About 10 years ago the Virginia General Assembly made changes to Virginia’s mechanics lien statute to create a position called Mechanics Lien Agent (MLA).The MLA is usually a title insurance company that is appointed by the land owner or general contractor and is charged with receiving notices from subcontractors and materials suppliers who work on a job or provide materials to a job site.
The MLA system gives protection to a land owner from liens filed by subcontractors and materials' suppliers ("subs") in the event they are not paid. On the other side of the equation, a sub who gives the requisite notice to the MLA greatly enhances the likelihood that she will get paid for work performed.
The MLA provisions of the statute apply only to 1 to 4 family unit properties, so commercial properties are exempt.
HOW IT WORKS:
Before the MLA additions were made to the statute, a sub who performed work on property had 90 days after the last day of the last month in which they provide services to file a lien against the property if they are not paid. With the MLA additions, the sub preserves his 90 day rights only if the sub gives notice to the MLA within 30 days after the sub first begins work on the property. Without giving the 30 day notice a sub essentially loses his right to file a lien against the property. This of course greatly benefits the lot owner. If a sub files the 30 day notice, the sub essentially guarantees payment.
Note: most subs do not bother to identify themselves to the MLA so as a practical matter, the MLA statute has worked to provide wonderful protection to land owners.
A MLA is appointed by the lot owner and/or the general contractor, must accept the appointment, and his name and contact information must be listed on the building permit. For the notice to be effective, the building permit must be posted at a prominent place at the building site so that subs who do work on the property see the building permit. The sub gives notice to the MLA by contacting the MLA. The MLA makes a record of the contact and notifies whoever asks that the sub has given notice.
SOME TIPS:
If you own the lot on which the general contractor is building your home, you should make sure ....
1. The general contractor names the MLA on the building permit when the permit is pulled and BEFORE any construction begins including site prep and foundation work. Many times a lot owner will get a construction loan to complete the house after first putting cash into the project. This comes usually half way through construction. At that time the lender requires title insurance for the loan and mentions that a MLA is needed. Most title insurance companies will not provide mechanics lien insurance coverage to lenders under the MLA portions of the statute if the MLA is appointed after construction begins. So what? The paperwork involved in processing each draw increases exponentially if insurance is provided outside of the MLA statute provisions and the landowner gives up significant protections. So, get the MLA appointed and on the building permit before the shovel turns any dirt.
2. The building permit is displayed in a prominent place at the building site. If it is not, you won’t be able to avail yourself of the MLA protections in the statute because the sub who has not been paid will have a good argument that he has 90 days to file his lien because he wasn’t given notice of the MLA. Take a photograph of the posted permit to prove that the permit was in fact properly posted. If the permit is knocked down, re-post it as soon as possible.
3. The title insurance company named as MLA actually accepts the appointment. If they are unaware of their appointment, the appointment could be defective and of no effect.
Title insurance companies have suffered significant mechanics lien related losses in the past 12 months due to the deflation of the real estate market. These losses are due in part to the title companies not diligently overseeing mechanics lien underwriting requirements in the midst of the real estate boom. You can rest assured they will be very particular in extending mechanics lien coverage in the future and will be sticklers for compliance with statutory requirements and underwriting practices.
