Virginia Construction Lending Requirements

Virginia Construction Lien Law Overview

Virginia’s mechanics lien laws (Va. Code Ann. § 43-1 et. seq.) are among the most powerful and contractor-friendly in the United States. They provide lien rights to persons performing labor, furnishing materials, or providing the reasonable rental or use value of equipment of $150 or more for the construction, removal, repair, or improvement of any building or structure (Va. Code Ann. § 43-3).

A critical distinction exists between new construction and renovations/repairs regarding mortgage priority. Furthermore, residential 1-2 family dwelling projects allow for the designation of a mechanics Lien Agent (MLA) on the building permit at the applicant’s request (Va. Code § 36-98.01). If designated, this introduces a strict preliminary notice requirement for subcontractors that does not exist on commercial projects. Finally, an unlicensed contractor (or one without the proper class of license for the value of the work) is strictly barred from asserting a mechanics lien under Va. Code Ann. § 43-3(D).

Mortgage Priority

Will a Virginia mechanics lien have priority over pre-existing mortgages or construction loans?

Yes, under certain circumstances. Virginia creates significant priority risk for construction lenders, especially on new construction.

New Construction: On new construction, Virginia mechanics liens may have priority over a prior deed of trust as to the newly erected building or structure. Under Va. Code § 43-21, a prior lien or encumbrance on the land does not operate against the newly erected building or structure until mechanics lien claimants for that work are satisfied. In an enforcement sale, the prior deed of trust is preferred only as to the value of the land, exclusive of the building or structure, while the remaining proceeds may be applied to mechanics lien claims.

Renovations and Repairs: For repairs or improvements to an existing structure, a previously recorded deed of trust is generally expected to retain priority over later mechanics lien claims affecting the existing land and structure, but lien priority should still be reviewed with title counsel or the title insurer based on the project facts, title status, and policy coverage.

Lender Practice: Construction lenders should record the deed of trust before work begins or materials are delivered, obtain appropriate title coverage where available, monitor title throughout the project, collect draw-by-draw waivers, and consider properly drafted lien subordination agreements where appropriate. A general contractor lien subordination should not be treated as protection against subcontractor, lower-tier subcontractor, or supplier lien claims.

Top 3 Lender Risks (Executive Summary)

1. Priority Risk for New Construction: On new construction, Virginia mechanics liens can have priority over a prior deed of trust as to the newly erected building or structure. Under Va. Code § 43-21, a prior lien or encumbrance on the land does not operate against the newly erected building or structure until mechanics lien claimants for that work are satisfied. In an enforcement sale, the prior deed of trust is preferred only as to the value of the land, exclusive of the building or structure, while the remaining proceeds may be applied to mechanics lien claims.

2. The MLA Requirement (Residential): Information regarding a mechanics Lien Agent (MLA) is included on a one- or two-family residential building permit at the applicant’s request (Va. Code § 36-98.01); if not requested, the permit must state “None Designated.” If no MLA is designated on the permit, the statutory MLA notice requirement is not triggered. If an MLA is designated, claimants generally must provide notice within the statutory 30-day period or their lien is limited to labor/materials furnished on or after notice.

3. The 150-Day Rule: A mechanics lien memorandum generally cannot include sums for labor or materials furnished more than 150 days before the last day on which labor was performed or material furnished to the job preceding the filing of the memorandum. Virginia allows exceptions for retainage up to 10% of the total contract price and for sums not yet due because the party with whom the lien claimant contracted has not yet received the funds from the owner or another third party. Due to this rule, claimants on long projects may need to file multiple memoranda to preserve older unpaid progress amounts, so title should be carefully monitored mid-project.

Retainage Overview

Virginia regulates retainage strictly on public projects, but takes a hands-off approach for private construction.

Residential (1-4 unit), Multi-Family, & Commercial: Virginia law does not impose a strict statutory cap on the percentage of retainage that can be withheld on private projects. The Prompt Payment Act explicitly states that nothing within the act shall be construed to apply to or prohibit the inclusion of retainage provisions in a private construction contract (Va. Code Ann. § 11-4.6(B)).

Release & Escrow: The amount of retainage withheld (typically 5% to 10%) and the conditions for its release are governed entirely by the terms of the private construction contract between the owner and the general contractor. There is no statutory mandate to hold private retainage in an interest-bearing escrow account. Lenders should review the borrower’s prime contract retainage terms, but should also maintain independent loan holdbacks and draw controls as required by the loan documents, inspection results, title requirements, lien risk, and internal credit policy.

Prompt Payment Act

The Virginia Prompt Payment Act (Va. Code Ann. § 11-4.6) strictly regulates payment deadlines and contract clauses on private construction contracts. For the purposes of this statute, an “owner” is defined as someone other than a public body.

