Collections: Timeliness of Mechanic's Lien

     The Prince William Circuit Court reviewed several interesting issues regarding mechanic's liens in the case of American Standard Homes Corp. v. Reinecke, Trustee. 

     In American Standard some of the replacement materials for the prefabricated homes were delivered to each of the six projects more than 90 days after the materials and "extras" designated in the respective material order contracts had been delivered, the time limitation for filing memoranda of mechanic's liens, specified in Virginia Code §43-4. The Court ruled that time began to run upon delivery of the material designated in the material order contracts and not from delivery of the replacement materials. The Court, in making its ruling, determined that the materials delivered under the purchase orders were not materials last furnished within the intendment of the perfection statute, thus, the six liens were not timely filed. 

     The seller of the prefab homes had argued that the material order contracts were "open-ended devices" and that, because "each contract contemplated both extras and multiple purchase orders," the materials acquired under purchase orders were, for purposes of the filing limitation prescribed by the perfection statute, materials last furnished under those contracts. The Court disagreed though, finding that each material order contract contained blank spaces beneath the word "Extras" in which the buyer listed the materials to be added to those designated in the "dry-in" and "trim" packages. Unlike the "Extras" listed in the material order contracts and included in the invoices issued when the two material packages were delivered, the "Extras" to be shipped C.O.D. under particularized purchase orders were articles which were "replacement materials" for those materials that after delivery, had been lost, damaged or stolen and were reordered. Neither the basic contract nor the material order contract required the buyer to purchase such "extras" from the seller; the buyer was free to contract with other materialmen for materials needed to replace those delivered earlier by the seller. In its purchase orders, the buyer offered to buy replacement parts from the seller. The seller accepted that offer by delivering the materials.

     The Court found that this was a contract, one separate and apart from the material order contract. The latter expressly provided that it was "THE COMPLETE AGREEMENT BETWEEN THE PARTIES." When the seller delivered the materials designated as extras listed in the contract, it delivered all it had contracted to deliver. What it delivered under the contract were the materials last furnished within the intendment of the 90-day statutory limit for filing memorandum of mechanic's lien. The Court found that the record showed with respect to each of the six liens at issue that the limitation period had expired before the seller filed its memoranda. Accordingly, the liens were unenforceable.

     The lesson of American Standard - enforcement of creditor’s rights in construction law matters is a very complex and requires experienced counsel.

Collection: Mechanics Lien voided by Old Work

     Mechanic’s liens are strictly governed by statutory law. This fact is well illustrated in the case of Johnson v. Tadlock. In Johnson the Fairfax County Circuit Court ruled that a mechanic's lien that included work performed before the 150-day statutory window was invalid in its entirety. Under the mechanic's lien statute, a memorandum of lien should not include any sums due for labor and materials furnished more than 150 days prior to the last day of work. However, the Court's decision in Johnson appears to be the first in which a Circuit Court has struck an entire lien based on the inclusion of stale work.

     In Johnson, the Court found as fact that a workman filed a mechanic's lien for $15,500 for various work, including lot clearance, removal of trees and installation of a storm drainage system and caissons. The property owner sought to have the lien released based on its inclusion of stale work. A portion of the lien (amounting to at least $1,500) was for work clearly performed within the 150-day statutory period. The property owner asserted that all or a part of the remainder of the work was performed more than 150 days prior to the workman's last day on the job.
     The Court ruled that the inclusion of a stale claim tainted the entire lien. The Court cited language in the mechanic's lien statute "no memorandum... shall include ....," to support his position. The Court pointed out that mechanic's liens are "creatures of statute" and therefore need to conform strictly to their statutory requirements. Accordingly, the court refused to remove the improper portions of the claim and rule on the proper portion of the claim - it survived or perished in its totality.
     The lesson of Johnson, as the lesson is in so many cases, obtain competent legal advise and representation in pursuing mechanic's lien claims.

