A. Mechanic’s Liens: Introduction
A Mechanic’s Lien is a security interest in the title of real or personal property placed by those who supplied the materials or provided the labor to improve the property. A “mechanic” is not necessarily the modern interpretation of someone who repairs machinery, but actually describes a person or company that provides the labor or materials for the improvement of property - thus, the tool is called a Mechanic’s Lien. This particular remedy is typically used by contractors and subcontractors as a defense against the nonpayment or the imperfection of tender for a construction contract. Mechanic’s Liens are governed by the various state laws and interpretations. This guide will provide an in depth examination into the facets of the Mechanic’s Lien in the District of Columbia.
The District of Columbia provides a favorable Mechanic’s Liens statute for contractors. In order to apply a Mechanic’s Lien to a property, one must file a form with the District of Columbia Recorder of Deeds - Land Records division. The District of Columbia requires this form to be filed with the Recorder of Deeds within 90 days after either the completion or the termination of the project. In addition, subcontractors are entitled to ask for information from the owner and the contractor.
A significant advantage of the Mechanic’s Lien is that it carries a greater priority than other liens on the property. Once filed, the lien may survive a bankruptcy or even a sale of the property. Of note, the owner of the property retains a “defense of payment,” meaning that all contractor and subcontractor Mechanic’s Liens are dismissed upon the payment in full of the general contractor.
The Notice of a Mechanic’s Lien does not need to be prefiled before construction. However, the District of Columbia does require all contractors to file a Notice of a Mechanic’s Lien at the Recorder of Deeds within 90 days of either the completion or the termination of the project, in addition to the service of the Notice on the owner of the property by certified mail within five business days of the filing. Contractors have 180 days from the filing to enforce the Mechanic’s Lien with a lawsuit, and must also file a notice with the Recorder of Deeds that a lawsuit has been filed within ten days of filing the complaint.
a. Payment Defense
As mentioned above, the Defense of Payment suggests that a Mechanic’s Lien placed by a contractor or subcontractor is defeated if and when the owner of the project can prove that the cost of the project has been paid in its entirety. Until the owner has been notified of the general contractor’s Mechanic’s Lien, the owner can make payments on the balance to the general contractor as they please, which weakens the ability of the subcontractor to place their own lien on the property. Because the subcontractor’s lien is only as strong as the argument of the general contractor on the project owner, the subcontractor is at a disadvantage if they do not file the lien in due course.
As is generally the case, the priority of liens is typically determined by the timing of their filing. For example, the first lien filed with the Recorder of Deeds will be the first mortgage, which carries with it first priority as a creditor to any proceeds from a sale or foreclosure of the property. If a second mortgage is filed with the Recorder of Deeds at a later time, it will be the second mortgage. If and when the property is foreclosed upon, the second mortgage will not receive any payments on their amount due until the first mortgage is paid in full.
Of the few exceptions to the “first in time, first in right” rule, one is county real estate tax liens which have absolute priority. A second exception is that the District of Columbia Mechanic’s Lien is considered “inchoate,” meaning it relates back to the time the labor or material is supplied to the property. As such, any judgment lien or mortgage lien recorded following the inception of the work on the property will take a lower priority to the Mechanic’s Lien.
In general terms, the District of Columbia Mechanic’s Lien carries priority over all other liens and mortgages once work has commenced. It does not, however, take priority over construction loan advances created following the filing of the Notice of Mechanic’s Lien. The Mechanic’s Lien’s priority only presupposes post-notice advances, despite a construction loan recorded before the Notice. It should also be noted that a District of Columbia Mechanic’s Lien does not carry priority over a mortgage used to pay the full purchase price of the property.
When the related improvement also includes subcontractors, it is important to know where the subcontractor’s Mechanic’s Lien would lay in the line of priority. Subcontractors take priority over general contractors. When the proceeds from payments on the liens of subcontractors are not sufficient to pay the claims in full, they are distributed on a pro rata basis.
c. Sale or Foreclosure of Property and Bankruptcy
The District of Columbia Mechanic’s Lien generally survives a foreclosure of a property for one reason - Mechanic’s Liens in the District of Columbia are inchoate, and therefore superior to most other liens that have been recorded following the commencement of work on the project. If and when a foreclosure takes place with an inferior lien, the new owner of the property assumes title subject to the lien. However, if a lender with higher priority forecloses, the purchaser takes title to the property without the Mechanic’s Lien.
