Sunday, October 20, 2013

Mechanic's Lien in NY may not be attached to property after transfer of deed

In V.A.L. Floors v. Marson Contracting Co., the First Department of the Appellate Division reviewed a situation where a parcel of property (a condominium) had been sold and then a mechanic's lien was filed by a contractor hired by the prior owner.  The Court found that:

"since the deed contains the statutorily required trust fund language (see Lien Law § 13[5]), and the conveyance occurred prior to the filing of plaintiff's lien, the "lien is not valid against the deed" 

 The Court further noted that the contractor's mechanic's lien was not filed because:

"Lien Law § 4 provides that a mechanic's lien "shall extend to the owner's right, title or interest in the real property and improvements, existing at the time of filing the notice of lien." Since ownership of the condominium unit passed to the Buyers at the time of delivery of the deed (seeReal Property Law § 244), and since the Buyers did not consent to the work performed outside of the unit which constituted the basis of the overwhelming majority of the Lien (see Real Property Law § 339-l[2]), the Lien was also "invalid under Lien Law § 4(1)"

Most deeds in New York do now contain the statutory trust fund language of Lien Law Section 13 so it would be uncommon to be able to attach a mechanic's lien to property after a valid transfer.  However, the potential lienor is not without recourse.  Lien Law Section 13 makes it clear that the funds received by the owner are trust funds and, if those funds are not used to satisfy claims of contractors and suppliers, the owner (and its principals) may have liability for trust fund diversions.

The lesson for contractors and suppliers here:  don't wait to file your New York mechanic's lien!  There are a number of defenses that can pop up in the window while you wait.  Even though you have time to file (depending on the type of project this may vary in duration), the property could still be transferred hence defeating your mechanic's lien.  Also, during this time the contractor could be paid in full by the owner hence defeating claims of lower tier subcontractors and suppliers.  Granted, filing a mechanic's lien immediately may not always be the proper recourse, but there is a delicate and thin line between waiting too long and filing too soon.  When in doubt, speak to your construction lawyer.

Vincent T. Pallaci is the managing partner of the New York law firm of Kushnick | Pallaci, PLLC where his practice concentrates mainly on the area of construction law including prosecuting and defending mechanic's lien claims.  With offices in the New York City metropolitan area and in Buffalo, New York, KP serves the construction industry across the State of New York.

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