NEW YORK MECHANIC S LIEN LAW

Transcription

1 NEW YORK MECHANIC S LIEN LAW Go to: New York Mechanic s Lien Forms More Info: Section Contents New York Mechanic s Lien Who is Entitled to a Lien? When to File/Record Where to File/Record How to Serve Amount of Lien Property Subject to the Lien Furnishing Information Verified or Notarized Priorities Lien Release Bond Miscellaneous Issues Section Contents Lawsuit to Foreclose Lien Introduction When Where to File Arbitration Need a Lawyer? Page 1 of 16

2 Proposed Changes: For almost five years now (since being introduced in ) practitioners have been awaiting the outcome three Assembly Bills that would significantly change New York s mechanic s lien law. Although passed by the Assembly and referred to the judiciary committee, these bills have not yet been signed by the governor. Initially many thought, including National Lien Law, they would become law in the short foreseeable future. But it is now going on three years and appears they might have stalled indefinitely. They are: 1. A03513: Land Surveyors. Would allow such persons to file a lien for serving services even if the survey is not performed in direct connection with an improvement on the property. It is hard to imagine this not passing. 2. A03869: License Certificate with a Lien Filing. As is commonly known, New York State licenses its design professionals but contractors are licensed at the county level and there can be many differences. For example, a Nassau county residential remodeler is required to be licensed but not someone working on a commercial project. Even worse, there are different departments for different licenses. In New York City a general contractor s license is issued out of the Department of Buildings and home improvement licenses are out of the Department of Consumer Affairs. This proposed law, quite heavily opposed by contractors, would require a court clerk to insist upon a certificate of licensure attached to the lien and apparently act as judge/arbitrator as to whether there has been compliance. 3. A Time to File Retainage Lien. Receiving your retention can be a catch 22. Many contracts specify it is released only after completion of the project and the time has expired a file mechanic s liens. It is then too late to protect your rights. If you do not subsequently receive the retention, you know longer have the opportunity of file the lien as the time has expired. This would solve the dilemma by giving a contractor 90 days after completion to file a lien relating to such retention. Good idea and it is likely it will pass. General Notes Be Careful: The courts consider a mechanic s lien to be a privilege and not a right. You receive its benefits only if you strictly adhere to the state law requirements. Bottom line: miss a deadline by one day and you have lost it. Unlike other areas of the law where you can Page 2 of 16

3 argue equities, find technical exceptions, and lawful excuses, there is no forgiveness here. In this case, knowledge is not only power, it is a necessity. In New York you will be writing down dates for at least two documents: a) Notice Under Mechanic s Lien Law for Account of Private Improvement; and b) lawsuit to foreclose the New York mechanic s lien. Write down all the deadlines in your calendar. Use a highlighter or red pen. If you have a staff, use a fail safe system by doubling up and putting it in their calendar also. This reminds you twice. The first calendar entry should be two weeks before the due date as a preliminary reminder. On the second calendar entry, do a white lie to yourself. Put the due date as one week before it is actually due as insurance in case you get busy or need legal advice. Time is money. You will waste a lot of valuable time running around and doing it at the last moment, as opposed to doing it early. NO PRELIEN NOTICE Regardless of the project, whether residential, commercial, or industrial, New York does not require a prelien notice (a notice prior to filing a mechanic s lien) for anyone on the project. Thus, there is no need to serve a prelien notice under any circumstances, regardless of whether you are a general, sub, supplier, or laborer. NEW YORK MECHANICS LIENS Private and Public Projects: New York allows a mechanic s lien to be filed against both private and state public projects (state, county, city, and municipalities), but not federal projects. The lien on a private project goes against the improvements and the land. A lien on a public project goes only against the construction funds. Name of Notices: (1) Notice Under Mechanic s Lien Law for Account of Private Improvement; and (2) Notice Under Mechanic s Lien Law for Account of Public Improvement. Who is Entitled to a Lien: On private projects, a lien may be filled by a broad array of individuals including general contractors, subcontractors, laborers, and material/equipment suppliers. Unlike other Page 3 of 16

