Contractors and subcontractors must be particularly vigilant in protecting their lien rights in these uncertain economic times. Despite an investment of time and labor into a project, contractors and subcontractors may be faced with a defaulting owner, or even worse, an owner who files for bankruptcy before paying for the construction work. To fully protect itself from an owner who defaults on payment, a contractor or subcontractor must file a mechanics’ lien against the owner’s property once the work has been completed.
What does it mean to perfect a lien?
In Pennsylvania, a mechanics’ lien must be “perfected” by the contractor or subcontractor. Perfection simply means that the contractor or subcontractor has closely followed the law, taken all of the necessary steps, and filed the correct papers with the court. Because the steps vary from state to state, it is crucial that a contractor or subcontractor be aware of the law of the state where the project is located.
In Pennsylvania, the right of a contractor or subcontractor to file a lien on the property of a non-public construction project is governed by the Pennsylvania Mechanics’ Lien Law of 1963, as updated. To “perfect” a lien in Pennsylvania, a contractor or subcontractor must take each of the following steps:
- First, the contractor or subcontractor must file a claim with the local state court within 6 months after the contractor or subcontractor completed its work. It is important that the lien be filed in the Court of Common Pleas where the project is located.
- Second, the contractor or subcontractor must serve written notice of the filing upon the owner within 1 month after filing. Third, the contractor or subcontractor must file a proof of service with the same court within 20 days of service upon the owner.
- In addition, Pennsylvania law requires that a subcontractor provide a preliminary notice to the owner before it can proceed with the lien perfection process. This requirement does not apply to a contractor.
Why does perfection matter?
Perfection matters because in Pennsylvania once a lien is perfected the contractor or subcontractor has rights, even if the owner later files for bankruptcy. This is an unusual wrinkle under Pennsylvania law, because usually once a bankruptcy is filed—no one can sue the owner. If a contractor or subcontractor has perfected a lien before the bankruptcy begins, that contractor or subcontractor might still be able to proceed in court against the owner.
In New Jersey, the process to perfect a mechanics’ lien is much more involved.