One of the most powerful tools in a contractor’s arsenal for obtaining payment on a construction project is a mechanics’ lien claim, which is a security interest that attaches to the owner’s property interest and “clouds” the title to the property until payment is made to the contractor or subcontractor.
Because mechanics’ liens restrict free and clear titles, Pennsylvania courts require strict compliance with the Mechanics’ Lien Law (the Lien Law). The Lien Law contains certain requirements for a lien to be “perfected” or valid. For example, a lien claim must be filed within six months of completing the contractor’s work, and subcontractors must notify the property owner of their intention to file a lien claim at least 30 days prior to filing the actual lien claim. After the lien claim is filed, notice must be served on the owner within one month, and an affidavit of service must be filed with the court within 20 days of serving the owner. Failure to comply with any of these requirements may result in the lien claim being stricken and the contractor losing its right to recover from the proceeds of the property.
In most instances, an owner’s lawyer will raise any number of defects in an attempt to invalidate the lien claim, but sometimes certain defects are overlooked. Until recently, it was an open question as to whether defects identified late in the process could still invalidate a lien claim. For example, what happens if the lien claim was filed and served in the proper timeframe, but the affidavit of service was not filed—and the owner’s lawyer did not object until after discovery was completed? Or even after the trial? A contractor might think that an objection raised so late in the game would not be effective in invalidating its lien claim. The Pennsylvania Supreme Court decided that issue this year in Terra Firma Builders, LLC v. King.
In this case, Terra Firma was contracted to perform construction work at the Kings’ family home in Haverford, Pennsylvania. A dispute arose between the parties, and the Kings did not permit Terra Firma to complete its work. After initially filing but withdrawing a lien claim, Terra Firma filed and served a second lien claim—but they failed to file an affidavit of service within 20 days of service as required by the Lien Law. In fact, Terra Firma never filed an affidavit of service at all.
The Kings did not challenge Terra Firma’s failure to file an affidavit of service until after a second trial, more than five years after Terra Firma filed the lien claim. Although Terra Firma argued that the Kings waived their right to object, the trial court ruled in favor of the Kings and struck the lien, finding that Terra Firma never properly “perfected” the lien in accordance with the Lien Law. The issue made its way to the Pennsylvania Supreme Court, which held that a challenge to the validity of a lien claim could be raised at any time—even after a trial.
The Supreme Court reasoned that the plain language of the Lien Law states that, to “perfect a lien, every claimant must” file an affidavit of service within 20 days of service. The Lien Law also states that the failure to timely file an affidavit of service “shall be sufficient ground for striking off the claim.” Thus, by not timely filing the affidavit of service, Terra Firma failed to perfect its lien claim, and, as a result, the court held that the lien claim was invalid. The Supreme Court also reasoned that the Lien Law does not impose a time limit to raise defects in perfecting a mechanics’ lien claim—even after a trial.
Although the Supreme Court only decided the specific issue concerning the timely filing of an affidavit of service and its effect on the validity of a lien claim, the logic could be applied to many other defects under the Lien Law. Although there may be some uncertainty, there is one clear lesson to be learned from the Terra Firma decision: do not wait to involve your attorney in preparing your mechanics’ lien claim. Although you may believe there are reasons to do so, delays in filing may result in little or no time to correct defects.
Hiring lawyers well-versed in both filing and perfecting mechanics’ liens is crucial. The mechanics’ Lien Law is complicated and often difficult to navigate, and as the Terra Firma decision makes clear, the requirements will be strictly construed, often to the contractor’s detriment.
