A lawyer discusses the ins and outs of mechanic's liens pertaining to owners, tenants and contractors

Mechanic's liens are one of the topics clients most often come to me for legal advice on. As the summer construction winds down, there will be many mechanic's liens filed and requiring resolution. They can be filed against commercial buildings either for work the building owner has done or for work by tenants. They can be filed on condominium buildings or on individual units. Sometimes they are incorrectly filed against the entire condominium building, when they should have been filed against only one unit. By contrast, if a shareholder has a dispute with a contractor, the mechanic's lien would be filed against the entire building, which is why cooperative apartment buildings require shareholders to take immediate steps to remove them. They are a creature of statute and the laws vary from state to state. They are basically a form of legal 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 and cooperative apartment buildings, for example, they generally must be filed within 8 months of the last date of work. For single family residential homes, 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, 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 as rent. Most lenders and title companies will want the mechanic's lien to be removed or bonded before a closing or refinancing 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, with guidance by counsel, and show the requisite financial statements to the underwriting department. The bond then has to be filed and served. 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 dispute 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. Foreclosures of mechanic's liens take 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, so there may be an arbitration proceeding first, followed by some litigation in court. Some contractors and design professionals try to save money and file mechanic's liens themselves or by using 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 by legal counsel later on. Therefore, 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 an attorney and the principal of Law Offices C. Jaye Berger, New York, N.Y.