I have had a few people email me general questions about Mechanic Liens, Recently I wrote an article about them and thought all may benefit from it. Please remember that this article is written based on NY law, although many states have similiar statutes, not every states Lien law is the same.
Mechanic’s Liens: the thorn in the side, that just might get you paid.
To ensure that parties providing labor and materials for improvements to real property receive compensation for their services, the NYS legislatures have enacted mechanic's lien statutes. A mechanic's lien statute grants home improvement contractors the right to seek a judicial sale of the real property to satisfy the contractor's unpaid claim against the owner of the real property for services that the contractor has provided to the owner.
A mechanic's lien is the generic name for a lien on real property in favor of a person or entity furnishing labor or materials for the erection of buildings or making improvements on real property. When a mechanic's lien is filed by a person or entity, the mechanic's lien creates a legal encumbrance on the subject real property which may negatively affect the property owner or other interest holders in the subject real property such as a financial institution
A successful mechanic's lien claimant obtains a legally enforceable interest in the subject real property which can be foreclosed upon such that the subject property may be sold to satisfy the mechanic's lien claimant's judgment. For example, a mechanic's lien has priority over all other liens, mortgages or encumbrances created subsequent to the filing of the lien. In addition, the mere commencement of the process associated with creating an enforceable mechanic's lien creates considerable pressure on the owner and other potentially responsible parties to ensure that the claimant's legitimate demands are investigated and satisfied.
Mechanic’s lien statutes are based upon several principles. First, they make the owner of property pay for the increase in property value due to work performed or materials delivered, thus preventing unjust enrichment. Second, these statutes compensate the laborer or supplier for his work or goods. Third, they declare it inequitable for the property owner to enjoy another's work without paying for it.
MECHANIC'S LIENS IN HISTORY To encourage construction of our nation's capitol, statesmen including Thomas Jefferson and James Madison first introduced the concept of a mechanic's lien statute to the Maryland General Assembly in 1791. Proponents the mechanic's lien argued that the mechanic's lien statute would encourage builders to build under contract for an agreed price by providing builders with a security interest in improved land for the debt that the landowner owed to the builder.
NY LIEN LAW CHAPTER 33, ARTICLE 2, SECTION 3 Our lien law, in pertinent part states “A contractor, subcontractor, laborer, materialman, landscape gardener, nurseryman or person or corporation …who furnishes materials for the improvement of real property with the consent or at the request of the owner thereof, or of his agent, contractor or subcontractor….and wage supplements are due or payable for the benefit of such laborers, shall have a lien for the principal and interest, of the value, or the agreed price, of such labor, including benefits and wage supplements due or payable for the benefit of any laborer, or materials upon the real property improved or to be improved and upon such improvement, from the time of filing a notice of such lien as prescribed in this chapter.”
Before proceeding, it is important to note that the utilization of a mechanic's lien may be just one legal remedy at the disposal of a contractor or supplier who has not been paid by an owner or general contractor. To file a lien upon the property is a good start for recovery of unpaid debt, but to do so solely is a passive approach to collection. For example, a contractor or a supplier may have other legal remedies at their disposal such as a breach of contract action. A mechanic's lien claimant has the right to bring other valid legal claims the claimant may have against the subject defendant(s), in addition to a legal action to enforce a mechanic's lien.
Who Can file a Mechanic’s Lien ? The statute a above clearly states that more or less anyone who provides improvement to a property owner, even if you as the contractor did not have direct privity of contract with the property owner (i.e. a sub contractor) as long as you had the consent of the property owner to do the work.
Consent, on occasion can create a hurdle. You must have consent of the property owner. What if the wife of the home owner calls you in to put up a ceiling fan ? Courts have encountered this situation and recognize the spouse of a home owner to be his/her agent and allows their consent to be binding upon that of the property owner. What about a landlord/tenant situation ? Common sense would dictate that a tenant cannot create a lien situation upon the landlord, but the term consent, with in this statue, is very broadly construed. If the landlord saw the work, but didn’t stop it, or if he gave the tenant reduced rent in consideration of the renovations or improvements; Courts will interpret this as consent.
What type of improvements allow for a Mechanic’s Lien ? A lien claimants rights are created by any material or labor that attaches to the real property. Only permanent, physical improvements to real property will give rise to Mechanic’s Lien rights. So installation of a new service will give mechanic lien rights, while supplying (not installing) a home owner with a lighting fixture will not.
What is the amount of the mechanic’s lien ? The lien amount is the amount due for the services/supplies rendered. A contract is proof of the amount due, although litigation may reduce a lien amount to a “reasonable value” recovery.
When to file a Mechanic’s Lien: Anytime before the debt is due, or up to 8 months after (4 months on a single family dwelling) the last performance of work or supply of material to the property location. Before the debt is due ? Sure, if there is risk, play it safe file a lien. If you are collecting a low deposit before the initiation of work, or payment is delayed, file the lien. Discharging the lien is a 1 page form, and can be mailed to the clerk’s office. A Lien acknowledgement clause should be put in to all your contracts. (see Contracts article in The Light November 2001)
A Mechanic’s lien is an easy straight forward way for a contractor to recoup debt. The form (Blumberg A-365) is four pages, and need only be filed in the county clerks office where the property is located. It is true that the mechanic’s lien will not guarantee payment, nor is it indefensible. But if the debt is truly owed it is likely that the property owner will pay his dues rather than spend time and money (attorney, bondsman) to eliminate the lien. Rarely will an a Mechanic Lienor actually foreclose on a property, but initiation of proceedings usually gets the property owner & mortgage companies attention.
As always, if there are any questions on Mechanic’s liens or any topic feel free to call 631-589-0590.
RMIESQ: Welcome, I see Bill Addiss is right on top of things, as usual. Thanks Bill Here is my question. How big a job and at what price range should a Mechanics Lien be used. In Ohio we need to take 10 hours of continuing education, and part of that time is spent with an accountant/lawyer, he said always, but with a lot of jobs I would spend more time filing with the county clerk than on the job. After I file my notice of furnishing do I need to send a copy to the customer ? or does the Clerks office take care of that too? Second can I figure out the form to file without an attorney ? lastly after small-claims fails to resolve a dispute what recourse is there or is that the end of it.
Again I qualify all my answers with, I am a NY and CT attorney, I am not sure of the procedures in other states. In addition, if I haven't mentioned earlier I am also the attorney for the Suffolk County Electrical Contractors Association (SCECA) for whom this article was written. I encourage all the SCECA members to file their own Mechanics Liens, in other words to avoid paying a blood sucking lawyer(me) to do such a simple task. In NY the form is clear and concise, the only tricky part is knowing when to do it. I advise all my contracting clients to put a term in their contracts that notifies the homeowner that they will be subject to a lien immediately (this is not mandated by law, but rather avoids problems with the owner) A lien can be filed as soon as work is started and a balance is due. A conflict doed NOT have to have begun. Knowing that you must file the lien according to the situation. A big job with no money down, File the lien immediately to secure your intrests. Any size job with any size past due balance, File the lien immediately to secure your intrests. I cant go thru every possible scenario, but my opinion is for the minimal filing fee with the county clerk, err on the side of caution and file often to protect your interests.