Maryland’s mechanic's lien laws seek to protect materialmen by ensuring they are paid for supplying labor and materials; however, one aspect of their design leaves lien claimants vulnerable to losing out completely. In contrast to other states, like Virginia, Maryland’s delayed process for a contractor to establish a lien, in some situations can destroy the contractor’s right to claim a lien altogether and can leave the contractor without a remedy for the unpaid services and materials it provided.

Mechanic's lien laws are statutory creations engineered to protect contractors and other suppliers of labor and materials, most notably in construction projects. These statutory devices differ in each state, but essentially seek to help contractors (and their subcontractors) get paid for the work they do or materials they supply. They give contractors a greater remedy than simply filing a breach of contract action; they provide an ownership interest in and a link to the property itself. Successfully establishing a lien under the statutes is a formal process requiring strict adherence to the various requirements of each state’s statute.

In some states, including Virginia, mechanic's liens are “inchoate” liens that arise the moment materials are supplied or work is commenced, so long as the claimant subsequently perfects the lien by complying with the statutory requirements. Va. Code Ann. §43-3. There are several benefits to this approach, including giving the contractor the equivalent of a secured status, or providing a lien claimant with priority over later-filed liens, sometimes even over a deed of trust. Filing a mechanic's lien boosts a contractor’s ability to collect debts owed for service and materials provided.

Historically, Maryland was similar to Virginia in this “inchoate” aspect, but later took a divergent turn. Maryland’s current position is that no lien exists until it is established by the court. A lien claimant must first file a petition with the Circuit Court, then appear and show cause why it is entitled to the lien before an order can be entered to establish a lien. Md. Code Ann., Real Property, §9-105 and 9-106. The difference in this position, while seemingly rational in the reasons why it was established, potentially creates a hole of vulnerability in the purported protective nature of Maryland’s materialmen statute. Md. Code, Real Property, §9-102(a) governs mechanic's liens, stating in part that “every building erected…, repaired, rebuilt, or improved…is subject to establishment of a lien… for the payment of all debts…contracted for work done ... and for materials furnished for or about the building….” An exception is created, however, in subsection (d), which states: “…a building or the land on which the building is erected may not be subjected to a lien under this subtitle if, prior to the establishment of a lien…, legal title has been granted to a bona fide purchaser for value.”

A progression of the history of this part of Maryland mechanic's lien law, and the thinking behind it, is captured in Talbott Lumber v. Tymann, 48 Md. App. 647, 650-652 (1981). Prior to 1959, the defense of being a bona fide purchaser for value was not available to a property owner who found himself facing a contractor with a lien claim. This defense was first established in the Acts of 1959, which amended the then-statute authorizing mechanic's liens and introduced an exception for a bona fide purchaser for value: “…No building or the land on which it sits shall be subject to a lien …if it shall be proved by evidence that all moneys due for work contracted and materials furnished in repairing or constructing such building has been paid to such persons, firms or corporations who have actually performed the labor or supplied the materials and said building has been conveyed to a bona fide purchaser for value without notice.” (emphasis original) (Talbott at 651).

At the time, the Maryland mechanic's lien attached to property by the simple act of filing a claim with the clerk of the Circuit Court. The lien was established at the time of filing and the claimant had one year to file an enforcement suit, or the property owner could sue to compel the claimant to prove validity of the lien. (Talbott at 651).

The language of this amendment, coupled with case law at the time, left it quite unclear which party held the burden of proof. The new statutory amendment was vague and seemed to place the burden upon the property owner to prove exemption; however, established case law put the burden of proof on the lien claimant to prove he was entitled to the lien. (Talbott at 652).

In 1976, the code was rewritten to cure these ambiguities. Explaining the rationale behind these changes, the Court stated, “The principal defect in the ‘old’ law…was the ability of the claimant to acquire his lien in the first place without having to prove his entitlement to it.” (Talbott at 653). The new Code §9-102(d) created a simple exception that “property sold to a bona fide purchaser for value may not be subjected to a lien under this title.” In their effort to ameliorate the perceived “defect” in the old law, however, the General Assembly removed a crucial part of the very protection the statute was created to provide.

In Himmighoefer v. Medallion Industries, Inc., 302 Md. 270 (1985), this played out badly for the contractor. Medallion Industries, Inc. (MII) furnished labor and materials for two homes at a building site in Prince Georges County. In November 1981, the developer-owner of the property contracted to sell each lot to respective defendants, Himmighoefer and Holmes, and did not provide notice to MII. The lots had not yet transferred to the new owners when MII filed a petition in Prince Georges Circuit Court to establish a mechanic's lien against each property, naming only the developer-owner as the defendant. Each lot subsequently was conveyed to the respective owners without giving them notice of the petition to establish a lien. The developer-owner did not respond to the show cause order on the petition to establish a mechanic's lien, and a default was entered establishing the liens.

Himmighoefer and Holmes first learned of the liens when they listed their homes for sale. They subsequently filed petitions to intervene, vacate the decree, and to enjoin the sales. The petition to intervene was granted and the order establishing the liens was vacated. At the hearing, the trial court held that Himmighoefer and Holmes had constructive notice of MII’s petition to establish a mechanic's lien and the defendants appealed to the Court of Special appeals. A writ of certiorari was granted by the Court of Appeals prior to the hearing in the intermediate court. The Court of Appeals held that Himmighoefer and Holmes acquired equitable title upon signing the sales contracts, which occurred before MII filed its petition, therefore no lien could be established. MII was unable to recover payment for the unpaid services and materials it provided. Himmighoefer, quoting Mervin L. Blades & Son v. Lighthouse, 37 Md. App. 265, 377 A.2d 523 (1977) described the detrimental effect of the new law:

It will be seen that the very valuable right which was preserved [in the ‘old’ law] was the right of a creditor for labor or materials to proceed in rem against improved property even though he could show no privity of contract with the owner, nor personal liability of the owner to him.

It will be seen also that the lien concept in the [‘old’] law is otherwise virtually swept away. The claimant has no lien until he has gone to court and has prevailed in what would be, in essence, a debt suit at law, without a jury. Even then he achieves no priority over any existing mortgage, judgment, lien, or other encumbrance. He may or may not share pro rata with holders of other mechanics' liens, already established.

Any claimant who is able to show personal liability of the owner to him may well prefer to obtain an in personam money judgment in a suit at law. The judgment would be an immediate lien against all real estate of the owner, and would afford other means of collection as well. A potential mechanics' lien claimant who chooses to invoke the now curtailed benefits of the statute must still comply with the various procedural prerequisites, all within the specified time periods." (Himmighoefer at 286).

The basis for creating the bona fide purchaser exception, while magnanimous toward purchasers who might be caught unaware of liens on the property, extends beyond the purpose of the statute—to ensure that contractors are paid for the valuable services, labor, and materials they provide in improving the property of those very purchasers. The effect of Maryland requiring a prolonged process to establish a lien creates a gap where the protected party is exposed to losing its ability to recover unpaid amounts due. It is in a contractor’s best interest, then, to either file his petition for a lien as soon as possible to minimize this gap, or immediately file suit if a customer fails to pay by the due date. No matter which avenue is taken, the contractor runs the risk of losing the opportunity to have a lien.

If you have questions about this article, or about property liens in general, please contact Denise Reverski (dreverski@setlifflaw.com) at (804) 377-1272 or Steve Setliff (ssetliff@setlifflaw.com) at (804) 377-1261.