With the summer season over, East End landlords are in the process of retaking possession of their homes. Beyond perhaps a few beach trips, it’s the time of year when landlords need to assess the extent that their tenants damaged their summer homes and to hire contractors to make the requisite repairs and improvements to those properties in order for them to be ready for next year’s crop of tenants. However, the damage is not the end of the headache.
Instead, incident to getting those repairs done many landlords will end up fighting with contractors over fees, which can be an all-consuming experience because of the ever-present threat of a mechanics’ lien. Pursuant to the New York State Lien Law, a mechanics’ lien is a type of security instrument in real estate available to a “[a] contractor, subcontractor, laborer, materialman, landscape gardener, nurseryman … who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner,” which must be filed within 4 months (8 months in commercial) of the last date such labor or materials were provided at a residential project. Here are the top 5 facts about mechanics’ liens that every homeowner should understand:
Avoiding the Lien
A mechanics’ lien cannot be avoided in a home improvement contract. Pursuant to the Lien Law, any agreement or contract that waives any rights for a contractor to file or enforce a lien is void as against public policy of the State of New York. However, a homeowner can and should require a written waiver of the right to file a mechanic’s lien, coupled with a satisfaction and/or release of the monies due, at the time such homeowner tenders payment for the labor performed and the materials furnished. This way, payment brings finality, not a fight for further payment.
Simply filing a paper with the county clerk that a homeowner owes the contractor money is not enough for an enforceable mechanics’ lien. Instead, a contractor must be able to itemize the labor and material to which payment is owed with specifics. In fact, upon written demand of a homeowner, a contractor who has filed a mechanics’ lien is required to provide the homeowner with a verified “statement in writing which shall set forth the items of labor and/or material and the value thereof which make up the amount for which he claims a lien, and which shall also set forth the terms of the contract under which such items were furnished” according to the Lien Law. Failure by the contractor to comply with this written demand within five days enables the homeowner to petition the court for an order directing compliance by the contractor within a time specified by the court in its discretion. Thereafter, if such order is breached, the court will cancel the lien. As a result, contractors who wish to utilize a mechanics’ lien in order to compel payment must get their details straight prior to acting. Furthermore, and because the terms of the contract must be set forth, only contractors whose contracts are in compliance with Article 36-a of the General Business Law should even consider utilizing a mechanics’ lien in the first instance on residential property. Otherwise, pursuing the mechanics’ lien will open an unnecessary can of worms about the contractor’s violation of the statute.
A mechanics’ lien is often a bluff by the contractor because the lien has no effect unless the house that is the subject of the lien is sold or an action to foreclose the lien is commenced within one year. In fact, a mechanics’ lien is automatically extinguished after one year from when the notice of lien is filed, except if an action to enforce the lien was commenced during that one-year period. Additionally, the lien cannot be extended beyond a one-year period for a single family dwelling without a court order. As a result, while a mechanics lien may feel scary to a homeowner of a single family house, when first noticed by the contractor, such lien often does nothing more than scare the homeowner into payment. To determine if the mechanics’ lien is just a scare tactic, homeowners should determine whether the amount claimed is cost effective for the contractor to pursue in litigation by considering the transaction costs of a process server, attorney, court fees and the like. If the mechanics’ lien was only a bluff that was not foreclosed upon within the one-year period and the homeowner does not want to have a record of being accused of being a deadbeat existing at the county clerk’s office, such homeowner can move for a summary order from the court to have the lien filing removed from the home’s title as if it was never there in the first instance.
Vacating the Lien
To call the contractor’s bluff, at any time after the mechanics’ lien is filed, the homeowner can notice the lien or that such contractor must commence an action to foreclose the lien in not less than 30 days. If the contractor fails to foreclose the lien, within that 30-day period, then the homeowner can move the court to discharge the mechanics’ lien. However, dismissal is not automatic. Instead, the court hearing the motion to discharge the mechanics’ lien will determine the equities of the case. Absent the existence of a good faith reason for failing to commence the action, such as the existence of settlement negotiations, the mechanics’ lien will generally be discharged by the court for failure to commence the action within 30 days.
Notice of Pendency
If the contractor who receives the notice, or without notice, acts by properly and timely commencing an action to foreclose the lien, a mechanics’ lien will nonetheless be extinguished if the contractor fails to also file a notice of pendency in the county clerk’s office before the expiration of the one-year lien effectiveness period. A notice of pendency is a notice to the world that a specific property is the subject of a lawsuit that affects title, possession or enjoyment of such property. To be effective in extending a mechanics’ lien, the notice of pendency must indicate the date that the mechanics’ lien was filed, the names of all of the parties to the action, the object of the action, and a brief legal description of property. Failing to include any of this requisite information should result in the lien being extinguished. However, extinguishing the lien would not prevent the contractor from nonetheless winning a money judgment in the lawsuit that was commenced to foreclose the lien. Consequently, the only result of properly filing the notice of pendency is that it enables the contractor to cause the home to be immediately sold to satisfy the judgment at auction, not to preserve the contractor’s right to be paid on its contract, which is the subject of a six-year statute of limitations irrespective of the mechanics’ lien.
Should a mechanics’ lien be correctly filed and pursued the ultimate result is that a contractor can pursue an action similar to a mortgage foreclosure action in order to recoup payment from the proceeds of a foreclosure sale of the property. Furthermore, if the equity in the house (fair market value minus mortgages) is less than the lien amount the contractor can receive a deficiency judgment that is valid for 20 years to collect the remaining sum of money due under the construction contract.
Andrew M. Lieb, Esq., MPH, is the managing attorney of Lieb at Law P.C. and is a contributing writer for Behind the Hedges.