Somebody to Lien On

By Timothy R. Hughes, Esq.

In part two of our series on collections, we discuss the option of using liens and bonds to recoup delinquent debts.

Your client is bankrupt and you have not been paid on your job. While the situation looks bleak, you may have additional avenues to pursue your unpaid fees. A mechanic's lien or bond claim may a valid option. Understanding the basics of liens and bonds is important to keeping potential recovery viable.

What is a mechanic's lien?

A mechanic's lien is a lien against real property improved by your construction work. Your lien claim is actually against the property rather than the client who has not paid for your work. If the property in question is valuable, a mechanic's lien may provide a route to payment.

Most states view mechanic's liens as purely statutory creatures. As such, the viability of your lien claim depends on strictly adhering to all the requirements and provisions of the mechanic's lien statute. These requirements are often complex and arcane.

General Requirements of Mechanic's Liens

Claimants are required to provide statutory notices of their lien claim. The key here is that claimants must strictly follow the requirements of their particular state's statutes or risk having their lien claims dismissed without even reaching the merits.

In Virginia, this notice is effectuated by recording a Memorandum of Mechanic's Lien in the chain of title for the property. The memorandum must include the name of the property owner, the contractor, and the claimant. The memorandum must also include a proper description of the property, a description of the work performed and the amount owed.
By contrast, Maryland requires a claimant to send a Notice of Intention to Claim Lien to the owner or owner's agent. The notice must describe the building, the amount owed and the work performed.

Each state has its own wrinkles on notice requirements. You must ensure that you or your counsel is well versed on the notice requirements to ensure you do not lose your lien case before it is even filed. Failure to properly describe the property, include the correct parties or including too much property in the lien may result in dismissal of your lien claim.

The Miller Act and Little Miller Acts

The general rule is that a contractor is not permitted to lien federally-owned property. Instead, Congress passed the Miller Act which provides for performance and payment bonds on Federal projects. Parties who fit within the provisions of the Miller Act may be able to present a claim against the bond for unpaid fees.

The Miller Act requires that contractors obtain performance and payment bonds on projects for the federal government totaling over $100,000. A party who has not been paid within 90 days of completion of their work may bring a claim against the payment bond. A party that has a direct contractual relationship with a subcontractor on the job may maintain a claim upon the bond if they give notice within 90 days of completion of their work.

Cases involving the Miller Act limit the parties that may claim under the bond. The bond extends to first-tier subcontractors supplying labor and materials directly to the prime contractor. The bond also extends to certain second-tier parties supplying labor or material directly to the subcontractors. Suppliers of material to materialmen are generally not covered. Parties beyond the second tier are not covered. Like mechanic's liens, you must comply with applicable notice provisions or risk losing your claim.

Many states have developed similar statutes for state projects. Such statutory schemes are often called "Little Miller Acts" given their parallel to the federal statutory framework.

Private Performance and Payment Bonds

In addition to federal and state statutes which mandate performance and payment bonds, some owners require bonds on private projects. In contrast to the statutory framework above, such bonds are generally deemed to be purely driven by contract principles.

The important point here is you should know if bonds are issued on your job. If bonds are issued, you should obtain copies of the bonds before you perform the work.

You must know the notice and claim requirements on the bonds on your projects. You may face a tighter time limitation than you expect for bond claims on your job. The point is to avoid waiving your claims due to failure to comply with notice and claims provisions.

Timothy R. Hughes, Esq., is the principal of the Northern Virginia law firm of Hughes & Associates, P.L.L.C. He specializes in construction litigation, corporate and business related representation, and complex civil litigation. He may be reached at tim@hughesnassociates.com, or by phone at (703) 671-8200.