4 states, a subcontractor can file a lien regardless of his or her tier. In other words, a lien would be available to a sub-subsub-subcontractor or even lower tier. The only exception is that a material/equipment supplier does not get a lien if that person s contract is with another supplier. Although New York cases had allowed liens for union trust funds, the federal courts have stricken down this entitlement. The rules are more limiting as to public projects. A public lien is allowed only by: (1) a subcontractor or supplier with a contract with the general contractor; or (2) a subcontractor or supplier with a contract with a first-tier subcontractor (a subcontractor who has a direct contract with the general contractor). Thus, a general contractor may not file a public lien. This also means that a sub-sub-subcontractor (third tier subcontractor) or lower subcontractor cannot file a lien. Further, a supplier who has a contract with a sub-subcontractor or lower tiered subcontractor cannot claim such a lien. As in private projects, a material supplier to a material supplier does not get a lien. Other than the limitations as to public lien tiers, liens for private and public projects cover a large gamut, including such additional persons as landscape gardeners, nurserymen, persons or corporations selling fruit or ornamental trees, roses, shrubbery, as well as vines and small fruits. Unlicensed persons in New York are not entitled to a lien. When to File/ Record: See Time Deadlines table. Since the time to file a lien depends upon when the project is completed, the definition of completion is crucial. Warranty or call-back work (going back and fixing something you have already performed) will not extend the period. Lien Extension: New York is one of the few states that allows an extension of the mechanic s lien. For commercial property, if you record before expiration of the initial one year period, you can extend the lien for another year without court permission. In other words, if you record your lien initially on time, it is good for one year. If you record an extension before that expiration date, you would effectively have two years. But parenthetically, why would you ever want to wait that long to collect your money or bring a foreclosure action? Page 4 of 16

5 But you need court permission to extend the lien for residential property or get a third extension on commercial. You bring a petition to the court and state good cause for the extension. But make sure you bring that petition well before the expiration of the lien. Prudent attorneys recommend that the petition, as well as the judge s order, be accomplished before the expiration of the lien. However, there is some authority to the contrary, in the recent New York Supreme Court case of Matter of Navillus Tile, Inc. (September 12, 2012) in which the court seems to indicate the granting of the extension could be after the expiration, if the petition was filed before. Where to File/Record: On New York private liens, file with the County Clerk of the county in which the project is located. On public liens, file with the head of the department or bureau having charge of the improvement and a second copy with the Controller of the state or with the disbursing officer of the public entity that is in charge of distributing the funds for the project. How to Serve: On private liens, you may serve a copy 1) before filing the lien, but not earlier than 5 days before or 2) within 30 days after it s filing. The applicable statute, namely Chapter 33, Article 2, Section 11 gives a number of elaborate alternatives to service, including personal service by a process server and leaving a copy with someone of suitable age. But fortunately, it also allows service to be made by certified mail which is the preferred method to be used. Service on an individual owner: This applies to an individual owner who is not a corporation. The statute refers to it as a natural person. Although the New York statute is not entirely clear, it would appear it applies to either 1) an individual owner ( John Smith ) or 2) someone who is an unincorporated sole proprietorship ( ABC Company ) or 3) unincorporated sole proprietorship under a DBA ( ABC Company, DBA Comfort Makers ). Service must be made to the last known residence (not business) address of the owner. But to be safe, if there is a separate business address, mail there as well. If you cannot serve by certified mail, you are allowed to personally serve by a process server on the owner, agent, or attorney, or have the process server leave a copy with someone of suitable age at the residence of the owner. Page 5 of 16

