Pennsylvania Supreme Court Warns Contractors: Perfect Your Mechanics’ Liens. Legal Intelligencer article by Lamb McErlane PC attorney Andrew P. Stafford.

On April 29th, the Pennsylvania Supreme Court decided an issue of first impression in Terra Firma Builders, LLC v. King, et al. (15 MAP 2020): whether time limits exist to object to unperfected mechanics’ liens. The Court held that an unperfected mechanics’ lien may be stricken at any time, even after a trial to obtain judgment on the lien has concluded.

The mechanics’ lien procedure is a way for contractors to recoup money they are owed. If a contractor is not paid for providing labor or materials, the contractor can obtain a mechanics’ lien on the improved-upon property which acts as security for the amounts owed. To perfect (or make effective) a mechanics’ lien, Section 502 of the Mechanics’ Lien Law of 1963, 49 P.S. § 1101, et seq. (the “Law”), requires three steps: (1) file a mechanics’ lien claim within six months after the work’s completion; (2) serve written notice of the claim on the property owner within one month after filing; and (3) file an affidavit of service of notice, or acceptance of service, within 20 days after service. Once perfected, a contractor has two years from the date the claim is filed to commence an action to obtain judgment on the claim.

The failure to file an affidavit of service, however, is fatal to the lien claim. Section 502 states, “Failure to serve such notice or to file the affidavit or acceptance of service within the times specified shall be sufficient ground for striking off the claim.” It just so happens that the affidavit of service is often overlooked by many.

Enter the parties in Terra Firma Builders, LLC v. King, et al. In that case, a contractor was hired to perform construction work at a home in June 2012. After a dispute, the contractor was removed from the project in December 2012. Shortly thereafter, the contractor filed and perfected a mechanics’ lien and also commenced an action for breach of contract and unjust enrichment. But for reasons unknown, the contractor voluntarily discontinued its mechanics’ lien claim, only to file another claim days later, this time without filing the affidavit of service. It was not until June 2018, however, after a trial on the merits was held and while post-trial motions were pending, that the homeowners filed a petition to strike the lien claim for failure to file an affidavit of service.

The trial court agreed with the homeowners and struck the lien, finding that the contractor’s failure to file the affidavit of service meant that the lien was unperfected. On appeal, a divided three-judge panel of the Superior Court reversed because it found that the owner failed to move in a timely manner to strike the lien. The Superior Court relied on Section 505 of the Law, which states that “[a]ny party may preliminarily object to a claim” for failure to comply with the Law. The Superior Court focused on the last sentence of Section 505: “Failure to file an objection preliminarily shall not constitute a waiver of the right to raise the same as a defense in subsequent proceedings.” The Superior Court held that, if a property owner does not object to an unperfected lien claim “preliminarily,” the objection is not waived, but the latest the objection can be raised is in the “subsequent proceeding,” or the action to obtain judgment on the lien. The Superior Court further reasoned that because an action to obtain judgment on a mechanics’ lien claim is governed by the Rules of Civil Procedure, defenses must be raised in accordance with the Rules and are therefore waivable if not timely raised. See Pa.R.C.P. 1032(a) (stating that, with some exceptions, “[a] party waives all defenses and objections which are not presented either by preliminary objection, answer or reply . . . .”) Thus, because the homeowners did not raise their objection until post-trial motions were pending, the objection was waived.

The Supreme Court reversed and reinstated the trial court order striking the lien. Writing for the 4-2 Majority, Justice Dougherty stated that the plain language of Section 502 is clearly mandatory: an affidavit of service “shall be filed,” and failure to file it “shall be sufficient ground for striking off the claim.” Because compliance with the Law’s perfection requirements is a “prerequisite to the validity of the lien, the failure to observe” the Law invalidates the lien such that it is “not curable.” Moreover, the Law has consistently been strictly construed, as a mechanics’ lien is a “powerful statutory tool” that allows a contractor to quickly acquire a security interest in another’s property, all without having to prove the underlying merits whatsoever. Thus, “it is vital that the lien claimant strictly comply with the mandatory statutory requirements expressly set forth in the Law to prevent potential abuse.”

But what about Section 505’s supposed time limits? The dissent, written by Justice Donohue and joined by Chief Justice Baer, agreed with the Superior Court’s holding, arguing that the only “subsequent proceeding” is an action to obtain judgment on a lien, defenses to which are governed by the Rules of Civil Procedure and therefore waivable. The Majority dismissed this argument, pointing out that Section 505 unambiguously imposes no time restriction. Instead, Section 505 states that the failure to object preliminarily “shall not constitute a waiver,” and the timing or type of “subsequent proceeding” in which a defense may be raised are undefined. Further, Pa.R.C.P 1651 explicitly states that the Law, not the Rules of Civil Procedure, governs the filing of a lien claim, and typical practice under the Rules does not apply to lien claims.

Crucially, the Majority noted that an action to obtain judgment on a mechanics’ lien claim “by necessity presupposes the existence of a perfected and valid mechanics’ lien claim.” Thus, a contractor cannot obtain judgment on an unperfected, invalid mechanics’ lien, and any interpretation of the Law that imposes time limits to objections creates “an absurd result the General Assembly cannot have intended.” In sum, by holding that the homeowners “waived their challenge to an unperfected lien, despite the fact Section 505 places no time limit on challenges raised in subsequent proceedings, the Superior Court improperly attempted to give legal force to an invalid judgment.”

The Supreme Court’s decision thus teaches important lessons: when filing a mechanics’ lien claim, triple check to ensure that the perfection requirements are followed. If not perfected, no judgment can be obtained on the lien, and the lien can be stricken at any time. And for property owners who are faced with mechanics’ liens, always check to see if the affidavit of service is filed. If the contractor forgets, an easy method exists to strike the lien.

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Andrew P. Stafford is an associate at Lamb McErlane PC, where he focuses on complex commercial litigation, higher education law, and appellate litigation. Andrew successfully represented the homeowners in Terra Firma Builders, LLC v. King, et al. before the Pennsylvania Supreme Court, resulting in the reversal of a Superior Court decision. Contact him at astafford@lambmcerlane.com or 610-353-0740.

View the Legal Intelligencer article here.