While case law is scarce in the District of Columbia as to how to treat Mechanic’s Liens during a bankruptcy proceeding, other state courts have held that the automatic stay does not automatically stay the perfection of the Mechanic’s Lien. The logic behind this is that the Mechanic’s Lien is inchoate, where other securities against the property may not be. If the claimant already had the lien, the filing changes nothing and is not a preference. Keep in mind that the Mechanic’s Lien and Notice must still be filed within the normal time constraints, regardless of an existing or impending bankruptcy proceeding.
B. Time Limits for Notice of the Mechanic’s Lien
a. Completion of the Improvement
As discussed briefly in the introduction, the Notice of a Mechanic’s Lien must be filed with the Recorder of Deeds within 90 days of either the completion or the termination of the project, whichever is earlier. This is generally interpreted as being 90 days following the completion of the work for all contractors and subcontractors, which may also leave a time period of much longer than 90 days for the claimant to file Notice if they are not the last contractor to complete their portion of the project.
Because the concept has not been tested in the courts of the District of Columbia, questions remain as to whether the 90 day clock begins at the completion of the claimant’s work on the project, or whether it begins at the completion of the entire project. The only case observed by the District of Columbia on the question merely restated the language of the statute and does not provide a definitive answer.
A second question exists - how to define a “project” as described by the statute allowing a Mechanic’s Lien in the District of Columbia. The above-cited cases also considers whether a collection of work done by separate contractors can be considered one “project,” and what it would take to not be considered one project. The Court of Appeals for the District of Columbia concluded that the various works on the property must be in the same area of the building and rationally related to each other to satisfy the property definition issue in question.
C. Mechanic’s Liens: Notice
a. Form of Notice
To file an official notice, the claimant must file a Notice of Mechanic’s Lien with the District of Columbia Office of the Recorder of Deeds. The land records division of this government agency is located at 1101 4th Street, SW, 5th Floor, Washington, DC 20024, and may be accessed by Waterfront station of the Washington Metrorail System (Green line). Keep in mind that a claimant must also serve a copy of the Notice to the owner of the property as briefly discussed above, and as will be discussed below in greater detail. The form required to file the Notice with the Recorder of Deeds may be found on their website. While any form that meets the statutory requirements will be accepted by the Recorder of Deeds, the office has advised that we use their form and attach supplemental information as needed.
The District of Columbia Code (hereinafter “DC Code”) states the following requirements for a Notice of Mechanic’s Lien.--
1. The name and address of the contractor or contractor’s registered agent;
2. The name and address of the owner or the owner’s registered agent;
3. The name of the party against whose interest a lien is claimed and the amount claimed, less any credit for payments received up to and including the date of hte notice of intent;
4. A description of the work done, including the dates that work was commenced and completed;
5. A description of the material furnished, including the dates that material was first and last received;
6. A legal description and, to the extent available, a street address of the real property;
7. To the extent available under applicable law, if the contractor is an entity organized under the laws of the District of Columbia or is doing business in the District of Columbia within the meaning of applicable District law:
a. A copy of the contractor’s current license to do business in the District by the Department of Consumer and Regulatory Affairs; and
b. A certificate of good standing from the Department of Consumer and Regulatory Affairs issued within 180 days prior to the date of hte filing of hte notice of intent; or
8. To the extent available under applicable law, if the contractor is an individual or an entity organized under laws other than those of the District of Columbia, and is not doing business in the District of Columbia within the meaning of applicable District laws but is required to be licensed by a governmental entity:
a. A copy of the contractor’s current license to do business issued by the government of the other jurisdiction; and
b. A certificate evidencing the contractor’s good standing in its place of business or state of incorporation issued by the other jurisdiction;
9. If the project is provided under a home improvement contract, a copy of the home improvement contract; and
10. A sworn, notarized statement affirming under penalty of perjury and upon personal knowledge that:
a. The contents of the notice of intent are true and correct to the best of the contractor’s information and belief; and
b. The contractor has a right to recover the amount claimed.
