Mechanics' liens in the District of Columbia

construction corner

Construction subcontractors and suppliers must understand mechanic's lien security as a proactive credit management planning tool. You must understand your security opportunities from the beginning of each transaction so that you can property assess your risk with each

In the last few months, we have provided detailed discussions of mechanic's lien laws in various states. To better understand some of this discussion on District of Columbia mechanics' liens, you may need to refer to the General Mechanic's Lien article in the October 1999 issue of Business Credit, or view the article on our web site at www.Fullertonlaw.com.

Distinctive Features of Law in State

The mechanic's lien provided by the District of Columbia ("DC") Code is generally protective of, and favorable to, contractors. There is very little court case law on the DC mechanic's lien statute, so answers to most questions must be found in the code itself. The lien is relatively easy to file. In fact, the Recorder of Deeds (land records) has drafted a required form, reproduced on page 75. The claimant must fill in the blanks on the form and file it in the land records.

The mechanic's lien form must be filed in the land records within three months after completion of the entire building or improvement. This can create a very generous time limit in the case of subcontractors who supplied labor and materials long before completion of the rest of the project. The DC mechanic's lien has a high priority. A DC lien is inchoate. Once filed, the lien relates back to the day work commenced on the project. This super-priority of DC mechanics' liens provides a powerful weapon to the contractor. The lien probably survives bankruptcy or a sale of the property.

The owner does have a "defense of payment" to a DC mechanic's lien. All subcontractor liens will fail if the owner has paid the general contractor in full. Subcontractors are entitled to request information from the owner concerning the contract and status of accounts between the owner and general contractor. This notice can provide protection from a defense of payment.

The DC mechanic's lien law does not seem to have as many technical requirements as some other states. There are few cases that have held liens invalid for technical reasons. This may be because DC mechanic's lien law is more liberal and favors the claimant. It may also only be because few technical questions have been put before DC courts. A claimant should be careful to strictly comply with the mechanic's lien code.

Deadline Summary

Prefiling Before Construction

No prefiling requirement.

Lien Filing and/or Service After Labor or Materials Supplied

All contractors must file a Notice of Mechanic's Lien in land records within three months after the completion of the project.

Enforcement

All contractors must enforce by filing a lawsuit within a year after the Notice of Mechanic's Lien was filed or within six months of the completion of the project.

Defense of Payment/Owner's Responsibility for Payment to Subcontractors

The owner of a construction project must pay for the project only once. If an owner can prove payment for the project in full, then all subcontractor liens will fail. Until the owner has received a notice of mechanic's lien, the owner can continue to freely make payments to the general contractor, eroding the subs' ability to lien. This is the true deadline for filing a subcontractor mechanic's lien: before the general contractor has been paid. See the General Mechanic's Lien article for more information on this subject.

There is a "payment chain," from the owner to the general contractor to the subcontractor or supplier. The mechanic's lien of any lower tier contractor is only as strong as the weakest link in this payment chain. Accordingly, the further down you are on the payment chain, the greater the chance of a defense of payment. For this reason, a sub or supplier wants to file its lien and provide notice as soon as problems are apparent. In DC, however, the payment chain is restricted to the owner, original contractor and the subcontractor. There are no sub-subcontractor liens.

A sub or supplier also wants to be aware of the status of account between the owner and general contractor at all times. If the owner is about to release all retention, then the subcontractor's right to lien the project is about to disappear. Subcontractors are entitled to request information from the owner concerning the contract and status of accounts between the owner and general contractor. This notice can provide protection from a defense of payment. If the owner provides false information, or does not comply with the request, the owner loses the benefit of payments made to the general contractor.

In addition to filing the lien, a subcontractor must serve its Notice on the owner. An owner continues to have a defense of payment for amounts paid to the original contractor, even after a subcontractor's lien is filed, until the owner is served with the same Notice that was filed with the Recorder of Deeds.

After service of a Notice of Mechanic's Lien, "the owner shall be bound to retain out of any subsequent payments becoming due to the contractor a sufficient amount to satisfy any indebtedness due from said contractor to the said subcontractor." A subcontractor should file and serve its lien as soon as possible so the owner has this duty to withhold money. This is the "true deadline" for filing a lien. If the owner makes payments to the original contractor after it was given notice of the lien, the owner cannot claim those payments as part of the owner's "defense of payment. " In fact, under DC case law, any amount the owner pays the contractor after receiving notice is lienable, even if the eventual costs of completion result in total costs to the owner exceeding the contract amount.

The DC Code also provides that subcontractor liens are "subject to the terms and conditions of the original contract." DC courts have not addressed this particular phrase in the statute. It may be in the statute to make it clear that a subcontractor's lien is limited by the payment schedule in the original contractor's contract. However, it may also limit a subcontractor's lien to charges that are in the original general contract. A general contractor cannot add lienable items in a subcontract that are not in the original general contract.

