A Joint Subcommittee of the Courts of Justice Committees of the Senate and House of Delegates, having been authorized to conduct a study of Virginia's mechanic's lien laws under House Joint Resolution No. 229, submits the following report as the product of its deliberations.

The Joint Subcommittee conducting the present study was composed of Delegates A. L. Philpott of Bassett, C. Richard Cranwell of Vinton, John D. Gray of Hampton and Clinton Miller of Woodstock, who were appointed by the Chairman of the Committee for Courts of Justice of the House of Delegates, and senators William F. Parkerson, Jr., Frederick T. Gray and Frederick C. Boucher, who were appointed by the ·Chairman of the Senate Courts of Justice Committee. Max W. Foore, Vice President of First Mortgage Corporation of Richmond; Herbert N. Morgan, President of Real Title Company, Inc. of Arlington; R. E. Lee, Jr., of R. E. Lee and Son, Inc. (general contractors) of Charlottesville; Robert W. Ligon, of Kane Plumbing. Co., Inc. (Subcontractor) of Richmond; and M. Ronald Helms, of Roper Brothers Lumber Company (material suppliers) of Petersburg, served as advisory members of the subcommittee. The subcommittee held public hearings in Richmond throughout the summer and fall of 1979 to hear and evaluate the various proposals made by the interest groups participating in the study.

The major problem raised with reference to the inchoate nature of the lien was made by the Virginia Land Title Association. In noting the general rule of real property law that, when lienors perfect their lien at different times, the claim of the one who perfects first will be preferred, the Association pointed out that present Virginia law makes an exception to this rule in the case of mechanic's and materialmen's liens. As has been discussed earlier in this report, the lien of the mechanic or materialman does not come into being until the labor is performed or the materials are furnished and the mechanic or materialman need not record his lien until ninety days after all work on the property has stopped. Nevertheless, when a mechanic's or materialman's lien has been recorded, it takes precedence over all claims on the property previously recorded, including the construction loan mortgage which funded the construction.

This, according to the title insurers, creates the problem with financial institutions not being able to assure themselves a first lien on the property, in addition to the substantial risk of loss for the new home buyer.

In addition to echoing the comments of title insurers concerning what was referred to throughout the hearings as the "secret lien," representatives of the Virginia Banker's Association and the Virginia Mortgage Bankers Association pointed out specific problems with the final survey on a particular job extending the ninety-day filing period for memoranda of liens.

Materials and suppliers groups, as well as subcontractors were generally opposed to change in the present law as it relates to the inchoate nature of the lien and filing times for memoranda. They did note, however, the long period of time it takes under present law to get a mechanic's lien case heard and decided. A problem was also raised by these groups concerning the difficulty for a subcontractor or supplier to file and perfect a mechanic's lien when a condominium project is involved. Under existing case law, joint or blanket liens are permitted on two or more parcels of real estate but release of a single parcel from the lien may void the lien if the interest of third parties in the parcels would be detrimentally affected by the release. See, "United Masonry, Inc. v. Jefferson Mews, Inc. supra."

Another problem raised by subcontractors and suppliers relates to the financial mechanism utilized by certain vendors of real estate. In order to create lot sales, some vendors are selling real estate to a builder under a contract to purchase, with closing under the contract being held when the builder has completed the improvements on the property and is ready to close with the ultimate purchaser. The question arises as to whether the owner of the real estate should have his interest in the land subjected to liens when he knows that the improvements are being erected upon his property. If the builder defaults under the contract of purchase after improvements have been placed upon the property, the seller of the property should not be allowed to enjoy a windfall by defaulting the contract, retaining possession of the improvements and not paying those persons who provided the labor and material for the improvements.