Va. Cir.: Special warranty conveyance preserves interest in condos

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A condo developer successfully petitioned to invalidate a subcontractor’s mechanic’s lien on the individual condos after the general contractor reportedly went bankrupt. Though it had sold all the condos, the developer had standing to bring the petition by virtue of the special warranty it included in each conveyance.

Background

Petitioner Leesburg Building Partners LLC seeks an order declaring the memorandum of mechanic’s lien recorded by Respondent Mike Berger Inc. to be unenforceable and declaring its immediate release of record.

In 2017, Leesburg Building, a developer, contracted with Lansdowne Construction to perform a substantial part of the work in constructing an 18-unit condominium project. Lansdowne in turn subcontracted the concrete work to Berger. Leesburg Building paid the full contract price in full in February 2018 and had conveyed all 18 units to third parties by April 2018. Lansdowne apparently filed for bankruptcy in May 2018.

Berger recorded the subject mechanic’s lien on May 18, 2018, asserting a “blanket” lien against all the individual units in the project (now owned by third parties), in the total amount of $48,180.

On June 5, 2018, Leesburg Building filed its petition for release, on grounds that it had already made full payment when the lien was recorded and thus there is no amount for which the lien may be perfected. Berger has moved to dismiss, arguing that Leesburg Building lacks standing for the petition because it no longer has any interest in the secured property.

Interest in secured property

Because Leesburg Building conveyed every condo unit to the third-party owners with “Special Warranty of Title,” it retains an interest in the project within the meaning of Code § 43-17.1.

This case is nearly identical to PIC Constr. Co. v. First Union Nat’l Bank, 218 Va. 915 (1978), in presenting the issue whether a mechanic’s lien was within the grantor’s potential liability under a special warranty of title. After a mechanic’s lien is filed, it makes no difference how many times title is conveyed afterward. The lien attached when the work was done, subject to perfection by proper filing. Thus, it is clear that the inchoate lien at issue here existed while Leesburg Building held title to the project and is thus a claim “through or under” Leesburg Building as grantor.

Applying PIC Construction, Leesburg Building covenanted under Code § 55-69 that it will forever warrant and defend such property against the claims of all persons claiming through the grantor: e.g., Berger, whose mechanic’s lien against the project is ultimately through Leesburg Building.

Thus, despite the fact that all the units had been conveyed, Leesburg Building retains an interest such that it has standing to challenge the validity of the lien by separate proceeding under Code § 43-17.1. Berger’s motion to dismiss will be denied.

Release of mechanic’s lien

Leesburg Building’s petition should be granted under Code §§ 43-7(A) and 43-17.1. It presented authentic documents supporting the claim that Lansdowne Construction was paid in full under the terms of the contract. Leesburg Building also paid all the additional purchase orders. While Lansdowne didn’t sign a release of lien with respect to two of the payments, it did negotiate the payments and hasn’t filed a mechanics lien or otherwise indicated that it hasn’t been fully compensated.

Motion to dismiss denied; petition for release granted.

Leesburg Bldg. P’rs LLC v. Mike Berger Inc., Case No. CL115479, Aug. 22, 2018. Loudoun Cir. Ct. (Irby). VLW No. 018-8-074, 7 pp.