Saturday, May 22, 2010

A contractor filed a mechanic's lien against my property - now what?

If someone has filed a mechanic's lien against your property you have several options in responding. Liens can cause a variety of problems including potential defaults under the terms of your mortgage and problems selling your property if that is something you are considering.


1.  Verify That The Person Filing The Lien Actually Worked on Your Property

Through some error, it is possible that the lien could be filed against your property by mistake. If you don't recognize the name on the lien, call lienor and get an explanation. If the person that filed the lien did do work on the property, move on to step 2.



2.  Contact the Lienor

If you do not dispute that the money is owed, contact the lienor and try to work out a payment if at all possible. If you dispute that any money is owed, request that the contractor remove the lien immediately. Requests to remove the lien should be in writing and explain why no money is owed.



3.  Decide Whether You Want To Remove the Lien

The lien in and of itself does not require you to take any action under most circumstances. However, under certain circumstances, you must act. One of the most common times that you must act is when your mortgage requires you to. You probably never read your mortgage documents but now is the time to do so. It most likely requires you to keep the property lien free and you therefore could be defaulted under your mortgage if you don't address the mechanic's lien. Another common situation where you have to remove the lien is where you don't actually own the property. Perhaps you are leasing the property and had some work done. Your lease usually is going to require you to keep the property lien free and your landlord may default you under the lease or require you to pay its costs in removing the lien. The other common scenario here removal is necessary is where you want to sell the property. In almost all circumstance a buyer is going to require you to remove the lien before sale.



4.  Removing The Lien

You have two options: 1) bonding the lien. This usually involves a surety that will come in an issue a "discharge bond" that takes the place of your property and the lien moves from your property to the bond. The bond will require you to post 110% of the lien amount either by letter of credit or in cash. If you want to bond, you should contact an attorney to make sure that the process is handled properly; 2) commencing litigation to remove the lien. New York's lien law is very specific on what must be in a lien and who can file a lien. If the lien is defective on its face for any reason, you may be able to make a motion to summarily discharge the lien. However, if the lien is valid on its face (regardless of whether you actually owe the money) your only option is to attack the lien through litigation. If you are going to go this route it is best to consult with a construction attorney as there are a number of legal hurdles and technical requirements.



5.  Can I Just Leave the Lien?

The short answer is yes. If you don't have to remove the lien (either by request of your bank, landlord or someone else) then the lien does not need to be removed. It will last for 1 year and if it is not foreclosed on it will expire by operation of law. The problem comes about when it is foreclosed on and you then have to defend a foreclosure action that could be a tremendous headache. For that reason, it is preferable in most instances to deal with the lien quickly either through a bond or through legal proceedings to discharge it.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or vtp@kushnicklaw.com

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