Residential Construction Liens

Residential Construction Liens

Our law firm conducts an active construction law practice, from contract drafting and negotiation, to construction litigation, arbitration and appeals.  One of the most active areas of our construction law practice is the pursuit and defense of construction liens.

Construction liens may be filed by contractors who claim that they have not been paid what they are owed on construction projects.  The Legislature has enacted these provisions along with others, such as the Prompt Payment Act, as a means to ensure that good contractors are paid what they are owed.  However, the Legislature also wanted to ensure that the process is not abused by unscrupulous contractors, so it provided significant remedies for property owners who believe the liens are invalid.

While construction liens may be filed against all types of property by contractors which have not been paid, the procedures for construction liens on commercial and residential property vary greatly, and the consequences for failure to comply with these procedures are drastic.

What is a Construction Lien?

A construction lien is an interest created in a property upon which “construction work” has been performed.  The construction lien creates a “security interest” in the property.  It is designed to preclude transfer of the property until the lien is paid or otherwise resolved.  Eventually, a construction lien could be foreclosed on and the property sold to pay the debt secured by the lien.

What Procedures Must be Followed to File a Construction Lien on Residential Property?

The first requirement is that there must be a written contract.  If there is no written contract, there can be no valid lien. This includes “change orders” to the original contract; change orders must also be in writing.

Before a contractor can file a lien, it must file a “Notice of Unpaid Balance” (commonly called a “NUB”) with the clerk of the county where the residential property is located.  It must also serve copies of the NUB on the homeowner and the American Arbitration Association (“AAA”).  The arbitrator will then determine whether a lien can be filed and, if so, in what amount. The arbitrator must make his decision within 30 days of the AAA receiving the NUB.  Once the arbitration decision is rendered, the lien claimant has 10 days to file the notice of lien claim with the county clerk.  In any event, every construction lien claim must be filed with the county clerk within 90 days after the date of the last work performed on the property.  These are strict deadlines.

If the arbitrator finds that the contractor is not entitled to the full amount claimed, she may require the contractor to post a bond for up to 110 percent of the lien amount.

What Happens After a Construction Lien is Filed?

After the construction lien is filed, the lien claimant must initiate suit within one year from the date of the last work performed on the property, or within 30 days after demand by the property owner whichever is ealier.  If the contract for the work included an arbitration provision, where the parties agreed to arbitrate their disputes, arbitration must be filed within one year from the date of the last work performed on the property.

What Are the Homeowner’s Remedies When a Construction Lien is Filed?

If the lien is found to be improperly filed, the owner may be able to have the lien discharged and vacated, and compel the contractor to pay its costs and attorneys fees in challenging the construction lien.

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The process of filing, pursuing or defending construction liens is complex, and has significant consequences.  E-mail us or call (973) 890-0004 to schedule a consultation with one of our construction attorneys.

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