To begin this post, and, really, to make sure everybody is on the same page for all of the articles/posts on The Construction Payment Blog, we need to have a quick vocabulary discussion. Mechanics lien law, and the specific language associated with it, can be daunting, even for people well-versed in the credit and/or construction industry. Are sending, filing, recording, and submitting all the same? What’s the difference between serving a lien and providing notice of a lien; and, for that matter, what is the difference between actual and constructive notice. While these terms may be familiar to lawyers, many times it is the credit department that is forced to deal with them. Those terms may be the subject of a future post, but for the purposes of this post I want to draw a distinction between the words used to describe the different parts of the mechanics lien lifecycle.
The enforcement of a mechanics lien requires filing an enforcement action (foreclosure) in court. In a successful lien enforcement action, the property will be sold, and the proceeds of the sale will be used to pay the creditors.
The first thing that happens is that the mechanics lien attaches to the property. While the specific date of attachment may vary from state to state, this is usually when the work was performed for the benefit of the property. For some priority purposes, a lien’s attachment may relate back to the beginning of any work on the property, not just the specific work done by the lien claimant. Next that lien must be perfected. The perfection of the lien is governed by state law, but generally requires the filing of the lien with the county recorder or clerk of court for the county in which the work was performed, and likely sending a copy of the lien to the property owner. The perfection of the lien isn’t the last stop, however. If the responsible parties do not pay after the lien was perfected, the final step in the lien’s life is lien enforcement. The enforcement of a mechanics lien requires filing an enforcement action (foreclosure) in court. In a successful lien enforcement action, the property will be sold, and the proceeds of the sale will be used to pay the creditors.
Get free mechanics lien form
We're the mechanics lien experts. We offer forms made by attorneys and trusted by thousands.
Specific Parties Must Be Named in Lien Enforcement Actions
With that background, it’s easier to have a meaningful discussion about lien enforcement. Since the end result of a successful lien enforcement action (foreclosure) is the the sale of the property burdened by the mechanics lien in order to pay the debt, courts are strict in interpreting the parties required to be named as defendants in the case. Generally speaking, any party with an interest in the property is a proper and necessary party to be named. This makes sense. If the property is going to be sold, everybody with some actual interest in the property should be involved in the suit. This appeals to our general sense of fairness.
The question is: Which parties have an interest in the property?The question is: Which parties have an interest in the property? In Virginia, parties with an interest in the property clearly include the owners, lenders, judgment lien holders, and trustees named on a trust deed. These parties (if present) can be ascertained by a title search. The lien claimant should be dutiful in determining the identity of the parties with an interest in the property because the failure to include a necessary party may result in the dismissal of the enforcement action (if the time has expired in which the party may be added to the suit).
This exact scenario played out in a 2011 case heard by the Circuit Court of Fairfax County Virginia.
In CA Builders, LLC v. Forde, 83 Va. Cir. 451 (Va. Cir. Ct. 2011), the court examined the issue of whether Mortgage Electronic Registration Systems, Inc. (“MERS”) was a required party to a lien foreclosure action. MERS is a private company specializing in tracking certain information on trust deeds. Generally speaking, deeds of trust will define MERS as a “nominee” of the lender. Because the company is generally listed as a “nominee” of the lender, general practice is to not include MERS as a party in an enforcement action under the rationale that because it is merely the agent of the lender, it has no actual interest in the property itself.
Unfortunately for CA Builders, however, the situation was not typical in this case. On the specific trust deed at issue, the lender was listed as Chevy Chase Bank, and MERS was not listed as “nominee” or “agent” for the lender, but rather beneficiary. The language on the deed was “MERS is the beneficiary under this security instrument.” In this case, the court decided that since MERS was listed on the trust deed as beneficiary MERS was a necessary party to the foreclosure action. Since CA Builders had not listed MERS as a defendant, and it was too late to add parties to the suit, the lien could not be enforced.
Clearly, this is a unique situation. Most trust deeds in VA do not list MERS as a beneficiary. However, this case provides a good case-study for why one must exercise caution in the lien foreclosure process. The inability to enforce this particular lien had nothing to do with the work done, or even the lien itself, it was merely an oversight in naming a party to the enforcement action, a party that normally would not need to be included.