Mechanics Lien Basics for Contractors and Subcontractors
Pennsylvania’s Mechanic’s Lien Law operates to give a security interest to those contractors and subcontractors who provide labor and materials in connection with repairs, alterations or construction of real estate. When properly exercised, it is a powerful tool providing a security interest in the property to ensure that the contractor or subcontractor will ultimately receive payment for his work and materials. Materialmen are also entitled to file a Mechanic’s Lien even when they do not have a direct contract with the property owner.
Obviously, no Mechanic’s Lien can be filed until there is a failure by the property owner or the general contractor to pay a contractor or subcontractor or materialman after the labor and materials have been provided and invoiced pursuant to the terms of their contractual relationship.
It is important to note that no Mechanic’s Lien Claim may be filed for amounts under $500. While general contractors may file a Mechanic’s Lien Claim without giving prior notice to the owner, all subcontractors and materialmen must provide at least 30 days’ written notice to the property owner before filing a Claim. That notice must provide the property owner of the intention to file a Mechanic’s Lien Claim and must include the following information:
- Name of Claimant
- Name of person/entity with whom Claimant contracted
- Amount Claimed to be due
- General nature and character of labor or materials furnished
- Date of completion of the work for which Claim is made
- Brief description sufficient to identify the property subject to the lien
The written notice may be served by registered or certified first class mail.
Upon the expiration of the 30-day notice period applicable to subcontractors and materialmen, the Mechanic’s Lien Claim may be filed with the Prothonotary of the county in which the real estate is located. The Mechanic’s Lien Claim must be filed within six months after completion of the work, or the right to file the lien is forever lost. Once the Mechanic’s Lien Claim is filed of record, the property owner must be provided with a Notice of Filing of Mechanic’s Lien Claim within 30 days of the filing. The Notice of Filing of Mechanic’s Lien Claim must indicate the court, term and number and date of filing of the Claim. This notice must be served in the same manner as original process (i.e., through Sheriff’s office). An affidavit of service of notice, or the acceptance of service, must be filed with the Prothonotary within twenty (20) days after service setting forth the date and manner of service.
Once the property owner has been served with the Notice of Service of Mechanic’s Lien Claim, no further immediate action on the part of the contractor, subcontractor or materialman is necessary; however, it is important to note that the statute requires that a Complaint be filed within two years of the filing of the Mechanic’s Lien Claim to enforce the Claim and reduce it to a judgment. Failure to file the Complaint within the required two-year period will result in the loss of the lien.
Recently, the Pennsylvania legislature amended the Mechanic’s Lien Law to afford greater protection to residential property owners. The law now provides that a Mechanic’s Lien is subordinate to an open-end mortgage that is recorded after construction on the project has commenced if at least 60% of the open-end mortgage proceeds are devoted to construction costs. Furthermore, the new amendments limit the circumstances under which a residential property can be subject to a Mechanic’s Lien. Once the owner has paid the contractor the full amount of the contract price, any existing Mechanic’s Liens on the property are deemed to be discharged. If the owner fails to pay the full contract price, but pays a portion thereof, the Mechanic’s Lien Claim filed upon the property is reduced to reflect the amount actually due and owing under the contract price. Finally, the amendments also provide that a subcontractor has no right to a lien when the owner has paid the full contract price to the contractor and the property is a one or two-unit residential property intended to be used as the residence of the owner.
The filing and perfection of Mechanic’s Lien Claims can prove to be tricky business for even the most savvy contractor. Call us for assistance with the filing of Mechanic’s Lien Claims for your business!