Magazine article Business Credit

The Perils of Blanket Liens

Magazine article Business Credit

The Perils of Blanket Liens

Article excerpt

A recent Virginia Supreme Court Case has once again drawn attention to the perils associated with blanket mechanic's liens.

In Virginia, as in most states, a person supplying labor or materials to multiple lots may file a single mechanic's lien, commonly referred to as a blanket lien, against all of the lost in the development.

The ability to file such a blanket lien is critically important to suppliers and other lower tier subcontractors who furnish and supply labor or materials in bulk, or otherwise lack the ability to trace their labor or materials to individual lots.

Thus, electrical, plumbing, millwork, and other suppliers who ordinarily only contract with subcontractors rely heavily upon blanket liens. However, as the recent case from the Virginia Supreme Court demonstrates, the right to use blanket liens is subject to significant limitations.

In Addington-Beaman Lumber Company, Inc. vs. Lincoln Savings & Loan Association, 7 V.L.R. (4/19/91), a blanket mechanic's lien filed by a millwork supplier was invalidated. The supplier had an open account agreement with a general contractor for a residential townhouse project. When the general contractor became delinquent in its account, the supplier separated the open account into charges by building group and filed a blanket mechanic's lien on each separate building group. Each building group consisted of 10 individual townhouse units and lots.

Although the supplier's invoices and delivery tickets earmarked some of the millwork to individual townhouse units, much of the materials could not be traced to individual units. Nonetheless, the Virginia Supreme Court ruled that the supplier's blanket mechanic's lien was invalid, stating:

Under the circumstances of this case,

the mechanic or supplier had the duty

to apportion the amounts due among

the several lots benefitted, the evidence

establishing that the materials furnished

have added disproportionate values to

the individual lots within the

townhouse structure. Otherwise,

lienors could so shift their liens as to

unduly burden some of the lien subjects

and relieve others, to the extent of

imperiling the interests of other lien

creditors which would not be consonant

with the intent and spirit of the

statute and would be offensive to good

conscience and equity. …

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