Aside from direct payments from the owner to the original contractor, the debt between an owner and original contractor may be reduced by the cost to the owner of completing a project after an original contractor has failed or refused to complete. If an owner must pay another contractor to complete the project, or has legitimate back charges against the original contractor, a subcontractor's lien rights will be reduced.

Under the DC statute, an owner cannot make advance payments to a contractor in order to set up a defense of payment to subcontracfor liens that are filed later. If the owner makes advance payments for the purpose of avoiding subcontractor mechanics' liens, the payments are treated as if they were never made. The advance payment must be made in "bad faith," that is, the payments must be made for the purpose of avoiding the subcontractor's lien. If advance payments are made in order to speed up work, and no "bad faith" is shown, the payments will reduce a subcontractor's lien.

Priority

The timing of various liens on a property usually determine their priority. The first in time filed in the land records will be the "first mortgage," with the first priority to any proceeds from a foreclosure or sale of the property. If another mortgage is filed in the land records later in time, it will be a "second mortgage." If the property is foreclosed, this second mortgage will not receive any proceeds until after the first mortgage has been paid in full. See the General Mechanic's Lien article for more information on this subject.

There are very few exceptions to this "first in time, first in right" general rule. One exception is county real estate tax liens, which will always have priority over other liens no matter when they are filed. Another exception is mechanics' liens that are "inchoate," such as hens in the District of Columbia. If a mechanic's lien is inchoate, the lien "relates back" to and exists from the moment labor or material is supplied to the property, as long as the claimant eventually perfects the lien by filing and enforcing the mechanic's lien. Any mortgage or judgment lien recorded after work began on the property will be inferior to the mechanic's lien.

Generally, a DC mechanic's lien has priority over all liens and mortgages that attach to the property after work was commenced. A DC mechanic's lien does have priority over construction loan advances made after the claimant filed its Notice of Mechanic's Lien. The mechanic's lien is prior to post-- notice loan advances, regardless of when the construction loan was recorded. If a claimant started work before the construction lender recorded its loan on the property, the claimant's lien still only has priority over advances made after the claimant's notice was filed. A mechanic's lien in DC does not have priority over a mortgage used to purchase the property.

Bankruptcy

There is no case law to help us in DC. Based on the case law from other states, however, the "automatic stay" of the United States Bankruptcy Code should not stay the perfection (filing in the land records) of the mechanic's lien. This is because the lien is inchoate. The claimant already had the lien, so the filing does not change anything and is not a preference. In fact, it is important to keep in mind that the mechanic's lien must still be filed within the normal time limits. The bankruptcy of an owner or upstream contractor should delay enforcement of a mechanic's lien, however. It is not permissible to file a lawsuit to enforce a mechanic's lien without permission of the Bankruptcy Court, but the claimant is provided additional time later to enforce the mechanic's lien.

Sale or Foreclosure of Property

The DC mechanic's lien should generally survive foreclosure of a property, because it is inchoate and superior to most other liens recorded after commencement of work. If a foreclosure of an inferior lien takes place, the purchaser at foreclosure will take the property subject to the mechanic's lien. If a lender with superior priority forecloses, however, the foreclosure purchaser will take the property free of the mechanic's lien. Construction loans will normally be prior to mechanics' liens in DC, so a construction lender will be able to foreclose free of the mechanic's lien.

Subdivision and Utility Improvements Offsite Work

No special provision and no court case law.

Renovation or Repair Work

No special provision and no court case law.

Tenant Work

A contractor who does work for a tenant can obtain a lien on the leasehold interest. The claimant may not be able to lien the "fee simple" property of the owner, but it will be able to lien the tenant's interest in the property. The eventual result would be a foreclosure on the leasehold. The purchaser at foreclosure would then own the lease, but the "fee simple" owner's interest would be unaffected.

Leased Equipment/Rentals

No special provision and no court case law.

Procedure-Prefiling Before Construction

No prefiling requirement.

Lien Filing and/or Service After Labor or Materials Supplied

Deadline

In DC, a claimant has a right to a mechanic's lien as soon as labor and materials are furnished to a project and perhaps as soon as a claimant contracts to provide labor and materials.

The Notice of Mechanic's Lien must be filed in the Recorder of Deeds office within "3 months after the completion of such building, improvement, repairs or addition." This almost certainly means within three months after all contractors have completed all work on the project, although there is no case law to confirm this. The time for filing may be much more than three months after the claimant finished its particular portion of the work.

If a general contractor abandons a project before the project is complete, that general contractor and its subcontractors must file a mechanic's lien within three months after the general contractor abandons the project. This is true even if the owner later hires another contractor to finish the project.

Form

The Recorder of Deeds provides a form to be used for the Notice of Mechanic's Lien, which follows the end of this article.

