Challenging a mechanic’s lien in New York: The two options that you should consider - by Vincent Pallaci

July 02, 2019 - Long Island
Vincent Pallaci, 
Kushnick Pallaci PLLC

While a mechanic’s lien can be a powerful tool for unpaid contractors and suppliers in New York, it can also be a thorn in the side of owners. A mechanic’s lien can cause trouble with construction loans, refinances and property sales. Of course, paying the lien is always an option. But what if you don’t want to pay the lien? What if you dispute that anything is due and want to fight the lien? You have a few options to challenge the lien and usually two important considerations:  The first, is cost. The second, and usually more important, is time.   

Bond the Lien

Obtaining a mechanic’s lien discharge bond is perhaps the “easiest” option to remove a lien and it is certainly the fastest. There are a number of variables that go into determining just how fast a lien can “be bonded” but, in general, a bond can be obtained – and the lien removed from the property – within ten business days.   With a little luck, it can be done in less than a week.  What does the bond do?  In simple terms, it removes the lien from the property and attaches the lien to the bond. By statute, a lien discharge bond must be for 110% of the face value of the lien.  In addition, most, if not all, sureties will charge you a premium for the bond. If time is your main concern, and you need a lien removed quickly, the bond is likely your best option.  But the bond will not “defeat” the lien.  For that, you need to challenge the lien itself in court. The three most common ways to challenge a lien are discussed below.  

Section 19 “Facial Defects”

Lien Law Section 19 allows you to challenge a mechanic’s lien if there is a “facial defect” in the lien itself.  A facial defect is quite literally something wrong on the face of the lien.  It does not involve challenging whether something is correct or incorrect (for example it is not a way to challenge that the amount owed in the lien is not, in fact, owed). If there is a facial defect, you can commence a “special proceeding” in the supreme court and seek a judicial determination that the lien is invalid. A Section 19 proceeding is relatively fast and has a limited scope meaning there is a limited cost. However, not every facial defect will lead to a discharge and, even if it does, if there is time to file a new lien then a Section 19 challenge will not prohibit a new timely mechanic’s lien from being filed.  

Section 38 Demands for Itemization

Not quite sure how the amount in the lien was calculated? Section 38 of the Lien Law is your answer.   Section 38 allows you to demand that the lienor itemize its lien within five days.  If the lienor does not respond, or provides a deficient response, you can then commence a special proceeding (like the Section 19 proceeding) to compel the lienor to provide a response.  If the lienor ignores the order to compel, you can go back to the court and seek an order discharging the lien for failure to comply with Section 38.  Because it is a multi-step process, it is not quick. However, like Section 19, it is a limited scope proceeding so cost is, again, limited.  The biggest “down side” is that if the lienor properly complies with the demand, and itemizes the lien, you have no further avenue under Section 38 to discharge the lien.  

Section 59 Demands to Foreclose

Section 59 of the Lien Law allows a property owner (and others) to demand that a lienor foreclose upon its mechanic’s lien or “show cause” why it should not be discharged.  In essence, a “demand” is served upon the lienor in the specific method set forth in Section 59. The lienor then has to foreclose upon its lien (commence an action to enforce it) within the period set forth in the demand.   If the foreclosure action is not timely commenced, the property owner can, again, commence a special proceeding and seek the discharge of the lien for failure to comply with the Section 59 demand.  Again, because it is a multi-step process, and because Section 59 requires the lienor be given at least 30 days to foreclose, it is not a “quick” process.  But, if the lienor does not comply, it is a limited scope proceeding and relatively cost effective. The “unknown” risk in serving a Section 59 demand is that the lienor may, in fact, commence a foreclosure action.  If that happens, the property owner can be in a situation where it is now defending a full-blown lawsuit that could last years and become very expensive. However, once a foreclosure action is commenced, all potential defenses to the lien can be raised and the lienor will be forced to prove its lien.   

Vincent Pallaci, Esq. is the managing member of Kushnick Pallaci PLLC, Bohemia, N.Y.

Comments

Add Comment


More from the New York Real Estate Journal