6 If none of the above can be done, post a copy of the lien at the jobsite between the hours of 9:00 AM and 4:00 PM. You may wish to seek legal advice as to the particulars of such posting, but it might be to good idea to have a cover sheet which says, to the effect: To: SDS Subcontractors. This is a copy of a mechanic s lien recorded against this property on, by ABC Subcontractor. It is being posted because the abovedescribed person cannot be served with a copy of this notice as his or her address is unknown. Service on a corporate owner. If a corporation, serve by certified mail to the last known business address. Address the envelope to either the president, vice president, secretary (not someone doing the typing--this is a corporate officer), clerk of the corporation, cashier, treasurer, director, or managing agent. For example, address the envelope: ABC Corporation, attention John Smith, Vice-president, 123 Main Street, New York, New York etc.. If you cannot serve by certified mail, you may use a process server to personally serve a corporate officer or if that does not work, conduct a posting as described above. The New York statute does not address limited liability companies, but the same rule would appear to apply, namely serve to the last known business address. IMPORTANT NOTE: Unlike other states, you must file proof of service with the County Clerk s office within 35 days after you file the lien or your lien will be invalid. Such a proof tells the Clerk that you have served the document. To eliminate confusion, the recommended procedure, and which is also used by most attorneys, is to simply serve the notice by certified mail on the same date it is filed. And, have the proof of service already filed out and signed attached to the Lien so you do not have to go back to the Clerk and file that proof of service. The New York liens on this web site have the proof of service attached. So, if you are hand caring it to be filed, simply drop off the certified mail on the way back to the office. If you are mailing the lien to the clerk (you can use regular mail), also mail the copy by certified mail the same day. What if you cannot find the person to be served? The first option is to serve the person s attorney or agent. Although agent is not clearly defined, an example might be a person s Page 6 of 16

7 real estate agent. Depending where you are in the chain of work, this is who you must serve: 1. Lien by general contractor: serve the owner. 2. Lien by subcontractor: according to the statute, you only need to serve the owner. However, it is recommended practice that you also serve a copy on the general contractor. 3. Lien by sub-subcontractor: according to the statute, you need to serve the owner and general contractor. However, it is recommended practice that you also serve a copy on the subcontractor. As to a public lien, the same service rules apply except you serve a copy of the lien within 5 days before or at the same time as filing with the public entity. In other words, the time is shortened. Amount of Lien: Primarily for unpaid labor, material, and equipment supplied. On private projects it also covers extras or change orders if consented to by the owner. Indirect or consequential damages as a result of breach of contract and having nothing to do with the labor and materials conferred, are not allowed. This would include such items as liquidated damages, lost profits on other jobs, as well as impact/delay damages. However, if the owner or general contractor causes a delay, and you actually incur additional labor and materials, this form of delay damages would be included. On New York private projects, subs and suppliers can claim a lien only to the extent the owner owes money to the general contractor. If the owner has paid the general contractor in full, no lien is available. The only exception is if the payment is made by the owner to the general contractor after your recording of a lien. For this reason, file your lien early. Most troublesome is that a sub or supplier will have it s lien reduced by back charges for defective work and other damages caused by the general contractor. There is really nothing you can do about this. In the last analysis, New York has stated that the owner should not have to pay twice for the same work, even though you end up being unpaid and the money does not filter down to you. Page 7 of 16

8 Be careful about what are called exaggerated mechanic s liens. These are liens that have an amount that is in excess of what has actually been conferred on the project in the form of labor and materials. New York Section 39 forbids the filing of willfully exaggerated amounts. If the court finds this to be the case, the entire lien will be voided and the contractor will be liable for attorney s fees by the owner. For example, assume that a contractor files a $35,000 mechanic s lien. This consists of $25,000 as the balance under the lump-sum contract and an additional $10,000. The contractor alleges the latter amount is a result of delays on the project with extended overhead caused by weather conditions and the constant changes/indecision by the owner. At trial, there is always the danger this $10,000 would be considered willfully false as a contractor is stuck with the lump-sum amount of the contract, regardless of job conditions. If the court makes that finding, then the entire $35,000 is void. But assume that instead, the $10,000 is based upon a verbal change order. The contractor testifies the owner or representative verbally directed the additional work and it was done. However, the change order was not put to writing or signed. At trial, the court rules in favor of the contractor because he or she perform the actual work, but finds the reasonable value to be only $5,000. This would not require the voiding of the lien because it was a good faith dispute. Property Subject to the Lien: Verified or Notarized?: As stated above, a private New York lien goes against the improvement and the land upon which it is situated. A public lien is only against the funds. A verified notice simply means you sign it and are representing the contents are true and accurate. A notarized notice is signed in front of a Notary Public or other official. The lien must be both notarized and verified on both private and public liens. Priorities: It does not make any difference who performs the services first or who files the lien first as amongst the lien claimants. If there is not enough money upon foreclosure Page 8 of 16