Fun

The Notice of Mechanic's Lien is of no legal effect until the claimant files it in the Office of the Recorder of Deeds. This is the land records office of the District of Columbia, which is located at 515 D Street, N.W., Washington, DC 20001, across the street from the Superior Court. In addition to filing the Notice in the land records, subcontractors must serve a copy of the Notice on the owner as discussed below.

The Recorder of Deeds will usually not accept the Notice at all, unless it is on the Recorder's form. Fullerton & Wise will make an exact copy of the form available to anyone upon request. The Recorder's form does simplify the procedure in many ways but can also create problems. Some mechanic's lien claims cannot be adequately described in the blanks on the form. This form may be deceptively simple. There is limited guidance from case law.

Service/Notice

Anyone that did not deal directly with the owner (subcontractors and sub-subcontractors) must also serve the owner with a notice of the lien in the form shown on the next page. The statute does not require that the Notice be left with the owner in a particular way, i.e. hand delivery or mail. A claimant should send the Notice in a way that provides proof of delivery. DC Notices of Mechanics' Liens are usually delivered by certified mail. There is no specific time limit for providing notice, but subcontractors and suppliers will want to provide notice as soon as possible to avoid the "defense of payment" discussed above.

Enforcement

Although a DC mechanic's lien is "perfected" once a Notice of Mechanic's Lien is filed among the land records, the mechanic's lien must later be enforced. Essentially, this means that the claimant must bring a lawsuit to have the validity of the mechanic's lien established and the property sold to satisfy the lien.

Deadline

Usually, the Bill of Complaint to Enforce Mechanic's Lien must be filed within one year after the lien is recorded in the land records. The lawsuit may be filed after that, however, in some cases.

The DC statute provides three different time limits for enforcing a mechanic's lien. The mechanic's lien must be enforced within a year after the Notice of Mechanic's Lien was filed with the Recorder of Deeds or within six months of the completion of the building. The statute is unclear whether the limitations are mutually exclusive, i.e., whether a claimant must make only one of the deadlines or both. To be safe, a claimant should meet the earlier deadline. Subcontractors should stay informed as to completion of a project they supplied.

If a general contractor abandons the project, it is considered "complete" and the six-- month time limit starts to run for the original contractor and for subcontractors. The DC Code also provides a third deadline. Because a DC mechanic's lien may be filed for amounts that are not yet due the claimant, the DC code provides that if the claim is not due within the one-year or six-month deadlines described above, the bill to enforce must be filed within three months of when the claim becomes due. Bankruptcy may also extend the deadlines to file.

Form

To enforce the mechanic's lien, the claimant must file a complaint. This is essentially a "lawsuit" but must contain:

i. A brief statement of the contract on which the claim is based.

ii. The time the Notice of Mechanic's Lien was filed.

iii. The time the Notice of Mechanic's Lien was served on the owner.

iv. The time the building or work was completed.

v. A description of the premises and "other material facts."

vi. A request that the premises be sold to satisfy the lien.

The DC Code states that if a subcontractor brings suit to enforce a mechanic's lien, the original contractor shall be made a party as well as all other persons who have filed liens on the premises. This means that the original contractor and all other lien claimants must be made defendants to the suit to enforce the lien.

Subcontractor and Supplier Special Considerations

Remote SuppliersNo Sub-Subcontractor Liens

Sub-subcontractors are not entitled to liens in DC. Mechanic's lien rights are restricted to the general contractor with the owner and the subcontractors. This will leave suppliers without lien rights, unless they deal directly with the owner or the general contractor.

Subcontractor's Right to Request Information Prom Owner

The DC statute provides that a subcontractor is entitled to know the terms of the original contract and the status of accounts between an original contractor and the owner. The owner must forward the information upon request from the subcontractor. If the owner provides false information, or does not comply with the request, the owner loses the defense of payment, discussed above. The owner cannot then defend a mechanic's lien action by showing that the general contractor has been paid in full.

Subcontractor Bound to General Contract

The DC statute states that "all liens in favor of parties so employed by the contractor shall be subject to the terms and conditions of the original contract ... The general contract may have provisions on damages in the event that the general contractor breaches the contract, which may affect a subcontractor's lien. The general contract may have special financing arrangements that affect the owner's "defense of payment." A DC subcontractor can demand to know the terms of the general contract under DC law, as explained above.

Lien Waivers

As in most states, a contractor may waive its mechanic's lien rights in DC. In other words, a construction contract can contain a provision stating that mechanic's lien rights are waived. Any contractor signing such a contract will never be able to lien the project. However, under the DC statute, a waiver of liens in a general contract is not effective against a subcontractor.

We hope these articles are helpful to you in understanding some of the concepts and issues involved in construction law. It is important to understand, however, that NACM and this law firm are not providing you legal or professional advice. We have generalized and simplified many legal concepts, so that the explanations are short, uncluttered and easily understandable. The law changes constantly. Every set of facts and circumstances raise different legal issues. You should consult this firm or another attorney in dealing with any specific problem.