Single-Family Residential Carveouts: Single-family residential projects are not broadly exempt from Virginia’s private prompt payment statute. The owner-to-GC payment rule and the direct GC-to-subcontractor payment rule may still apply where the statutory elements are met. However, the lower-tier subcontract flow-down requirement in Va. Code § 11-4.6(B)(2) applies only if the project is not a single-family residential project and the value of the project, or aggregate projects under the construction contract, exceeds $500,000. The wage-liability provisions in Va. Code § 11-4.6(C) also apply only if the statutory knowledge, non-single-family, and value thresholds are met.

Owner to General Contractor: For any private construction contract, the owner is required by Va. Code Ann. § 11-4.6(B) to pay the general contractor within 60 days of the receipt of an invoice following satisfactory completion of the work.

Withholding Notice: If an owner intends to withhold all or a portion of the payment for noncompliance, they must notify the general contractor in writing within 45 days of receiving the invoice.

GC to Subcontractor: The general contractor is required by Va. Code Ann. § 11-4.6(B)(2) to pay subcontractors by the earlier of (i) 60 days of the receipt of an invoice, or (ii) seven days after receipt of amounts paid by the owner.

Withholding Notice: If a general contractor intends to withhold all or a portion of the payment from a subcontractor, they must notify the subcontractor in writing within 50 days of receiving the invoice (Va. Code Ann. § 11-4.6(B)).

Pay-If-Paid Clauses Prohibited: Virginia law strictly prohibits “pay-if-paid” clauses on private projects. Payment by the owner shall not be a condition precedent to payment to any subcontractor, regardless of whether the general contractor has been paid (unless the owner is insolvent or in bankruptcy) (Va. Code Ann. § 11-4.6(B)(2)).

Joint Check Agreements

Because Virginia’s Prompt Payment Act prohibits “pay-if-paid” clauses (Va. Code Ann. § 11-4.6(B)(2)), a general contractor can easily become insolvent if an owner or lender delays a progress draw, as the GC remains legally mandated to pay sub-tiers.

If the GC becomes distressed, or if a subcontractor or supplier provides notices under Va. Code § 43-11 that may create owner or general contractor personal-liability exposure if the statutory notice, timing, receipt, and payment-cap requirements are satisfied, it is highly recommended that the lender utilize Joint Check Agreements. By issuing joint checks payable to both the GC and the unpaid subcontractor, the lender can help direct funds to known downstream claimants and reduce payment-diversion risk. This bypasses the GC’s operational accounts, reduces the identified claimant’s lien risk when properly documented and paired with appropriate lien waivers, payoff statements, title controls, and draw conditions, and allows the project to continue moving forward.

Title Practices

Under Virginia law, state statutes do not require title companies to administer construction loan disbursements; therefore, lender-managed disbursements (or third-party draw administration) represent the standard industry practice.

Verifying title and monitoring for liens at each draw is a primary best practice for protecting the lender’s title position, identifying recorded lien activity, and supporting title insurance requirements. Construction lenders have three primary options to achieve this: (1) Lien monitoring subscription services, (2) Title updates (which check public records but provide no insurance), and (3) Title endorsements (which provide actual insurance to the lender).

Strategic Benefit of ALTA Endorsements: Because Virginia grants mechanics liens “super-priority” over new construction buildings (Va. Code Ann. § 43-21) and does not require preliminary notices on commercial projects, hidden liens are a massive threat to the lender’s collateral. It is highly recommended that construction lenders utilize ALTA 32 (Construction Loan) and ALTA 33 (Disbursement) title endorsements. ALTA 33 may provide coverage subject to the policy, endorsement, exclusions, underwriting requirements, and title insurer approval. Regardless of the chosen method, leveraging these tools to clear encumbrances and verify public filings prior to releasing every single draw is highly recommended to mitigate risk.

Lien Waivers

Virginia does not mandate or publish specific, fill-in-the-blank statutory forms for lien waivers.

Lien Waiver Summary

Virginia law provides strong protections for mechanics lien rights, while limiting certain advance waivers.

Lien Subordination vs. Lien Waiver: Virginia prohibits certain advance waivers of mechanics lien rights under Va. Code § 43-3(C). However, Va. Code § 43-21 separately allows a general contractor, before or after furnishing labor, services, or materials, to contract in writing to subordinate that general contractor’s own lien rights to prior recorded and later recorded deeds of trust. This should not be described as a blanket lien waiver or as protection against subcontractor, lower-tier subcontractor, or supplier lien claims. Lenders should obtain Virginia counsel and title insurer approval before relying on any lien subordination agreement.

