Virginia Finds Mechanics' Liens Enforceable but Remands to Examine Whether the Entire Property May be Sold to Satisfy the Lien

In Glasser & Glasser, PLC v. Jack Bays, Inc., 2013 WL 718748 (Va. Sup. Ct.) (Record Nos. 120287-120289) (Feb. 28, 2013), the Virginia Supreme Court recently examined fourteen assignments of error raised by the petitioners to a circuit court’s final order directing the sale of twenty-two acres of land to satisfy several mechanic’s liens.  On appeal, the Court rejected all but one assignment of error but ultimately remanded to take evidence as to the propriety of the sale of the entire 22 acre property to satisfy the mechanic’s liens when the improvements were only made on 2.8 acres.  Of note in this decision, is the Court’s analysis on the application of the 90-day rule and the 150-day rule that provides additional guidance to lien claimants.

Jack Bays, Inc. was a general contractor hired by New Life Anointed Ministries International (“New Life”) to construct a new church building on 2.8 acres of a 22 acre property in Woodbridge, Virginia.  The construction was financed in part by Glasser & Glasser, as well as two other banks (collectively, the “Lenders”), who secured their funding with a deed of trust and a note.

Approximately two years into the project, New Life exhausted its funding for construction and began looking for new financing.  As a result of nonpayment by New Life, on September 28, 2007, Jack Bays sent a memorandum to its subcontractors advising that Jack Bays was immediately stopping its active work on the church, and asking the subcontractors to consider waiting until November to file any mechanic’s liens  to enable New Life to attempt to obtain new financing.  That same day, Jack Bays began shutting down its active work.  Subcontractors remained onsite until November 16, demobilizing and ensuring the safety of the site.

On December 28, 2007, Jack Bays recorded its memorandum of mechanic’s lien.  In December 2007 and January 2008, twelve subcontractors also recorded mechanic’s liens.  The issue of the enforceability of the liens were all referred to a commissioner in chancery, who found that, among other things, Jack Bays did not violate either the 90-day filing deadline or the150-day “look-back”  rules imposed under Virginia Code Sec. 43-4.  The Lenders filed exceptions, and the circuit court rejected the Lenders’ arguments, ordering that the entire 22 acres be sold with the proceeds of the sale being applied to the satisfaction of the liens.  The Lenders appealed.

The 90-Day Rule

Virginia Code Sec. 43-4 requires that in order for a mechanic’s lien claimant to perfect its lien, the claimant shall:

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, or railroad is completed, or the work thereon otherwise terminated.

Clearly the lien was filed within the first of the two deadlines, 90 days from the last day of the month in which Jack Bays’ last performed labor, but the Lenders argued on appeal that Jack Bays’ lien was filed one day beyond the absolute 90-day deadline from termination of the work, and should therefore be dismissed.

When calculating the 90 days for the filing of Jack Bays’ lien, the Lenders allege that Jack Bays’ September 28 memorandum to its subcontractors “otherwise terminated” the work on the church, thus beginning the 90-day period, which would render Jack Bays’ lien invalid for having been filed ninety-one days later, on December 28.  The Lenders conceded that if the work was not “deemed terminated” on September 28, the limitations clock would not begin until the last day of September, and Jack Bays’ December 28 lien would have been timely filed.  Finding in favor of the latter construction, and allowing Jack Bays’ lien to stand, the Court looked to its precedent defining “otherwise terminated” to mean when the contract ceased.  Here, the Court concluded that the work did not stop on the project on September 28, because several of Jack Bays’ subcontractors remained on the project through October and into November, demobilizing and otherwise rendering the site safe.  The Court therefore affirmed the decisions of the commissioner and the circuit court, and ruled that Jack Bays complied with the 90-day rule, and its lien was timely.

The 150-Day Rule

Virginia Code Sec. 43-4 also provides that:

the lien claimant may file any number of memoranda but no memorandum filed pursuant to this chapter shall include sums due for labor or materials furnished more than 150 days prior to the last day on which labor was performed or material furnished to the job preceding the filing of such memorandum.

The Lenders also argued that Jack Bays violated the 150-day “look back” rule, by first asserting that a unitary date should apply for all lien claimants, which was summarily dismissed by the Court based on the plain language of the Code.  The Lenders’ then unsuccessfully argued that even if the 150-day rule was not unitary, Jack  Bays’ lien was untimely because Jack Bays used September 28 as the look back date, when Jack Bays, through its subcontractors, was onsite far past that date.  Dismissing that argument, the Court cited to testimony from Jack Bays’ site superintendent and president, demonstrating that although Jack Bays informed its subcontractors to cease work on September 28, the following demobilizing and safety work did not add any value to the project which would otherwise extend the date for the 150-day calculation.  While recognizing the somewhat inconsistent approach in its analysis of both time periods, the Court explained that:

these distinct dates are used because Code § 43-4 provides that in the circumstances presented by this case, the proper date to use when evaluating compliance with the 90-day rule is the end of the relevant month where a contractor last works on a structure, when that structure is not fully completed.  The 150-day rule, on the other hand, requires that courts calculate time based on when the contractor last performs labor or finishes material – not necessarily at the end of a month.

Jack Bays’ lien was therefore in compliance with the Code, and enforceable.

Sale of the Entire Property

As mentioned above, although the liens were proper and enforceable, the Court still held there was no evidence to support the circuit court’s final order directing the sale of the entire 22 acre property, when the lien claimants only improved 2.8 acres of that parcel.  Referring to the language of Virginia Code Sec. 43-3 that mechanic’s liens only apply to “so much land therewith as shall be necessary for the convenient use and enjoyment thereof,” the Court instructed that thus far, there had been no evidence to demonstrate that the sale of the entire property was necessary for the convenient use and enjoyment thereof, and remanded the case for further proceedings on that question.

On remand, we can expect that the circuit court’s evaluation of the sale of the entire property will provide even further guidance on what lien claimants can realistically collect on their liens.