An owner is not without a remedy for a grossly inflated mechanic's lien

One of the most common problems that an owner faces in developing a project is that mechanic's lien filed by a contractor which the owner believes the amount of the lien is grossly overstated. While the contractor believes that it has placed the owner in an untenable situation, the owner is not powerless. So, what can an owner do when a general contractor or subcontractor files a mechanic's lien and the owner believes that the amount of the lien is grossly overstated? The answer lies in sections 38, 39 and 39-a of the Lien Law of the State of New York. Once a mechanic's lien is filed, an owner may serve a demand for an itemized statement of lien pursuant to section 38 of the Lien Law. Within five days after receiving the demand, the lienor must set forth with specificity the items of labor and material, and their corresponding values, which comprise the lien. While the lienor may set forth the scope of the base contract and the base contract value for the work, the lienor must also specifically list all extras that it allegedly performed and their values. With respect to the extras, the lienor may not simply set forth a value; the lienor must set forth the hours expended for each work item, the hourly wage of the workers, the quantities of the materials and their actual cost. If the lienor fails to submit an itemized statement of lien, or submits an insufficient statement of lien, the owner may then apply to the court to compel the lienor to serve the itemized statement of lien or serve a sufficient itemized statement of lien. If the contractor fails to comply with the court's order, the court will issue a further order canceling the lien as of record. In addition to the foregoing, the owner has another weapon in its arsenal. If the lienor commences a lien foreclosure action, the owner may allege a counterclaim to cancel the lien and for damages under the theory that the lien was willfully exaggerated. Pursuant to section 39 of the Lien Law, if a court determines that a lien was willfully exaggerated, the lien will be declared void and the contractor cannot recover any portion of the lien. Moreover, the contractor may not file another lien for any of the work that was allegedly covered by the first lien. Pursuant to section 39-a of the Lien Law, if the court determines that the lien was willfully exaggerated, the contractor will also be liable to the owner for monetary damages. The contractor will be liable to the owner for (i) the amount of any premium for a bond given to the county clerk to discharge the lien as of record or the interest on any money deposited for the purpose of discharging the lien, (ii) reasonable attorney's fees for services in securing the discharge of the lien, and (iii) an amount equal to the difference by which the amount claimed to be due or to become due as stated in the lien exceeded the amount actually due or to become due thereon. One question that may be asked is how does the owner allege its counterclaim if the contractor does not commence a lien foreclosure action. An owner may force the issue if it wants by serving a demand upon the contractor pursuant to section 59 of the Lien Law. Such a demand requires the contractor to commence a foreclosure action or the lien will be vacated. Thus, the contractor is faced with the choice of foreclosing on a lien and risking the penalties of a willfully exaggerated lien, or having the lien vacated in its entirety. An owner is not without a remedy when it believes that the contractor has filed a grossly overstated lien. Instead of sitting back and letting the lien become a problem with the owner's lender, an owner can force the issue by utilizing the tools given to it by the Lien Law. By forcing the issue, an owner can make the contractor choose to take the risk of pursuing a lien which it filed against the real property or face the monetary consequences of a willfully exaggerated lien. Andrew Richards, Esq., is a partner with Kaufman Dolowich & Voluck LLP, Woodbury, N.Y.