Why You Should Lien First (and Ask Questions Later) in VirginiaOn May 18, 2010 By Wolfe Guest
Christopher Hill is a LEED AP and construction lawyer in Richmond, VA. He is a member of Virginia’s Legal Elite in Construction Law and authors the Construction Law Musings blog. You can also follow him on Twitter at @constructionlaw.
First of all, thanks to Scott for allowing me the forum to guest post here at the Construction Law Monitor. When I was thinking of a topic, I realized that mechanic’s liens in Virginia are extremely powerful. Their power is particularly helpful when, like now, the construction economy is not exactly booming.
Why do I say that a lien in Virginia is so powerful? Two reasons, 1. the lien (with one exception) takes priority over even a first mortgage or deed of trust, and 2. a lien in Virginia (assuming it is filed correctly) is perfected and enforceable as soon as it is recorded. This one two punch creates a situation in which a construction subcontractor can suddenly move from a position of vulnerability to one of strength. Once the lien hits the courthouse, and notice goes to the Owner, things generally start to happen:
1. The bank gets nervous; 2. The Owner begins to fret and squeeze the General Contractor to see why the sub has not been paid; 3. The subcontractor’s construction attorney hopefully gets a call; and, importantly 4. Money starts to flow (or at the very least the General Contractor is forced to file a bond with the Court to assure that the sub will be paid). In short, until you, a construction professional who is owed money, are presented with the “fish or cut bait” scenario of having to file a suit to enforce the lien or stick with a breach of contract action, you are in the driver’s seat. Of course, this assumes that you and your attorney have properly met the picky requirements of a Virginia mechanic’s lien.
The second point is equally important. The fact that a commercial subcontractor or supplier does not need to perform any additional steps, aside from recording the lien, in order to perfect it means that your lien not only survives bankruptcy if filed prior to the Owner’s bankruptcy filing, it means it can be a secured lien even after bankruptcy of the Owner. All that the bankruptcy does regarding your lien is to stop the clock on the 6 month filing deadline for the length of the stay. I have seen more than one instance where having this secured position in a bankruptcy is the difference between pennies on the dollar and almost full recovery out of the bankruptcy.
In short, don’t wait to file your lien in hopes that you will get paid. While I always prefer that construction professionals work things out short of litigation and enjoy representing construction pros in and around Richmond because they generally do so, now is not the time to let your lien rights lapse. Any General Contractor or Owner that balks at your exercising your lien rights is not likely to pay in any event. Those Owners and General Contractors that see your actions as “just business” are more likely to be folks for whom you will want to work in the future.
In sum, a mechanic’s lien, filed in a timely and proper fashion, can be, and generally is, a cost effective and powerful collection tool for Virginia contractors. Construction professionals in Virginia should not see such liens as a last resort, but as one of the arrows in their collection quiver to be used when an Owner or General Contractor (with or without fault) fails to pay them in a timely fashion.