Best Practice: Because advance waivers are void to the extent prohibited by Va. Code § 43-3(C), lenders should use a draw-by-draw waiver process. As a best practice, collect conditional waivers for the current draw and trailing unconditional waivers for amounts previously funded and confirmed paid from the GC and, where feasible, from major subcontractors, suppliers, noticed claimants, and other known lien-risk parties.

Forgery Penalty: Lenders should be aware that under Va. Code Ann. § 43-13.1, anyone who knowingly presents a forged or unauthorized lien waiver to a lender or title company to obtain funds is guilty of a Class 5 felony.

Lien Waiver Notarization

Virginia law does not require lien waivers to be notarized to be considered legally valid and effective. A signed, written agreement is sufficient.

Notices

Notice of Commencement (or similar like event)

Virginia does not utilize a traditional recorded Notice of Commencement. Instead, the state utilizes a mechanics Lien Agent (MLA) designation on the building permit for specific residential projects, if requested.

Recognized by State? Yes (mechanics Lien Agent designation on Building Permit).

Who Files: The applicant for the building permit may request the designation of the MLA (Va. Code Ann. § 36-98.01).

When Must it be Filed: Before the building permit is issued and before any labor is performed, if the owner opts to utilize one (Va. Code Ann. § 43-4.01).

Appoint a Designee: Yes, the MLA is a designee and is required to be a licensed attorney, title company, or financial institution (Va. Code Ann. § 43-4.01).

Posted on Jobsite: Yes. The building permit must be conspicuously and continuously posted on the property until work is completed. If an MLA is appointed, the permit explicitly contains their name, mailing address, and telephone number. If an MLA is not requested, the permit must state “None Designated” (Va. Code Ann. § 36-98.01).

Effect: If no MLA is designated on the permit, the statutory MLA notice requirement is not triggered. If an MLA is designated, claimants generally must provide notice within the statutory 30-day period or their lien is limited to labor/materials furnished on or after notice. This provides an important early-warning mechanism for the residential owner and lender, but it should be used together with lien waivers, title monitoring, contractor payment controls, and final affidavits.

Preliminary Lien Notifications

Preliminary notices in Virginia depend entirely on the property type.

Commercial & Multi-Family (3+ Units): Virginia generally does not require a pre-work or early preliminary notice to preserve mechanics lien rights on commercial or multi-family projects. However, lien perfection still depends on the claimant’s tier. A general contractor must comply with Va. Code § 43-4, including timely recording a memorandum of lien and filing the required certification of mailing a copy of the memorandum to the owner. A subcontractor must comply with Va. Code § 43-4 and also give written notice to the owner or the owner’s agent of the amount and character of the claim under Va. Code § 43-7. A lower-tier claimant performing labor or furnishing materials for a subcontractor must comply with Va. Code § 43-4 and also give written notice to the owner or owner’s agent and to the general contractor or general contractor’s agent under Va. Code § 43-9.

Residential (1-2 Family Dwellings): Under Va. Code Ann. § 36-98.01, building permits for 1-2 family dwellings may include a “mechanics Lien Agent” (MLA) at the applicant’s request. To preserve lien rights on projects where an MLA is designated, any potential claimant must notify the MLA via registered/certified mail or physical delivery within 30 days of the first date they perform labor or furnish materials (Va. Code Ann. § 43-4.01). If no MLA is designated on the permit, the statutory MLA notice requirement is not triggered.

Implications of Failure (Residential): If an MLA is designated, claimants generally must provide notice within the statutory 30-day period or their lien is limited to labor/materials furnished on or after notice (Va. Code Ann. § 43-4.01(C)).

Notice of Completion (or similar like event)

Recognized by State? No. Virginia does not utilize a statutory Notice of Completion to truncate or alter the deadline for contractors to file mechanics liens.

Lien Filing Deadlines: The deadline to file a Memorandum of Lien is strictly no later than 90 days from the last day of the month in which the claimant last performs labor or furnishes material, and in no event later than 90 days after overall project completion (Va. Code Ann. § 43-4).

The 150-Day Rule (Rolling Liens)

Virginia enforces a strict and highly unique “150-Day Rule” under Va. Code Ann. § 43-4.

The Rule: A mechanics lien cannot include sums for labor or materials furnished more than 150 days prior to the last day on which labor was performed or material furnished. Crucially, there are statutory exceptions to this rule: retainage of up to 10% is explicitly excluded from the 150-day calculation. A memorandum may also include sums that are not yet due because the party with whom the lien claimant contracted has not yet received the funds from the owner or another third party (Va. Code § 43-4).

The Effect: For projects exceeding 5 months, contractors may need to file multiple memoranda to protect their rights for unpaid early-stage progress billings. However, because standard retainage and funds legitimately delayed upstream are protected from this clock, draw administrators should carefully analyze the nature of the debt. Administrators should remain highly vigilant during title updates on long-term projects, as sub-tiers may need to record liens mid-project if they experience general progress payment delays outside of this 150-day window.

