So you have finally updated your home by addition, new kitchen or other improvement. You tried doing it by the book, went through the normal channels; obtained estimates, interviewed contractors, investigated their references and made that home improvement using your hard earned dollars. The work commences, is substantially complete and your contractor suddenly disappears, starts showing up sporadically, or starts pressuring you for more money. Ultimately, you dispute the contractor’s view of the costs, his final project or some of the final punch list items and make the decision to withhold payment. What happens next? The Contractor likely files a mechanic’s lien with the county clerk.
Since the home improvement was done to your “real property”, the contractor has the legal right to file a lien, without legal process or litigation. In New York, a contractor who has not been paid for services rendered or materials furnished for the improvement of real property can file a mechanic’s lien against your home. See N.Y. Lien L., Art. 3, § 40 (2010). In other words, the unpaid contractor has the power to get in the way your ability to transfer or finance your real property (i.e. sell or refinance your home) until it is paid.
In New York, mechanic’s liens are filed in the office of the county clerk where the property is situated, and can be filed without first commencing a law suit. Once properly filed, the mechanic’s lien-like an outstanding mortgage-is an impediment to clear title. New York allows a contractor to file a mechanic’s lien against your home even if the underlying “contract” was oral (not in writing). Cynically, even though the work conducted may not have been what you wanted or you do not accept the work, the contractor may seek to “enforce” their right to payment through a lien without intervention of a court. This turns the normal idea of “due process” on its head, giving the contractor (and others) significant power.
This seemingly unfettered right to encumber real property without process does not come without a a responsibility. The law has several safeguards to protect homeowners. First, although a contractor does not need a homeowner’s permission to file the lien (and in New York, does not even need to first notify the homeowner about filing) there are stringent requirements that must be met in order for such lien to be valid.
For example, the home improvement contractor must file the lien in the county clerk’s office, then notify the homeowner of the filing by sending a copy of the lien by both regular and certified mail within thirty (30) days of the filing date, and then finally must provide the clerk with an “affidavit of service” advising the clerk that the homeowner has been properly notified of the lien’s filing. More importantly, if the contractor wilfully exaggerates the amount or nature of the lien, the law permits a counter-claim for treble damages and attorneys fees. Also, the encumbrance on your title does not last indefinitely. The contractor must file an action to “foreclose” the lien within one year, or seek court intervention to extend its duration.
Generally, the liens expire on their face after one year (unless extended), and after three (3) years in the eyes of most title companies.
The Bottom Line
Be careful. When contracting with the home improvement contractor protect yourself by requiring “lien releases” at each stage of the construction. When a dispute is inevitable, be sure that you have the paperwork to show how much you have paid and how much you agreed to pay. If it’s a really big job, pay an attorney a flat rate to advise you on the contract.
We at Klose & Associates help contractors and home owners realize clear agreements as to what improvements are going to cost, and how to handle the disputes that arise.
New Jersey takes a slightly different approach than New York. As stated above, New York allows a contractor to file a lien based upon an oral contract, whereas New Jersey, requires a written contract. But the homeowner of New Jersey should not let their guard down there-“the contract can be written on the back of a napkin, but it must be in writing.” Id. Therefore, it is likely that if there is any form of writing between the homeowner and the contractor, the possibility of a mechanic’s lien, referred to in New Jersey as a “contractor’s lien,” is still imminent.
Like New York, New Jersey also provides some safeguards for homeowners. First, New Jersey law requires the contractor to take some preliminary steps before filing the lien. The contractor must file a Notice of Unpaid Balance with the owner and with the county clerk where the property is situated indicating how much money is owed to the contractor. Next, the contractor must submit a proposed lien to the American Arbitration Association for a “mini-arbitration hearing,” where it is determined whether a lien is warranted and, if so, the amount of the lien that the contractor may file. As a third safeguard, all of this must take place within 90 days of the last day the contractor worked on the property”-which does not leave a whole lot of time should you have a contractor that likes to drag their feet. Finally, the New Jersey construction lien automatically expires after a year with no renewal period unless the contractor has started foreclosure proceedings.
A Connecticut mechanic’s lien, once properly filed, is effective from the day work started-their lien is retroactive in nature and could affect a buyer’s clear title of the property. In other words, even though a buyer has bought a home with clear title on the day of closing, if the work was completed, and title passed after the work was completed, the new buyer is on the hook for this lien because, in Connecticut, the lien is retroactive and is effective from the day the work started-when the home was owned by the previous owners.
Although we do not practice in these jurisdictions, it pays to hire a local attorney to review the contracts.