A lawyer discusses the ins and outs of mechanic's liens

Mechanic's liens are one of the topics clients come to me most often for legal advice on. With all the construction that is taking place at the present time, there are many mechanic's liens either being filed or requiring resolution, so that they can be satisfied and removed. They are a creature of statute and the laws vary from state to state. They are basically a notice that is placed on the title to the property, showing that contractors, subcontractors, suppliers or architects claim they are owed money. On commercial property, they generally must be filed within 8 months of the last date of work. For residential property, it must be filed within 4 months. However, it is important to remember that just filing the lien does not get the contractor paid or mean that the owner is going to lose his property in a foreclosure sale. If the lien is for a dollar amount where the owner has the financial ability to bond it or deposit the money with the court, it will take a great deal of the pressure off of the owner. The lien becomes a civil fee dispute and no longer involves the real property. However, sometimes the lien is so large that the owner may not be able to bond it. Liens which are filed as a result of tenant improvements present interesting issues because the owner may or may not have "consented" to the work. Most well-drafted leases will require the tenant to remove the lien or risk having the owner do it and charge the cost back to the tenant. Most lenders and title companies will want the mechanic's lien to be removed or bonded before a closing can occur. The law regarding bonding a mechanic's lien in the State of New York changed a few years ago and it is now a simpler process that is more clerical than anything else. The lienee has to apply to a bonding company for a bond and show the requisite financial statements to the underwriting department. For your "average" size mechanic's lien, this should not be a problem. However, when there is an enormous mechanic's lien for hundreds of thousands of dollars or more, the lienee may not be able to show enough liquid assets as security and that can present a problem. Some owners will not be able to bond such a lien. If they are able to obtain a bond, the bonding company immediately issues a bond directly to the company, which is 10% higher than the mechanic's lien amount. A fee is paid for this bond. This mechanic's lien bond has to be served on the lienor, then filed with the County Clerk. Once the mechanic's lien is bonded, it clears up the title issues so that a closing can occur, but does not eliminate the underlying problem that led to the mechanic's lien in the first place. The contractor or architect can still sue the owner on a variety of legal theories, including breach of contract. Foreclosure of mechanic's liens takes place in court. However, if there is a contract with a provision requiring arbitration of any disputes, the issues in controversy will have to be arbitrated before the mechanic's lien issues will be dealt with. Some contractors and design professionals try to save money and file mechanic's liens themselves. Others use inexpensive filing services, which may or may not obtain the correct filing information. Consequently, there are mechanic's liens which are accepted for filing by the clerk, which may contain fatal errors for purposes of a foreclosure proceeding. Notice of the filing of the mechanic's lien must be sent to the property owner, but many property owners report that they have never received such notice. None of these problems may be apparent until someone tries to foreclose on the lien Mechanic's liens should be prepared by attorneys experienced in doing so. Owners should also seek legal counsel knowledgeable in this area to understand what their options are when they receive notice of a mechanic's lien. C. Jaye Berger, Esq., is a principal of Law Offices C. Jaye Berger, New York, N.Y.