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Does general contractor bankruptcy effect subcontractor mechanic's liens deadlines?

We are victims of the David James Homes fraud in Virginia. All our payments were to DJH we had no dealings with the subcontractors, did not hire them or sign contracts with them and have no idea who most of them are. We were never owing to DJH at any time in our contract with DJH and are, in fact, owed $42,000 by DJH for work we paid for not supplied. A subcontractor has put a lien against our property in the amount of $3,800. It is now past the 6 months deadline they have to enforce it. Additionally, it is for work we already paid DJH for (DJH had a very weird PREpay draw schedule, so we gave the money for counters to DJH 3 months before they were installed, DJH just never gave the money to the subs). Merle Heckman filed bankruptcy last fall with DJH. The case is ongoing. Because the 6 months has passed, can I petition my local county court to remove the lien or do I need to wait until some specified time after the DJH bankruptcy case closes? The "automatic stay" wording regarding bankruptcy was confusing and I don't want to petition to have a lien removed before the window for enforcement has closed.

1 reply

Mar 6, 2020

No, a GC's bankruptcy shouldn't affect the mechanics lien deadlines of their subs and suppliers. When a subcontractor or a supplier files a mechanics lien, they are staking a payment claim directly against the property - not against their GC. So, ultimately, a GC's bankruptcy usually won't affect their subs' lien claims against the owner all that much. Though, under other circumstances, the GC would likely be pretty heavily involved in the resolution of a lien dispute even though it's a claim against the owner's property. Still - the automatic stay for the GC's bankruptcy case shouldn't have any impact on the lien enforcement timeline for a sub or supplier. As you mentioned above, mechanics lien claims do expire if they aren't enforced. And, if a claimant fails to enforce their lien within 6 months of the lien filing, or within 60 days of the completion or termination of the job (whichever is later), then the lien will expire and no longer be valid and enforceable. So, if work is still ongoing, or if work only recently ceased, then it's possible the lien enforcement period has not yet run. And, for clarity on that front, it might be wise to consult a local Virginia construction attorney so they can look at the project documentation and review the work timeline. Once the lien claim has expired, though, it should be pretty easy to get the lien removed from the property title. At that point, it'd make a lot of sense to petition for the release of the lien claim. But again, consulting with a local construction attorney will help to sort through the situation, and they'll be able to advise you on how to proceed. Finally, regarding lien liability when the GC's been paid: § 43-7(A) limits a subcontractor's lien, to some degree. Under that section, a sub's lien can't exceed what's owed to the GC or what will be owed to the GC in the future, based on the contract amount. So, if the owner has paid the GC a significant amount, and if the subcontractor's lien would result in the owner paying more than what they were supposed to pay the GC for the total project, then the owner may be able to avoid lien liability there, too.

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