What Vermont’s Lien Law Means for Lenders; and for Contractors and Sub-Contractors
By David W. M. Conard 1 and Erin Miller Heins 2
Introduction
All state mechanic’s lien laws strike a balance among the rights of owners, contractors, sub-contractors and lenders. Vermont’s statutory scheme is relatively protective of the rights of owners and lenders.
The Basics of Vermont’s Mechanic’s Lien Law
Vermont’s mechanic’s lien law, codified at 9 V.S.A. § 1921 et seq., provides a lien in favor of contractors, sub-contractors and materialmen who supply labor and materials for the construction of improvements to real property.3 Vermont law does not differentiate between commercial and residential projects, but does provide for different procedures depending upon whether the party claiming the lien has a direct contract with the owner, or a contract with an agent, contractor or sub-contractor of the owner. Regardless of whether the lien claimant has a direct contract with the owner, or only with an agent of the owner, the lien is inchoate (i.e. not yet complete or fully developed) until the statutory requirements are complied with.
Notice of Lien
The inchoate lien ceases to be of any effect unless a written notice of lien is delivered to the owner and recorded in a timely fashion in the land records of the municipality where the property is located.4 In order to preserve the lien, the notice must be recorded within 180 days from the time when payment last became due for labor performed or materials furnished by the claimant.5 Although the statute requires only a written memorandum, signed by the claimant, it is customary practice to identify the real estate encumbered by the lien (by reference to land records recording data if possible), to state the unpaid contract balance for which the lien is claimed, and to state that fewer than 180 days have elapsed since payment became due for the last labor performed or materials supplied.
Perfection of Lien by Attachment
Just as the lien becomes invalid if notice is not recorded in the land records within 180 days, the lien also becomes invalid if the claimant does not commence suit and obtain an attachment from a court of competent jurisdiction within 180 days from the date of recording, or 180 days from the date when payment becomes due, whichever is later.6 It is important to note that the claimant must actually obtain an attachment within the 180 day period; it is not enough that the claimant simply file suit.7 Unless a claimant can satisfy the standard for obtaining an Order of Approval ex parte, the required Order of Approval of attachment may only be issued upon a motion, after five days notice to the defendant, unless the judge proscribes a shorter notice period for good cause.8 The legal standard for obtaining an attachment is a court finding of a reasonable likelihood the claimant will recover judgment, including interest and costs, in an amount equal to or greater than the amount of the attachment sought, over and above any liability insurance, bond, or other security shown by defendant to be available to satisfy the judgment.9 The motion for writ of attachment must be accompanied by an affidavit setting forth facts which are sufficient to establish the factual requirements for the attachment.10 Because of the factual findings necessary for the court to issue an attachment perfecting a contractors’ lien, the existence of a bond will defeat the lien, and an owner’s claim of set off can defeat or reduce the amount of the lien. Once obtained, the Court’s Order of Approval of the attachment must be served upon the owner and should be delivered to the sheriff or other officer for service on the municipal clerk for recording in the land records.11
Foreclosure of Liens
A lien claimant who successfully prosecutes an action to judgment must record a certified copy of the judgment in the land records within five months of the date of issuance of the judgment, and thereafter may foreclose the lien in the same manner as a mortgage is foreclosed.12 As with other deadlines in the statute, a lien claimant should assume time deadlines will be strictly construed. The fact that the judgment may be on appeal has been held not to toll the five month deadline.13 It should be noted that Vermont is a “strict foreclosure” jurisdiction, meaning a foreclosing creditor does not necessarily have to pay any excess equity to the property owner, but may in most circumstances take title to the property, subject to any liens having priority over the lien being foreclosed.14
Priority of Liens
If the statutory requirements are adhered to, the priority date of the lien will relate back to the date of the visible commencement of work on, or delivery of material to, the property being improved.15 The Bankruptcy Court in the District of Vermont has held that under Vermont law, the lien priority is afforded to the full amount of an eventual judgment, even if it exceeds the face amount of the lien, and this decision has been affirmed by the Second Circuit.16
1 David W. M. Conard is a partner in the Burlington, Vermont law firm of Langrock Sperry & Wool, LLP. He received his A.B. degree from Dartmouth College in 1982 and his J.D. from the University of Colorado School of Law in 1986. He is a member of the Chittenden County, Vermont and American Bar Associations and is a member of bar committees relating to real estate and construction law, including the ABA Forum on the Construction Industry. Mr. Conard’s practice emphasizes construction, real estate, and real estate-based commercial lending.
2 Erin Miller Heins is a partner in the Burlington, Vermont law firm of Langrock Sperry & Wool, LLP. She received her A.B. degree from Princeton University in 1998 and her J.D. from the University of Pennsylvania Law School in 2001. She is a member of the Chittenden County, Vermont and American Bar Associations. Ms. Heins has a general litigation practice including a focus on construction law.
7 Filter Equipment Co. Inc. v. International Bus. Mach. Corp., 142 Vt. 499, 502, 458 A.2d 1091, 1092 (1983); Piper v. Hoyt, 61 Vt. 539, 17 A.798 (1889).
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