Additional State-Specific Notices

Section 43-11 Notice — Personal Liability: Va. Code § 43-11 creates a separate personal liability notice process for subcontractors, laborers, and material suppliers. It is not the same as perfecting a mechanics lien. First, the claimant may give a preliminary written notice to the owner, the owner’s agent, or the general contractor stating the nature and character of the contract and the probable amount of the claim. Second, after the claimant’s work is done or materials are furnished, and before 30 days after the building or structure is completed or the work is otherwise terminated, the claimant must provide a second notice stating a correct account, verified by affidavit, of the actual claim and amount due. The owner’s liability is capped by the amount the owner owes or later becomes obligated to pay the general contractor; if only the general contractor was notified, liability is capped by the amount the general contractor owes or later becomes obligated to pay the subcontractor. The two notices must be recorded and indexed under Va. Code § 43-4.1 or sent by registered or certified mail and received by the party against whom personal liability is sought.

Bonding Off a Lien: If a mechanics lien is filed, the property owner, general contractor, lender, or other party in interest may seek to release the property from the lien by paying money into court or filing a bond, subject to court approval and statutory notice requirements. Virginia distinguishes between release after suit and release before suit.

• After Suit — Va. Code § 43-70: After a suit to enforce the lien has been filed, the owner, general contractor, or other party in interest may, after five days’ notice to the lienor, apply to the court for permission to pay into court an amount sufficient to discharge the lien and costs, or file a surety bond in double the amount of the lien plus costs.
• Before Suit — Va. Code § 43-71: After the lien has been perfected but before a suit to enforce the lien has been filed, the owner, general contractor, or other party in interest may, after five days’ notice to the lienor, apply to the court for permission to make the same payment into court or file the same type of bond described in § 43-70. Upon court approval and payment or bond filing, the property is released from the lien.

Public Projects

Virginia handles public projects under a separate statutory framework, primarily the Virginia Public Procurement Act (VPPA):

Performance & Payment Bonds: Under Va. Code § 2.2-4337, performance and payment bonds are required for nontransportation-related public construction contracts exceeding $500,000 awarded to a prime contractor, and for certain transportation-related projects exceeding $350,000 that are partially or wholly funded by the Commonwealth. Public bodies may also require bonds below those thresholds.

Payment Bond Actions: Claimants must bring an action on a public payment bond within one year after the day on which the person bringing the action last performed labor or furnished materials (Va. Code § 2.2-4341).

Public Retainage: Retainage on public projects is capped. A public body may not retain more than 5% of the amount billed by the contractor (Va. Code § 2.2-4333).

Public Prompt Payment: Public construction contracts must include payment clauses requiring contractors to pay subcontractors within the statutory timeframes. If the contractor has not received payment from the public body for work performed by a subcontractor, the contractor must pay the subcontractor within 60 days after receipt of an invoice following satisfactory completion of the subcontractor’s invoiced work, unless payment is properly withheld. After the contractor receives payment from the public body for subcontractor work, the contractor must pay the subcontractor the proportionate share within seven days or provide the required withholding notice. Public contract clauses that make payment by the public body a condition precedent to payment to lower-tier subcontractors are unenforceable.

Document References

Contractor Licensing & Bond Requirements

Contractor licensing in Virginia is strictly regulated by the Virginia Board for Contractors (DPOR).

• General Requirement: Under Va. Code § 54.1-1103, general contractors must be licensed by the Board. Virginia’s contracting requirements do not distinguish between general contractors and subcontractors; both are subject to the same monetary thresholds. Virginia uses a classification system based on contract value:
• Class A: $150,000 or more for a single contract/project, or $1 million or more in a 12-month period.
• Class B: $30,000 or more but less than $150,000 for a single contract/project, or $250,000 or more but less than $1 million in a 12-month period.
• Class C: over $1,000 but less than $30,000 for a single contract/project, or less than $250,000 in a 12-month period.
• Joint Ventures: General contractors operating as a joint venture must ensure that either (1) each contracting party of the joint venture is licensed, or (2) a license is obtained by the joint venture itself (Va. Code §§ 54.1-1100, 54.1-1103). If a lender funds a JV that improperly relies on only one partner’s license, the contract could be unenforceable and lien rights may be voided.
• Financial Responsibility Bonds: Class A and Class B applicants that elect not to demonstrate financial responsibility through the required financial documentation may satisfy the financial responsibility requirement by obtaining and maintaining a $50,000 bond filed with DPOR, subject to the requirements of Va. Code §§ 54.1-1106 and 54.1-1108.
• License Lookup: Lenders should verify credentials at the official portal:Virginia DPOR License Lookup.