11. If a notice of intent is executed by an authorized representative or counsel of the contractor, he or she shall attach on behalf of the contractor and shall affirm that the notice of intent is true and correct to the best of the affiant’s knowledge and belief.
The District of Columbia’s Mechanic’s Lien Code has stated that the contractor is entitled to a lien for the price of the contract agreed upon between the parties, or, in the absence of an express contract, for the reasonable value of the work and materials furnished. This policy is congruent with the policies of other states with similar lien statutes. District case law has also previously held that the right to a lien may spawn as soon as labor or material is furnished, regardless of the status of the contract being written or unwritten. But, that policy does not extend to projects of home improvement, which requires a written contract in order to record a Mechanic’s Lien.
b. Deadline and Delivery for Notice
The Notice of a Mechanic’s Lien, as mentioned above, must be filed with the District of Columbia Recorder of Deeds within 90 days of the completion or termination of the project, whichever happens first. The DC Code also asks that all claimants serve the Notice on the owner of the project. The claimant may do so by sending a copy of the recorded Notice to the owner by certified mail to his or her current address, or last known address if the current address is unknown, within five (5) business days of filing the Notice with the Recorder of Deeds. If and when the certified mail is unable to be delivered, or unclaimed, the contractor is asked to post a copy of the recorded Notice in a location generally visible from an entry point to the property.
Take care to correctly name the owner of hte property on the Notice of Mechanic’s Lien. If the lien contains any incorrect names, it will not survive. If a tenant contracts for work in the District of Columbia, the contractor may be able to place a Mechanic’s Lien on the leasehold interest. While slightly different than placing a lien on the property in fee simple (the highest form of ownership of a property one can have), the benefit to the claimant is nearly identical. If the lease is foreclosed on, the take a place in the creditor’s line of priority.
d. Description of Property
The form to file a Notice of Mechanic’s Lien provides a field for a description of the property. This is a required disclosure made by the DC Code. The claimant should take meticulous care to describe the property where the labor and materials were supplied correctly. While cases have yet to arise in the District on the matter, other state courts have dealt with this issue and have witnessed a faulty description of the property as a sufficient reason to dismiss the lien.
The form mentioned above asks the claimant to provide a lot and square number, as well as a street address. The lot and square number is easily obtainable using the District of Columbia Office of Tax and Revenue online portal, and the combination of two numbers is commonly known as the “legal description” of the property.
Any person who is a contractor with a current contract with the owner to provide labor or materials for the improvement of a real property is eligible to file a Notice of Mechanic’s Lien. Further, a subcontractor and supplier has the same rights to file a lien as the general contractor. Sub-subcontractors are specifically prohibited from filing Mechanic’s Liens in the District of Columbia, unless they have a direct contract with the owner of the property, or a direct contract with the general contractor.
f. Description of Labor or Materials
The DC Code allows a lien to be placed on the property for “work or materials provided by a contractor for the erection, construction, improvement or repair of or addition to any real property...or the placing of any engine, machinery, or other thing therein or in connection therewith so as to become a fixture.” The purpose is to provide a remedy for a person who has enhanced the value of the property, either by labor or by materials.
The DC Code clearly requires that a Notice of Mechanic’s Lien include a description of the work performed and a description of the materials provided. If using the form, there is a specific question for dates when the work was commenced and completed, and a list of the materials provided, including delivery dates.
D. Amount of Claim and Allocation
The Code requires a claimant to state the amount they are claiming, along with the date of notice and specific dates when the work was commenced and completed, and what materials were provided, and their delivery dates. The form that the Recorder of Deeds provides, however, does not contain a field to state the date from which the amount is claimed. Most claimants rely on the dates set about by the contract for payments due and work completion dates.
The Code provides some relief for a claimant in the allocation of the labor and materials, if the labor and materials were provided for two or more buildings that are joined together and owned by the same person or group of people - if that is the case, the labor and materials need not be separately allocated. The claimant is entitled to file a single lien for more than one building if they are joined together and owned under the same circumstances as above. If a claimant files a single lien on multiple properties, an individual property may be released later.
