Monday, June 21, 2010

Lien Law Online eLert for 6/21/2010 - Virginia

June 21, 2010

Effective July 1, 2010, the requirements that apply to mechanics’ liens on one and two family residential dwelling units will change in Virginia. One and two family residences are the only types of projects for which Virginia requires notification by the lien claimant prior to or shortly after the commencement of work in order to have a valid mechanics’ lien. In order to have a valid lien, a person seeking to claim a lien on such property must notify the mechanics’ lien agent at the commencement of work that he seeks payment for labor performed or materials furnished. The notice must be in writing and delivered by registered or certified mail, or physical delivery, within 30 days of the first date the claimant performs labor or furnishes material. If the claimant fails to give notice within the appropriate 30 day period, his lien is only valid as to work performed or materials furnished on or after the date that notice is ultimately given to the mechanics’ lien agent.

Under the current law, this pre-work notification only has to be given if at the time of issuance the building permit contains the name, mailing address and telephone number of the person designated as the mechanics’ lien agent. Effective July 1, 2010, the owner or lender has more flexibility in the naming the mechanics’ lien agent. The mechanics’ lien agent’s consent to act as mechanics’ lien agent no longer has to be in writing. The name, mailing address and telephone number of the mechanics’ lien agent is no longer required to be on the building permit at the time it is issued. The party obtaining the building permit is allowed to amend the permit to name a mechanics’ lien agent or to change the mechanics’ lien agent at any time.

The lien claimant’s notice must be now given to the mechanics’ lien agent “then named on the permit or amended permit”. (Senate Bill 105).

John S. Morris, III, Esquire (Contributing Author)
Beale, Davidson, Etherington & Morris, P.C.

Thursday, June 10, 2010

Lien Law Online eLert for 6/10/2010 - North Carolina

June 7, 2010

North Carolina Business Court Rules: Ordinary Progress Payment Lien Waiver Operates to Waive and Subordinate Lien Priority.

The North Carolina Superior Court, sitting as a specially designated Complex Business Court, recently ruled that an ordinary mechanic’s lien waiver, submitted in connection with an application for progress payment, operated not only to waive the dollar amount for which the contractor could enforce a lien, but waived also the Contractor’s “first date of furnishing,” thereby resulting in a loss of statutory priority.

In North Carolina, mechanic’s liens are granted a superior priority:

“A claim of lien on real property granted by this Article shall relate to and take effect from the time of the first furnishing of labor or materials at the site of the improvement by the person claiming the claim of lien on real property.” [NCGS §44A-10]

Also, in North Carolina, the grounds and consideration required for a general waiver of lien rights are narrowly proscribed:

“An agreement to waive the right to file a claim of lien on real property. . . which agreement is in anticipation of and in consideration for the awarding of any contract, either express or implied, for the making of an improvement upon real property under this Article is against public policy and is unenforceable. This section does not prohibit subordination or release of a lien granted under. . . this Article.” [NCGS §44A-12(f)]

Accordingly, the typical interpretation in North Carolina is that a contractor has lien rights that date from its “first furnishing;” those lien rights may not be waived generally absent the payment of special consideration, and ordinary progress payment lien waivers operate only to reduce the dollar amount of an otherwise intact lien right for all unpaid sums.

In Wachovia Bank v. Superior Construction Corporation, North Carolina Superior Court, Mecklenburg County, 07 CVS 21256, the Court recently addressed the classic priority conflict between a construction lender’s deed of trust and a general contractor’s lien rights. The general contractor first furnished work on April 22, 2005. The construction lender’s deed of trust was recorded May 19, 2005. Accordingly, under NCGS §44A-10, the general contractor’s lien rights take priority over the lender’s security interest.

However, the contractor had made several initial applications for progress payments, for which it had been paid. In connection with those applications, the contractor had submitted an interim lien waiver, stating that the contractor does hereby:

“waive, relinquish, surrender and release any and all lien, claim, or right to lien on the above described project and premises, arising under and by virtue of the mechanic’s lien laws of the State of North Carolina on account of any labor performed or the furnishing of any material to the above described project and premises up to and including the 31st day of May, 2005.”

In a separate affidavit, the contractor purported to waive any claim of lien against the property “with regard to the amount of funds actually paid.”

Relying upon case law construing situations where a contractor’s waiver or subordination of lien rights was expressly bargained for in consideration of obtaining project financing1, the Court in Wachovia found that the lender’s ordinary funding of progress payments constituted the necessary contractual consideration for a general waiver of rights through May 31, 2005. As a result, the contractor‘s lien rights were not merely limited to unpaid sums. The contractor was deemed to have waived all lien rights for the period beginning with the date of first furnishing through May 31, 2005. Accordingly, all of the contractor’s remaining lien rights, including rights to retainage withheld for the period prior to May 31, 2005, were now inferior to the lender’s deed of trust. The court rejected the contractor’s arguments that the waiver was intended to waive only the dollar amount of the contractor’s rights, but to retain all other rights, including its statutory priority. The court rejected the contractor’s suggestion that the result desired by the lender required the execution of a formal subordination agreement.

The case is on appeal.

[1] See, e.g., Mace v. Bryant Construction Corp., 48 N.C.App. 297, 303 (1980).

Steven D. Hedges, Esquire (North Carolina Contributing Author)

Sparrow Wolf & Dennis, P.A.

Monday, June 7, 2010

Lien Law Online eLert for 6/7/2010 - Oregon

June 4, 2010

Oregon recently amended ORS Chapters 87 and 701 to protect residential purchasers from lien claimants and to penalize unlicensed subcontractors. See HB 3689 (2010). Specifically, the amendments bar: (1) a purchaser of residential property from waiving his/her protection from claims of lien, and (2) an unlicensed subcontractor from perfecting a claim of lien against owner-occupied residential property.

Importantly, these provisions take effect on January 1, 2011.

Thomas A. Larkin, Esquire (Contributing Author)

Stewart Sokol & Gray LLC

Lien Law Online eLert for 5/26/2010 - Utah

May 26, 2010

In recently enacted S.B. 107, which went into effect in May, the Utah Legislature included language in the lien statute addressing the time for Enforcement under Section 38-1-11 in the event of bankruptcy. The change allows that if an owner files for protection under the bankruptcy laws of the United States before the expiration of the 180-day period to file an action to enforce a lien, the action may be filed within 90-days after the automatic stay under the bankruptcy proceeding is lifted or expires.

Brian J. Babcock, Esquire (Contributing Author)