DEFENDING MARYLAND MECHANIC'S LIENS: A Primer By Charles Ware, Attorney & Author

www.CharlesJeromeWare.com ("We fight.  You win.")

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Attorney Charles Jerome Ware is renowned and consistently ranked among the best attorneys and legal counsellors in the United States. [GQ Magazine, The Washington Post, The Baltimore Sun, The Columbia Flier, USA TODAY, The Howard County Sun, The Anniston Star, The New York Times, CNN, MSNBC, CBS, ABC, NBC, FOX-TV NEWS, WHUR, WHUT, MPT, BBC, The Wall Street Journal, ABA Journal, et al.]

To begin, generally a mechanic's lien is a security interest in the title to property for the benefit of those who have supplied labor or materials that improve the property.  The lien exists for both real and personal property.

Generally, in Maryland there is no s-called "defense of payment" [see, "Defense of Payment" below].

Therefore, it is the primary responsibility of the owner of the property to make sure that all subcontractors are paid for their work performed.

Even if the owner pays the general contractor in full for the work performed, and the general contractor fails to pay the subcontractors, those subcontractors may still be able to enforce a lien against the property.

[www.fullertonlaw.com; www.ober.com; West's Encyclopedia of American law, Edition 2 (2008); www.investopedia.com]

I.  Defense of Payment:  It is the owner's responsibility to ensure payment to subcontractors.  The choice of the general contractor, therefore, is very important.

The burden is on the owner to make sure that all subcontractors are paid.  The owner has the right and the duty to withhold the amount claimed by a subcontractor.  There is no "defense of payment" for the Maryland project owner in most cases.  The owner can be required to pay for the project twice.  Even if the owner has paid the general contractor in full, a subcontractor will be able to establish a lien and eventually foreclose on the property, with only one exception.

The only time a Maryland property owner has a defense of payment is in the case of an individual building his own residence on his own land.  Such a homeowner is protected if the homeowner pays all contractors with whom the owner had a direct contract.

[see, Maryland Real Property Code Section 9-104(a)(2)]

II.  Contractor Indemnficiation:

Most contracts for construction between an Owner and a Contractor provide that the Contractor shall defend and indemnify the Owner against mechanic's liens filed against the Project by the Contractor's subcontractors and suppliers and others down the chain of privity. 

 

Typically, if a dispute arises between a Contractor and one of its subcontractors or suppliers and a mechanic's lien is filed, the Owner generally will tender the defense of the mechanic's lien to the Contractor, and the Contractor will accept that obligation. The only exception to this practice generally is a situation in which the Contractor and its subcontractor or supplier have a dispute with the Owner, and the filing of the mechanic's lien is the result of the Owner's failure to make payment.  

[http://www.ober.com/publications/336-defending-mechanics-lien]. 

To meet its obligation to the Owner to defend a mechanic's lien, the Contractor generally will ask its attorney to prepare an Answer to the Petition to Establish a Mechanic's Lien on behalf of the Owner.  

Under the applicable statute and rules of procedure, however, the Answer must be "verified," meaning that it must be supported by an Affidavit, attesting to the truth of the matters that are being contested in the Answer. Representatives of the Owner, however, may not have personal knowledge of the dispute between the Contractor and its subcontractor or supplier. Consequently, the Affidavit submitted with the Owner's Answer often is made by a representative of the Contractor who is familiar with the facts and circumstances of the dispute.  

The practice of having an Affidavit in support of the Answer be made by someone other than a representative of the Owner was challenged recently in a case that made its way to the Court of Special Appeals of Maryland. At the Show Cause Hearing on the mechanic's lien, the lien claimant argued that the Answer to the Petition to Establish a Mechanic's Lien was defective because the supporting Affidavit was signed by someone other than a manager or other representative of the Owner. The Circuit Court judge agreed, decided that the Affidavit in support of the Answer was not valid, and entered a final mechanic's lien against the Owner's property for the amount claimed.  

The Owner appealed that decision to the Court of Special Appeals of Maryland. The Court of Special Appeals reversed the trial court's decision, holding that the Affidavit in support of the Owner's Answer was sufficient even though it was executed by someone other than a manager or representative of the Owner. In its opinion, the Court noted that, in a mechanic's lien proceeding, both the statute and applicable rules require that the Owner's Answer be "under oath," which is generally accomplished by a supporting affidavit. Apart from that, however, the Court ruled that there is nothing in either the statute or the rules requiring that the Affidavit be made by the Owner or one of its managers or representatives.  

Based on its review of the law and the practical considerations in these cases, the Court of Special Appeals concluded that the Affidavit submitted in support of the Owner's Answer need not be executed by a manager or other representative of the Owner. In doing so, the Court also rejected the argument that a manager of the Owner, a North Carolina limited liability company, was required to execute the Affidavit under North Carolina corporate law.  

Because this case provides useful practical guidance, this Firm asked the Court of Special Appeals to publish its opinion so that it will serve as precedent in future cases. The reported decision is T.W. Herring Investments, LLC v. Atlantic Builders Group, Inc., Appeal No. 440, September Term 2008, 186 Md. App. 673.  