9 of the property to satisfy everyone, the proceeds are disbursed in the following order: (1) laborers; (2) subcontractors and suppliers that supplied other subcontractors; (3) subcontractors and suppliers that supplied the general contractor; and (4) the general contractor. These priorities are the same on both private and public projects. Lien Release Bond: On a private project, the lien in New York may be released by posting a bond. Before the lawsuit to foreclose is brought, it is equal to the amount of the lien plus interest to the date of deposit of money or the filing of the surety bond. After the lawsuit is brought, it is equal to this amount plus any additional amounts that may cover the future judgment, which would presumably include court costs and attorney s fees. On public projects, it is equal to the amount claimed plus interest for one year, and such additional amounts as the court finds sufficient to cover future costs and attorney s fees. Lien Contents: Especially as to public liens, make sure you use a standard form, such as the one contained on this web site, so you include all the required information in the lien. Otherwise, you may jeopardize losing your lien. Getting a Copy of Owner s Contract: Many subcontractors and suppliers wait patiently to be paid, only to be given the word the general has not yet received payment from the owner (or only a partial payment of the total due). There is always a question as to when and how much has actually been paid by the owner. Section 8 solves this dilemma. A subcontractor or supplier may make a written demand (usually in letter form) to the owner and receive a statement of the terms of the contract between the owner and the general. If it is not received within 30 days and the sub or supplier is not later paid, the owner becomes personally liable in and any subsequent lawsuit. Page 9 of 16

10 Discharge of Lien: After a lien is filed, is there anyway an owner can bring a motion in court to discharge it before trial? There certainly is, but it is important to understand the limitations. This involves New York Lien Statute 19(6) which allows the owner to apply for a summary discharge order. Many think it is a mini trial in which the amount of the lien, how much services were performed, back-charges, contested change orders, and other adjustments are determined. But this is not the case. The court can only adjudicate errors on the face of the mechanic s lien. For example, assume there is a dispute as to work done to a parking lot and rear retaining wall. The old wood retaining wall was 100ft. in length and leaking onto the lot. The specifications are clear that only 50ft. were to be replaced with an additional redwood retaining wall. But in the course of demo, it was determined drainage and gravel should be added and that it would be much more secure to install a CMU wall for the 50 feet. Long story short, the contractor ended up doing the entire 100ft. based on conversations authorizing this work and directions given by the building inspector. There is now a major dispute as to the amount of lien. Assuming that the lien has the proper wording and was filed on time, this motion is not proper to determine those issues; this must be at trial. The only way to discharge a lien under this motion is as follows: 1. Improper character of labor or materials furnished. A lien can be filed for almost any labor, materials, or equipment that improves the property. On the other hand, services such as title searches, attorneys work, general consultation, feasibility studies, materials delivered from a manufacturer to a supply house, routine maintenance, or work to movable property, would not be covered. 2. Failure to comply with Section 9 of the New York Lien Act. This applies if the wording is incorrect on the mechanic s lien itself. Our forms follow strictly the statutory mandates. But to be clear, here is a copy of Section 9: Page 10 of 16

