West Virginia has seven "mechanic's and materialman’s lien" statutes to protect the interests of those performing or supplying construction-related work in the state.1 Although these statutes are interpreted by the courts to be inclusive in their application to protect a wide range of those performing services or supplying materials, they specifically provide protection to the following persons, firms or corporations:
Contractor (W. Va. Code 38-2-1)
Subcontractor (W. Va. Code 38-2-2)
Materialman Furnishing Supplies to Owner (W. Va. Code 38-2-3)
Materialman Furnishing Supplies to Contractor or Sub (W. Va. Code 38-2-4)
Mechanic or Laborer Working for Owner (W. Va. Code 38-2-5)
Mechanic or Laborer Working for Contractor or Sub (W. Va. Code 38-2-5)
Architect, Surveyor, Engineer or Landscaper (W. Va. Code 38-2-6a)
A mechanic's or materialman's lien (“mechanic’s lien”) automatically attaches to an owner's property on the first day that work is performed or supplies are provided.2 One important distinction to note here is that the mechanic's lien will relate back to the date when any work is performed or materials supplied, which generally means the lien of the last mechanic or materialman working on or supplying materials or products for a construction project can relate back to the date (with the same priority) that the first mechanic or materialman performed work or supplied materials.3 To perfect its lien and not lose enforceability, a mechanic or materialman must record within 100 days of completion of its work or supply of materials a "Notice of Mechanic's Lien" in the office of the clerk of the county commission where the property is located.4 Upon recordation, the mechanic or materialman must then file suit within six months to enforce its perfected lien or the lien will be discharged.5 6
When Does the Mechanic’s Lien Attach to the Subject Property?
When questions of lien priorities arise in the context of mechanic's liens, the definition of "work" and when that work is deemed to have commenced on a property becomes a pivotal issue. In a recent opinion on that issue, the West Virginia Supreme Court upheld a Monongalia Circuit Court decision that determined mere site preparation, which consisted of clearing trees, rocks and brush, qualified as the start of "work" and therefore triggered the attachment of a mechanic's lien under W. Va. Code 38-2-17.7 Based on that case and other jurisprudence in this area, West Virginia courts will likely find that work has commenced with even minimal pre-construction activities on a property. Thus, a property owner or interested party should presume that a mechanic’s lien will attach from the very first day anyone enters the property under the auspices of the construction contract.
What Options Do Property Owners Have under the Mechanic’s Lien Statutes?
West Virginia, as with many areas of the state's jurisprudence, has a few important (some might say quirky) differences from neighboring states in how a property owner or interested party may manage a mechanic’s lien. Most prominent and troublesome of these differences is the lack of a statute which allows for what is commonly known as the "bonding-off" of a mechanic's lien. "Bonding-off" is a mechanism by which an owner or other interested party (e.g., lender) may secure and present an adequate bond to the applicable court and thereby release a property (but not the owner’s obligation to pay8) from the cloud on title created by the mechanic's lien. West Virginia does, however, provide a much less practical option to remove the cloud on title created by a mechanic's lien by allowing for a cash payment into the presiding court equal to the full amount claimed under the lien plus a discretionary amount determined by the Court to cover interest and other costs potentially due the lien holder.9 Only with this deposit of cash into the court can the owner have its property released from the mechanic’s lien. For obvious reasons, this option is not often favored because few property owners are willing to part with what can be a substantial amount of cash for what may become an extended period of time while the lien enforcement suit is fully litigated.
Another often underutilized statutory mechanism which property owners rarely take advantage of, but that can limit their mechanic’s lien headache, is to (i) require the contractor to provide a surety bond in a penalty equal to the contract price in the construction contract; and (ii) record the construction contract with proof of the surety bond in the office of the clerk of the county commission where the property is located prior to the commencement of any activities which could give rise to a mechanic’s lien.10 By properly filing the construction contract and bond, the subject property will henceforth be exempt from mechanic’s liens claims that exceed the amount of the contract price.11
What is the Nightmare Scenario in West Virginia?
Because work performed, or materials supplied, including architectural and engineering services, relate back to the first day on which those services were performed or materials supplied, a mechanic’s lien can easily attach to a subject property prior to the date of the recordation of the deed of trust secured by that subject property. For instance, this scenario may occur when a property owner intends to make its final payment to its contractor and thereafter convert its interest-only construction financing into an amortized permanent loan. Although the property owner has paid the contractor as required under the construction contract, the contractor may have failed to pay its subcontractors and/or materialmen. Of course, under Murphy’s Law, that contractor will then become insolvent and those unpaid subcontractors and materialmen will look to the property owner by each filing a “Notice of Mechanic’s Lien” against the subject property, which may occur after the permanent loan has closed and deed of trust has been recorded. In this scenario, with the permanent lender’s inability to attain priority for its deed of trust, the owner may find that it has few options other than to deposit cash with the court as described above or pay twice for the same work by settling with the subcontractors and materialmen.
A Few Common Steps Taken by Owners and Interested Parties to Protect their Interests:
Lenders should use credit line deeds of trust and, as a condition precedent to the owner's obligation to pay the contractor (or the bank’s funding of the next “draw”), require interim and final lien waivers to be executed by all parties who worked or supplied material to the subject property.
Title insurance policy with deletion of the mechanic’s lien exception (title companies will have many requirements before providing this coverage, including an indemnity agreement supported by adequate financial certifications and statements from the indemnitor).
Prior to seeking a first priority lien position or other assurance that a mechanic’s or materialman’s lien is unenforceable, interested parties may be forced to wait until 101 days after the last work has been performed or materials supplied at the subject property (as evidenced by owner/contractor affidavits).
Due to the complexities of mechanic’s lien issues in West Virginia, interested parties should exercise a heightened level of diligence when confronted by facts or circumstances that could give rise to a claim under these statutes.
1W. Va. Code § 38-2-1 et seq.
2W. Va. Code § 38-2-17.
4W. Va. Code § 38-2-7.
5W. Va. Code § 38-2-34.
6Note: the discharge of the lien will not necessarily affect the obligation to pay the underlying debt.
7National City Bank v. Landau Building Company, No. 11-0437, 2011 WL 8197527 (W. Va. S. Ct. Oct. 21, 2011).
8See above footnote 6.
9W. Va. Code § 38-2-36.
10W. Va. Code § 38-2-22.