Applying the guidance provided by the Court of Special Appeals, attorneys for a Contractor that has agreed to defend the Owner in a mechanic's lien case filed by one of the Contractor's subcontractors or suppliers should be able to submit an Affidavit from an employee of the Contractor in support of the Owner's Answer to the Petition to Establish a Mechanic's Lien. This is particularly helpful when the Owner is not privy to the subject matter of the dispute between the Contractor and one of its subcontractors or suppliers and cannot truthfully sign an Affidavit based upon actual personal knowledge. Thus, the guidance provided by the Court of Special Appeals in this case should eliminate one potential pitfall in the often difficult process of defending mechanic's lien cases.

III.  Mechanic's Lien Basics in Maryland:

 

Everyone should know the basics regarding mechanic’s lien in Maryland, including timing of bringing forth a claim, notice to parties, and other considerations. The following list consists of some of the basic considerations that any party to a potential mechanic’s lien should consider:

1. Timing – In Maryland, a contractor or subcontractor must bring a mechanic’s lien claim within 180 days from the last day they performed work or supplied materials on the project.
2. Notice – Subcontractors must provide a notice of intent to lien a property within 120 days from the last day they performed work or supplied materials on the project.
3. Lienable Properties – In Maryland, mechanic’s liens can be placed on non-public new construction or renovations that increased the value of the property by 15%. A contractor cannot bring a claim against public property.
4. Waiver of Mechanic’s Lien Provisions – Maryland, unlike Virginia and Washington D.C., does not permit the waiver of a mechanic’s lien provision in a contract. As a result, if the contract states that a contractor has waived its right to bring a mechanic’s lien claim in Maryland, it may be unenforceable.
5. Protecting against Mechanic’s Lien – obtaining lien releases for work performed and materials furnished will protect owners and contractors from mechanic’s liens.
6. Information necessary in a Petition for Mechanic’s Lien includes:
• Name and address of the petitioner
• Name and address of the owner
• The nature or kind of work performed or materials furnished
• A description of the land and building
• Evidence of notice to owner, if the Petitioner is a subcontractor

7. Affidavit by the Petitioner confirming the facts and amounts at issue
8. Copies or originals of all material papers

Cost of Completion of Work:

 

If an owner has to employ another contractor to complete the work, the mechanic's lien claimant is entitled to the amount of his claim, less a setoff for the amount the owner pays the other contractor to properly complete the work.  Johnson v. Metcalfe, 209 Md. 537, 121 A.2d 825 (1956).

 

[Palmer Park Partnership v. Marvelite, Inc., 255 Md. 121, 257 A.2d 169 (1968); Treusch v. Shryock, 51 Md. 162, 173 (Md. 1879)(the right of the material man to his lien, does not depend on, nor is it in any manner affected by the question whether the owner has or has not money in his hands due the builder, nor whether the former has performed his part of the contract with the latter); see also Richardson v. Saltz, 127 Md. 388 (Md. 1916).
Maryland Real Property Code Section 9-104(a)(2).
Maryland Real Property Code Section 9-101(g), Judd Fire Protection, Inc. v. Davidson, 773 A.2d 573, 138 Md. App. 654 (2001); Diener v. Cubbage, 259 Md. 555, 270 A.2d 471(1970).
York Roofing, Inc. v. Adcock, 333 Md. 158, 634 A.2d 39 (1993).
Taylor Elec. Co. v. First Mariner Bank, 191 Md. App. 482, 493 (Md. Ct. Spec. App. 2010); IA Construction Corp. v. Carney, 341 Md. 703, 672 A.2d 650 (1996).
Bennett Heating & Air Conditioning, Inc. v. Nationsbank, 342 Md. 169, 674 A.2d 534 (1996).
York Roofing, Inc. v. Adcock, 333 Md. 158, 634 A.2d 39 (1993).
Johnson Hydro Seeding Corp. v. Ian Homes, Inc., 126 Bankr. 933 (Bankr. D. Md. 1991).
Maryland Real Property Code Section 9-102(b).
Celta Corp. V. A.G. Parrott Co., 94 Md. App. 312, 617 A.2d 632 (1993).
Maryland Real Property Code Section 9-102(a).
Hurst v. V. & M of Va., Inc. 293 Md. 575, 446 A.2d 55 (1982).
O-porto Construction Co., v. Devon/Lanham, L.L.C., 129 Md. App. 301, 741 A.2d 546 (1999). Maryland Real Property Code Section 9-102(a).The statute goes on to say that the building will be subject to a lien for the “payment of all debts, without regard to the amount,” if the building is repaired or improved to the extent of 15% of its value.
Maryland Real Property Code Section 9-102(a). The statute goes on to say that the building will be subject to a lien for the “payment of all debts, without regard to the amount,” if the building is repaired or improved to the extent of 15% of its value
Maryland Real Property Code Section 9-103(c)(2).
Maryland Real Property Code Section 9-103(c)(2).
AMI Operating Partners Ltd. Partnership v. JAD Enters., Inc., 77 Md. App. 654, 551 A.2d 888, cert. Denied, 315 Md. 307, 554 A.2d 393 (1989).]