The lien memorandum must name the legal owner(s) of the property to be liened at the time the memorandum is recorded. Failure to name the correct owner or to include all owners of record is fatal. Again, the best practice in preparing the lien memorandum is to research the title to ascertain the owner of record. Once the memorandum is ready to be recorded, title should be checked again on the date of recording to make sure that the property has not changed hands since the initial title search was performed.
Ownership is also important in determining the status of the lien claimant. For instance, if the owner sets up a limited liability company to contract for the work, that company becomes the “general contractor” under the mechanic’s lien statutes and the contractors performing the work assume subcontractor or sub-subcontractor status. As already noted, a claimant’s status establishes the requirements it must meet to have and enforce lien rights.
Mechanic's liens can be tricky business and this list is by no means exhaustive of the issues that must be considered in filing a valid lien. However, a mistake in any of these 5 steps guarantees the failure of an attempted mechanic's lien.