11 9. Contents of notice of lien. The notice of lien shall state: (1) The name and residence of the lienor; and if the lienor is a partnership or a corporation, the business address of such firm, or corporation, the names of partners and principal place of business, and if a foreign corporation, its principal place of business within the state. (1-a) The name and address of the lienor's attorney, if any. (2) The name of the owner of the real property against whose interest therein a lien is claimed, and the interest of the owner as far as known to the lienor. (3) The name of the person by whom the lienor was employed, or to whom he furnished or is to furnish materials; or, if the lienor is a contractor or subcontractor, the person with whom the contract was made. (4) The labor performed or materials furnished and the agreed price or value thereof, or materials actually manufactured for but not delivered to the real property and the agreed price or value thereof. (5) The amount unpaid to the lienor for such labor or materials. (6) The time when the first and last items of work were performed and materials were furnished. (7) The property subject to the lien, with a description thereof sufficient for identification; and if in a city or village, its location by street and number, if known. A failure to state the name of the true owner or contractor, or a description of the true owner, shall not affect the validity of the lien. The notice must be verified by the lienor or his agent, to the effect that the statements therein contained are true to his knowledge except as to the matters therein stated to be alleged on information and belief, and that as to those matters he believes it to be true. 3. As seen by the public records, not filing the lien on time under Section 10. An example would be within eight months of completion of the project for commercial work. The real issue here tends to be when the work was completed. For example, Page 11 of 16

12 there is much controversy as to whether warranty or punch list items extend the time. They typically do not. But remember, if there is a contested issue of fact, this is not the right avenue. Again, it would have to be determined the trial. The recent 2012 New York case of Matter of Prospect Hgts. Rising Corp. (Kings County Supreme Court) is instructive. The dispute was the completion date based on last working on the project (February 11, 2011) or the issuance of a stop work order (October 23, 2010). The court declined to make its ruling in the motion and forced the issue to trial it. It was simply too much of a contested issue of fact. And then there is a New York Lien Section 39. This states that a willfully exaggerated or false mechanic s lien can be voided and the lien claimant will not be able to re-file. This can be challenged either by motion or the trial itself. This is becoming more and more popular among owners and general contractors. But in order to discharge the lien, there must be conclusive factual evidence of an exaggerated claim. See generally On the Level Enters Inc. v. 49 East Houston LLC. There, the court declined discharge of the lien because such a determination necessarily involved a decision as to the lienor's credibility. In that case, the lien claimant was unable to explain a number of items on the mechanics lien breakdown, but the court held that it might be an innocent mistake and therefore would have to await trial. Retention: A historically, a lien claimant files a New York mechanic s lien within eight months from lasts furnishing labor or materials. This was as a problem to the early performing trades. For example, contractor may perform the demolition or utilities work on a larger commercial project, which is not completed for about a year. The lien would then be filed before completion. This causes a problem with the retention because that is usually not paid until at least 30 days after that completion. Fortunately, the New York legislature solved this dilemma. Under section 10, now the lien claimant can file a lien for unpaid retention within 90 days from when the retention should have been paid. There is also proposed legislation, not yet past, that for projects over $150,000 in value, the retention must be deposited into an interest-bearing escrow account for the benefit of those for whom the retention has been held. Page 12 of 16

13 Change Orders: A New York change orders can be a blessing or a nightmare. Most contractors would rather complete their base contract, be timely paid, and move on. But if there are changes, to be paid promptly or at least have those change orders acknowledged as extra compensation. The real nightmare is when one change order after another is directed, but no payment is made or no formal change order or acknowledgment of payment is made. There could be tens of thousands of dollars laying out there with the doubt as to whether it would ever be collected. There is currently legislation, not yet enacted, that has a 10% threshold. A contractor or subcontractor is not required to perform any additional work beyond the 10%, unless there is a signed change order approved as to the billing or payment is made for all past change orders. LAWSUIT TO FORECLOSE NEW YORK LIEN Introduction: When: Your lien is not valid forever. Because it directly affects the owner s title, it has a limited shelf life and must be enforced within a short period of time. That enforcement is done by filing a lawsuit to foreclose. Just like the time deadlines for a Pre-Lien or Mechanic s Lien, the courts strictly construe these time limits which are called statutes of limitation. Again, if you are literally one day late, the lien is ineffectual. Under both private and public projects, within 1 year of the filing of the lien. New York has one of the most liberal provisions in allowing you to extend the time to file the lawsuit. In most states, a mechanic s lien cannot be extended and you must bring a lawsuit to foreclose the lien within a specified period, but this does not give you enough time to negotiate prior to bring the lawsuit. And, in the states that allow an extension, for example California, you must secure the consent of the owner to do so. You cannot simply extend the lien on your own volition. New York is different. The time to file the lawsuit may be extended for up to one year and can be done by the claimant himself or herself as long as it is on a commercial project (does not apply to residential construction). You simply a file an extension Page 13 of 16

