VIRGINIA COURT REQUIRES “MERS” TO BE NAMED IN MECHANIC’S LIEN ENFORCEMENT SUIT
by Brian Loffredo, Esq. The Fairfax County Circuit Court has recently decided that Mortgage Electronic Registration Systems, Inc. must be named as an interest party in certain mechanic’s lien enforcement suits. Failure to do so can result in the inability to enforce a mechanic’s lien. The act of recording a mechanic’s lien in Virginia is commonly referred to as “perfection” of the lien. While perfecting a lien is powerful, and frequently forces a resolution to a payment problem, it is not technically the end of the line. If perfecting the lien does not force payment, the next step is to “enforce” the lien. Enforcement requires the filing of a lawsuit, with the goal of selling the property and collecting amounts owed from the proceeds of the sale. Suits to enforce a mechanic’s liens are not typical debt collection suits. Since the goal is to sell the property, the suits must comply with additional requirements as set forth by the Virginia Mechanic’s Lien Law and the Virginia Courts. One such requirement is that all parties with an interest in the property be named as defendants in the suit. Doing this allows those parties to defend their interests in the property and the proceeds. Over the years, Virginia Courts have made several determinations as to which parties must be named in a mechanic’s lien enforcement suit. Without question, a lender who is secured by a deed of trust on the property must be named as a party. Judgment holders who have liens against the property also must be named. The Virginia Supreme Court has made clear that trustees named in a deed of trust must also be named as defendants in a mechanic’s lien suit. See Bush Construction v. Patel, 243 Va. 84 (1992) and Robbins v. Camon Corp., 232 Va. 43 (1986). Interested parties typically can be ascertained by reviewing a title search on the property. The question has arisen as to whether or not Mortgage Electronic Registration Systems, Inc. (“MERS”), which is frequently included in certain deeds of trust as a nominee for the lender, is required to be named as a party. MERS is a privately owned company that tracks servicing and ownership information for deeds of trust. Typical deeds of trust define MERS as acting “solely as the nominee for the Lender.” It has been common practice to omit MERS as a party to a mechanic’s lien enforcement suit in light of its status as a “nominee.” The theory has been that MERS is simply an agent of the lender, and therefore has no real interest in the property. Notwithstanding the foregoing, leaving MERS out of a mechanic’s lien complaint is now a risky proposition. On October 13, 2011, in CA Builders v. Forde, 83 Va. Cir. 451 (2011), the Fairfax County Circuit Court considered whether MERS must be named as a defendant in a mechanic’s lien enforcement suit. The deed of trust at issue defined MERS as “the beneficiary under this security instrument.” The Court found that because MERS was defined as a beneficiary, it was a necessary party to the suit. It is important to note that this case hinged on the specific language of the deed of trust. As explained above, many deeds of trust define MERS as a “nominee for the Lender,” and not the beneficiary. Therefore, the holding in CA Builders may not be applicable to all situations. However, it is important to note that Virginia Courts are strict with respect to filing deadlines in mechanic’s lien enforcement suits. Suit must typically be filed within six months of the date the mechanic’s lien was originally recorded. Courts will not allow a mechanic’s lien suit to be amended after the six-month deadline has passed. The failure to properly name all required parties within the six-month period, either in the original suit or by amendment thereto, will most likely result in the dismissal of the case. In light of the Court’s ruling in CA Builders, the prudent course of action for attorneys filing mechanic’s lien suits is to name MERS as a defendant in the original suit. Otherwise, a later ruling by the Court requiring MERS as a party could be fatal. At a minimum, it is very important to review all deeds of trust carefully, to ascertain how MERS is defined.
Brian Loffredo is a principal in Offit Kurman’s Baltimore/Washington office. If you have any questions about the content of this article or other construction matters, please contact Mr. Loffredo at 301.575.0345 or email@example.com.