Real Estate: Criminal Liability for Misuse of Construction Funds

     Virginia Code §43-13 provides that funds paid to a general contractor or subcontractor must be used to pay persons performing labor or furnishing material. Any contractor or subcontractor or any officer, director or employee of such contractor or subcontractor who, with intent to defraud, retain or use the funds, or any part thereof, paid by the owner or his agent, shall be guilty of larceny in appropriating such funds for any other use while any amount for which the contractor or subcontractor may be liable or become liable under his contract for such labor or materials remains unpaid, and may be prosecuted upon complaint of any person or persons who have not been fully paid any amount due them.
     The use by any such contractor or subcontractor or any officer, director or employee of such contractor or subcontractor of any moneys paid under the contract, before paying all amounts due or to become due for labor performed or material furnished for such building or structure, for any other purpose than paying such amounts, shall be prima facie evidence of intent to defraud.

Real Estate: Perfecting Mechanic's Liens

     In recent blogs we have been discussing the benefits of using real estate to improve creditors’ positions. On a previous blog we began a discussion of the benefits of using mechanic’s liens to aid in the collection of your debt.
     Virginia Code §§43-4, 43-7 and 43-9 provide for the perfection of the lien by general contractors, subcontractors, and laborers and suppliers. In each section the creditor must file a memorandum of lien at any time after the work is commenced or material furnished, but not later than 90 days from the last day of the month in which he last performs labor or furnishes material, and in no event later than 90 days from the time such building, structure, etc., is completed, or the work thereon otherwise terminated. The memorandum must contain specific information as set forth in the code (and there are forms in the code), and must be filed in the clerk's office in the county or city in which the building, structure etc., or any part thereof is located. The memorandum shall 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, including a statement declaring his intention to claim the benefit of the lien, and giving a brief description of the property on which he claims a lien.
     We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.

Real Estate: Using Mechanic's Liens to Secure an Interest in Real Estate

     In prior editions of Creditor News (you can view these at www.lawplc.com) we have been discussing the benefits of using real estate to improve creditors’ positions. As I have emphasized, properly securing debts through real estate could make the difference between collecting the funds and incurring a loss. In this blog, we will begin a review of the benefits of using mechanic’s liens to aid in the collection of your debt.
     Virginia Code §43-3 et. seq. provides for special procedures for the collection of unpaid bills related to work performed on, or products supplied for, real estate. §43-3 A states:
      “All persons performing labor or furnishing materials of the value of $150 or more … for the construction, removal, repair or improvement of any building or structure permanently annexed to the freehold … shall have a lien, if perfected as hereinafter provided, upon such building or structure, and so much land therewith as shall be necessary for the convenient use and enjoyment thereof … subject to the provisions of § 43-20. But when the claim is for repairs or improvements to existing structures only, no lien shall attach to the property repaired or improved unless such repairs or improvements were ordered or authorized by the owner, or his agent.”
     Virginia Code §43-3 B provides for special rules regarding condominiums.
     Virginia Code §§43-4, 43-7 and 43-9 provide for the perfection of the lien by general contractors, subcontractors, and laborers and suppliers. We will explore this more in another blog.
     We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.

Real Estate: Criminal Liability for Misuse of Construction Funds

     Virginia Code §43-13 provides that funds paid to a general contractor or subcontractor must be used to pay persons performing labor or furnishing material. Any contractor or subcontractor (or any officer, director or employee of such contractor or subcontractor) who, with intent to defraud, retains or uses funds, or any part thereof, paid by the owner or his agent, shall be guilty of larceny in appropriating such funds for any other use while any amount for which the contractor or subcontractor may be liable or become liable under his contract for such labor or materials remains unpaid.  Such person or persons may be prosecuted upon complaint of any person or persons who have not been fully paid any amount due them.
     The use by any such contractor or subcontractor (or any officer, director or employee of such contractor or subcontractor) of any funds paid under the contract, before paying all amounts due or to become due for labor performed or material furnished for such building or structure, for any other purpose than paying such amounts, shall be prima facie evidence of intent to defraud.