Friday, September 14, 2012

Appeals Court Reinstates Discharged (Expired) Mechanic's Liens

An interesting decision out of the Second Department in Brooklyn this week.  In In the Matter of Navillus Tile, Inc., the Court was faced with an appeal where the lienor sought to extend two mechanic's liens through  Court order pursuant to Lien Law Section 17.  The Court below denied the petitions to extend the liens.

The history of the petitions is interesting and needs to be reviewed.  Apparently the original liens were recorded on May 29, 2008.  They were each extended by the filing of an extension of lien.  The extensions were stamped received by the County Clerk on May 22, 2009.  On May 19, 2010, three days before the extensions would have expired, the lienors filed ex parte petitions to extend the liens.  Remember, in New York the application to extend the lien must normally be granted before the lien expires.  As I was reading this decision it appeared to me to be business as usual to this point.  The Clerk was apparently told by Counsel for the lienors that the liens would soon expire.  However, the Clerk did not deliver the petitions to a justice of the Court until May 25, 2010 - after the liens had expired.  Since the liens had expired, the Court asked the lienors to brief the issue of whether it still had the power to grant the extensions.  The Court concluded that it did not have the power to extend the expired liens nunc pro tunc and denied the petitions.  This is the conclusion I would have expected up through this point - it is what just about every other Court in New York has consistently said.  Once the lien expires, no Court has the power to revive it: or so was the law until the Second Department chimed in here.

The Court held that "nothing in the text of Lien Law Section 17 prohibits the granting of an application for an extension of the term of a lien where the application is timely filed but not presented to a judge or justice until after the expiration date."   The Court went on to state that "since the granting of the petitions nunc pro tunc is not otherwise expressly prescribed by law, the court may extend the time fixed [by Lien Law Section 17] upon such terms as may be just and upon good cause shown, whether the application for extension is made before or after the expiration of the time fixed."

Shocking (at least to this author) decision out of the Second Department and one that leaves open a whole litany of questions.  While this is no doubt a huge victory for lienors, I'm not sure the law is so settled.  The Court relied on Makovic v. Aigborgun, 41 A.D.3d 342 in reaching its decision.  But Makovic involved extending nunc pro tunc a lis pendens that expired while a motion to renew the lis pendens was pending.  We know that a lien is a unique animal in New York and is not necessarily the same as a lis pendens when it comes to whether it has expired or not.  The argument for not extending an expired lien nunc pro tunc, or allowing a late filing, has always been that third party good faith purchasers for value would have no knowledge of the lien if they ran a search the day after it expired.  A nunc pro tunc reinstatement of the lien would allow the lien to sneak in past the good faith purchaser.  It appears this is no longer a concern to the Second Department.

Compare this case with the Second Department's 1983 decision in Contelmo's Sand & Gravel, Inc. v. J&J Milano, 96 A.D.2d 1090, 467 N.Y.S.2d 55 where the Court vacated a lien that was extended on March 24, 1980 because it had actually expired on March 17, 1980 (no mention of when the motion was filed).

For now, it appears that in the Second Department, a lien can be extended as long as a petition to extend it has been filed before the expiration date.

Another interesting question is the status of the lien now.  The Court extended the lien nunc pro tunc as of May 2010.  That means that the lien expired in May 2011.  The decision wasn't even issued until September 2012 - more than a year after the lien expired even once the extension was granted!  So now do they get to foreclose on the lien nunc pro tunc because they have good cause (the lien wasn't extended until a year after it expired)?  Fascinating stuff out of the Second Department and kudos on a job well done to the attorneys for the lienor.

Vincent T. Pallaci is a partner with the New York law firm of Kushnick Pallaci, PLLC.  With offices in Buffalo and Long Island Kushnick Pallaci provides legal services to the construction industry across the State of New York.

1 comment:

  1. Crazy decision. Will be interesting to see how this precedent plays out.