Recently, we discussed Pennsylvania’s potential change from a full-price lien state to an unpaid-balance lien state, as well as the other potential changes to Pennsylvania lien law currently being debated by the Pennsylvania Senate as Senate Bill 145. Construction Payment Blog is not the only publication discussing the possible changes to Pennsylvania lien law, however. Paul Pierce, from the Westmoreland Tribune, recently discussed the prospective amendment in the unfortunately titled article “Bill aims to protect homeowners against unfair liens”. While it is a bit unfair to criticize the article’s title, since the wording comes more or less from the bill’s author, this language (as well as other language in the article) is imprecise, clouds the real issue, and seems to misunderstand the mechanics lien instrument.
Background of Senate Bill 145
The article notes that mechanics liens were brought to the forefront of Sen. Kim Ward’s mind after a tornado damaged several homes in Ward’s Senate district. In the aftermath of the tornado, a number of roofing companies from different states came to Pennsylvania to assist in repairing the damage. One particular roofing company, Prime Roofing Systems of Waxahachie, repaired the roofs of many homes in Ward’s district, but allegedly failed to pay its material supplier, ABC Supply Co., Inc. (“ABC”), and left town. ABC, since they hadn’t been paid, filed mechanics liens to secure the money owed.
As noted many previous times, one of the reasons the mechanics lien is an effective tool to procure payment is that it allows the unpaid party to recover payment from parties with whom they did not directly contract. In this case, ABC was not limited to attempting recovery from Prime Roofing (the party ABC contracted with) but could also recover from the homeowner, or through foreclosure on the property itself. This generally is the case whether or not the party from whom the mechanics lien claimant is attempting to recover payment has already paid.
Senator Ward has taken issue with this aspect of the mechanics lien instrument, and has introduced legislation to change Pennsylvania from a “full-price” lien state, to an “unpaid-balance” lien state.
Difference Between Full-Price Mechanics Lien and Unpaid Balance Mechanics Lien
I recently discussed the difference between full-price and unpaid-balance lien states, but as a quick refresher, a “full-price” lien means that if the state-specific notice and lien law requirements are met, an unpaid subcontractor or supplier is entitled to a lien for the full price of the labor and/or States have different ways to apportion risk between parties in a construction project related to concepts of fairness, and the parties’ relative positions in the project. Materials he furnished to the project – whether or not the property owner has already paid the general contractor, an “unpaid balance” lien means an unpaid subcontractor is limited in his lien claim to the amount left unpaid to the general contractor (by the property owner) at a statutorily determined time (either when notice was given, or when the lien was filed). States have different ways to apportion risk between parties in a construction project related to concepts of fairness, and the parties’ relative positions in the project.
The determination of how to apportion the risk of non-payment takes into consideration the relative positions of the parties to control project funds, and the state’s interest in whether the risk of double payment outweighs the economic factors in favor of making sure the parties furnishing labor and/or materials to a construction project. While the historical basis of the mechanics lien was to secure payment to parties providing work to the benefit of real property, there are valid reasons for either approach. Once a state has decided which approach to take, however, a lien claimed pursuant to the law of that state is not “fair” or “unfair”, it is merely “valid” or “invalid”. The law may or may not conform to an individual’s notions of fairness, but the law is not the lien itself.
Unfortunate Language By Senator Ward and Westmoreland Tribune
While it is a semantic distinction, there is a difference between an “unfair lien” and a proper, valid lien filed pursuant to a statute that an individual believes is unfair – or apportions risks in a manner to which that commentator objects. Under the above lens, the language in Mr. Pierce’s article and the quotes from Senator Ward are unfortunate, and imprecise. ABC’s mechanics liens were filed in compliance with Pennsylvania law, a fact acknowledged by Senator Ward, who said that “the subcontractor still filed the lien in accordance with existing Pennsylvania law”. Still, however, the article refers to “unfair mechanics liens”.
While it is a semantic distinction, there is a difference between an “unfair lien” and a proper, valid lien filed pursuant to a statute that an individual believes is unfair – or apportions risks in a manner to which that commentator objects.
It is clear with whom Senator Ward’s allegiances lie. A large corporation with out-of-state headquarters will likely take a back-seat to the interests of the homeowners making up the her voting district. After all, those homeowners are the people who elect her. This is a natural part of the democratic process.
The issue of how to apportion risk through a construction project chain is a real one. No matter how it is done, some parties are going to feel that the outcome was unfair. This may be a homeowner who is required to pay twice for the same work (and then seek to recover from the general contractor that failed to pay its subs), or, it may be a subcontractor who, because the property owner paid the general contractor (potentially even before any money was due to the sub) is unable to recover payment for work that was performed.