E. Enforcement of Mechanic’s Liens
a. Filing a Lawsuit
The two step process to placing a Mechanic’s Lien is the following: (1) filing notice with the Recorder of Deeds; and (2) enforcement. A lawsuit is generally necessary to enforce a Mechanic’s Lien on the property, and a judgment of which would likely require the sale of hte property and the distribution of the proceeds in satisfaction of the claims of the creditors. To enforce the lien, the claimant must file a complaint and establish a lawsuit. The talented Real Estate team at Antonoplos & Associates can help guide you through this tricky process to obtain an optimal result.
The DC Code requires the complaint to contain the following:
1. A brief statement of the contract on which the claim is founded;
2. The amount due;
3. The time the Notice of Mechanic’s Lien was filed;
4. The time the Notice of Mechanic’s Lien was served on the owner or their agent;
5. The time the building or work was completed;
6. A description of the premises;
7. Other “material facts”; and
8. A request that the premises be sold to satisfy the lien.
b. Deadline of Enforcement
As discussed above briefly, the Mechanic’s Lien must be enforced within 180 days of the filing of the Notice with the Recorder of Deeds. Enforcement requires the filing of a complaint with a court of competent jurisdiction. The claimant must not to forget to record a Notice of Pendency of Action with the Recorder of Deeds within 10 days of filing the suit. Failure to meet any of these deadlines constitutes the termination of the lien.
c. Deficiency Judgment
If the result of the enforcement of the Mechanic’s Lien is a sale of the property, and if the proceeds of the sale do not satisfy the claim, the court will hand down a “deficiency judgment” against the defendants. The deficiency judgment is essentially a statement by the court saying the claimant is still entitled to the difference between the claim and the proceeds of the sale of the property - the amount of the remaining debt.
F. Defense of Payment: Owner’s Responsibility for Payment to Subcontractors
As described earlier, the owner has the affirmative defense of payment to a general contractor or subcontractor’s Mechanic’s Lien in the District of Columbia. The DC Code reiterates that if the project owner has in good faith paid the general contractor for the project in full, the subcontractors are not entitled to place a lien on the property to recover any amounts owed by the general contractor to the subcontractor. However, the Code also states that once a subcontractor “notifies the owner in writing of amounts due to the subcontractor...while the owner has a balance due and owing” to the general contractor, the subcontractor’s notice is evidence that any payment made following the notice by the owner to the general contractor was not made in good faith. This particular notice does not require a formal Notice of Mechanic’s Lien, but a more informal notice of amounts payable to the subcontractor. Further, any contractual provision that prohibits communication by the subcontractor with the owner is void to the extent that it does not allow this notice.
a. True Deadline
The deadline mentioned above to file a Notice of Mechanic’s Lien at the Recorder of Deeds is only an outside deadline for subcontractors. The “true deadline” is actually to get the Notice filed and serve it on the owner while the owner still holds sufficient funds to pay off the subcontractor’s claim. Generally, the longer the subcontractor waits in filing and serving its Notice on the owner, the more payments the owner is able to make to the general contractor, which effectively reduces the amount of the lien the subcontractor may place on the property. A potential claimant is able to freeze money in the hands of the hands of the owner by sending an informal notice of amounts payable to the subcontractor before an actual formal Notice is recorded with the Recorder of Deeds.
G. Alternatives to Mechanic’s Lien Filing
a. Enforcing the Contract
There are alternatives to filing a Mechanic’s Lien. A person set to file a Mechanic’s Lien may attempt to bring a lawsuit based on a breach of the contract. This is typically a cheaper solution than attempting to enforce a Mechanic’s Lien, but does not carry with it the advantages of a Mechanic’s Lien (i.e. becoming a creditor in the line of absolute priority in case of a sale, etc.).
b. Liability of Owner to Subcontractor
The DC Code states that a subcontractor is not directly entitled to a personal judgment against the owner unless they have a contract between themselves.
While the realm of Mechanic’s Liens in the District of Columbia can be complicated, the talented team at Antonoplos & Associates have the experience, reliability, and wherewithal to represent you and obtain an optimal result. For more information on Mechanic’s Liens in the District of Columbia, please call our office and schedule a complimentary consultation with one of our real estate experts at (202) 803-5676.
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