14 within one year of the initial mechanic s lien filing. Such an extension is included on this web site. To sum it up, this is how it works: on a commercial private project, you would file your mechanic s lien within eight months of completion. You would then have one year from the filing to record your extension. By doing so, you would have bought yourself a total of two years after the lien filing to bring the lawsuit. Arbitration: Many construction contracts state that all disputes will be decided by binding arbitration, as opposed to a court proceeding by judge or jury. In fact, it has long been a tradition to do so in the construction industry. Arbitration is usually quicker and less costly, especially because it cuts down on expensive discovery. The decision is final and binding, with no right to appeal. You lose your right for a jury trial, but few contractors want that in the first place. You usually pick an experienced construction attorney or retired judge to hear the case in their conference room. It is just like a court proceeding with the same general rules of evidence, but more informal. On the other hand, you can only foreclose your lien through a court proceeding, not arbitration. So, how do you keep your arbitration rights and at the same time preserve your lien rights? Simple. You bring a lawsuit to protect the lien and then immediately request the court to stay the court proceedings. When arbitration is done, you go back to court and turn the arbitration award into a judgment. Need a Lawyer? In this country, every individual has the statutory right to represent themselves. This means they can prepare all necessary papers, appear at hearings, and actually try the case. In so doing, the court considers you to be acting either in pro se or pro per. Before making this decision, consider the following factors: 1. You are a professional and thoroughly know the ins and outs of not only the construction industry but of the project itself. The best lawyer on his or her best day will probably not know more than 50% of what you know. Page 14 of 16

15 2. How is your public speaking abilities? If you are uncomfortable speaking to a group, you will even more uncomfortable in court or arbitration. You could be the sharpest wit in town but may not be able to present your arguments. Remember, appearing uncomfortable is perceived as having deficiencies in your case. People usually think that if you are not comfortable about your own facts, then they must not be that strong. 3. If the other side has a lawyer, you might want to think twice about representing yourself. You will certainly know the facts quite well, but you may be blindsided by legal technicalities. 4. You may also want to think twice if this is a really nasty and emotional case. In other words, if the other side is going for blood. Having a lawyer can shelter you from this emotional trauma. No matter how strong you are, lawsuits are taxing not only on your time, but on your physical and emotional energies. 5. If you have a good case in which you have complied with technicalities and performed good work, you are essentially engaging in a collection action. These actions are typically very simple because there are few defenses or defects alleged by the other side. It makes it easier for you to represent yourself because it is more a question of when and how much they will pay as opposed to whether you will win at all. 6. If you have a binding arbitration provision, you may consider representing yourself. These proceedings are much more informal and the arbitrator tends to give you more leeway. There are also fewer rules and not they are usually not quite as strict. 7. You could consider representing yourself but get advice along the way from a lawyer. It is much cheaper that way. On the other hand, the lawyer cannot watch over every move and you might slip up. Many times lawyers can also help you with preparing the forms, simply putting your name on the pleading. You can also bring in your lawyer at the end to actually try the case. Page 15 of 16

16 8. Judges and courts do not give legal advice. They only help you with what forms to use. However, clerks can be invaluable in steering you in the right direction as far as where to file, time limitations, the nature of the form or pleading, etc. But, remember when it comes right down to the ultimate advice, they cannot help you. 9. Judges usually treat you the same as an attorney which means they expect strict compliance with the rules. Although some judges give you more slack, don t count on it. 10. The biggest dilemma is whether you should hire an attorney for a smaller case, typically in the $5,000 to $10,000 range. You have to watch this because you may eat up that amount in attorney s fees. You never make money on lawsuits, only lawyers do. Try to settle for the best price you can get and move on. Prepared by: Thank you for your business. Page 16 of 16