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Construction Liens

gavel Construction LiensGetting into disputes with housing contractors may result in construction liens, requiring the need for an attorney. The situation can be dispiriting. You probably anticipated getting the home improvements done in a certain amount of time. Now, you have to wait, because the contractor has stopped performing. In another case, maybe the contractor did not do what they promised they would. You stopped paying them, leading to serious legal problems. Regardless of the actual scenario, you can fight back against a lien placed on your property. In fact, it is best to do so as soon as possible. A lien can prevent you from enjoying all the value of your property. For example, you might not be able to sell the house. In some jurisdictions, the law may make it impossible to obtain a mortgage, until the situation gets resolved.

What Are Construction Liens?

In the past, you may have heard a parent or grandparent speak of mechanic’s liens. These were legal injunctions that attached to a property when the owner failed to fulfill their end of a contract. Often, a mechanic, having completed some repair work, claimed that the client refused to pay in full. Today, it is more common for people to use the term “construction lien,” when the issue involves a residential property. When a contractor files a lien against your home, they must follow a procedure. Their failure to complete this process is the best defense you have against them. So, understanding these steps is of paramount importance.

1. The Home Contractor Must Give You Notice

To initiate the claim, your home contractor has to file a Notice of Unpaid Balance and Right to File Lien, known simply as the NUB. As is common in most legal proceedings, this notice serves as the official summons notifying the other party, in this case you, of the legal claim. At this point, you have the right, and obligation, to defend yourself against the charges. Once the contractor has served notice, you cannot ignore the claim, because doing so just results in a default judgement for the contractor. It is best to fight back. It is important to always remember that the contractor has a time limit in which to file the NUB. For example, in many jurisdictions, your contractor has 60 days following a stoppage of work or delivery of materials to have an NUB on the record. A late claim is no claim.

2. The Home Contractor Must Complete Arbitration

To ensure the fairness and legitimacy of the claim, the authorities review your contractor’s evidence in an arbitration proceeding. The contractor must apply for arbitration with the American Arbitration Association (AAA), an official body. Over a 30-day period, the AAA will analyze the construction project to assess the amount of harm done to either party. If the independent arbitrator decides that there is cause for a lien, and that there is a potential financial loss to your contractor, then they will approve the claim. If not, then your contractor will be forced to cease the case or find another avenue to reclaim his or her alleged losses. Some homeowners believe that the assessment of an arbitrator is the final stage of the lien. Upon learning that this specialist has approved the filing of a lien, they suppose that all is lost. Such is not the case. Instead, the arbitrator is merely finding that there is enough evidence for the claim to continue. You still have an opportunity to dispute and challenge the lien.

3. The Home Contractor Must File the Lien

After meeting the deadline for notice and arbitration, the contractor can then proceed to filing the actual lien against your property. This procedure must occur within 120 days following their cessation of work or delivery of products. A lien filed after the 120-day period is null and void. The contractor must also serve notice of the lien to you, the homeowner. Failure to properly inform you of the lien, may lead to its nullification. Once they have served you with the lien paperwork, the contractor can then file an official lawsuit in Superior Court for the amount of money they believe you owe them. In most cases, the contractor has one year following their last day of work on your home to initiate the lawsuit.

Strategies to Fight a Home Lien

1. Procedural Defenses

The first line of defense is procedural. You should make sure that the contractor properly filed both the NUB and arbitration claims. As noted above, if the contractor did not follow the required procedure, the lien is invalid. In fact, you might still have a legal case against them for failing to fulfill their duty. Some homeowners make the big mistake of assuming that if the contractor appears with a lien that the procedure must have been followed. This thinking would make sense if the county recorder’s office had a duty to check all the paperwork before accepting the lien. Unfortunately, they do not. Instead, a contractor can appear and fool you into believing the lien valid. The best thing is to check the lien form for dates. The NUB and arbitration dates should be listed. Did the contractor file them within the required deadlines? If not, then you can ignore this lien. Also, the contractor is in violation of the law if they continue failing to complete the housing project. It may be time for you to speak with your chosen attorney to file a lawsuit. You should also make sure there is an expected arbitration award listed. This amount delineates just how much money the arbitrator believes the courts might order you to pay the contractor. In some cases, at least theoretically, the amount could be negligible.

2. The Lien Is Out of Date

Contractors must file the lawsuit claiming a damage award within a year following their work stoppage. In some cases, your contractor will serve a lien notice after this year. They often believe that they have a full year following the lien filing to sue you. Their error can be to your benefit. The court will find the lien out of date. Time is of the essence for your contractor. Remember, the whole process takes around four months to complete. Then, they have only eight months to initiate the lawsuit. As noted, it is not unheard of for a contractor to believe that they still have a full twelve months to sue you. It is not your responsibility to disabuse them of their incorrect thinking.

3. There Was No Written Contract

In many jurisdictions, construction liens require the presence of a written contract. Since many contractors work based on verbal agreements, they mistakenly assume that they can base a lien claim in this context. The law says differently. In fact, such verbal contracts may be invalid when over a certain amount, in many cases $500. If the contractor tries to enforce a lien without an express written contract, they are themselves in violation of the law. You should contact an attorney to stop the harassment.

4. Get the Lien Removed

Even if the above defenses do not work, you will still want to remove the lien. There are a few main ways to do so. First, you can post a bond. Locate a licensed bonding company in your area. They will usually require you to pay 110 percent of the lien amount. You should discuss, with your lawyer, whether a bond is the wisest course of action. In most cases, an attorney will recommend paying the bond when you need to clear the title to sell the home or obtain a mortgage. Second, the court in your area may accept a direct bond for construction liens. In this instance, you would pay the 110 percent to the Superior Court itself. Ask your lawyer if this option is available in your jurisdiction. If so, the court clerk holds the funds until after the resolution of the pending lawsuit. Third, if you have reason to believe the lien invalid, then you can file a “motion to show cause.” This court order forces the contractor, as the claimant, to prove that they have followed all the correct procedures and have a valid lien. If the court finds any discrepancy, the lien may be invalid and the lawsuit against you dismissed.

5. File Your Own Lawsuit

Regardless of the validity of construction liens, you always have the right to file a lawsuit against the contractor. In most cases, homeowners sue for breach of contract. You also have the right to counter sue for the money needed to fight against an invalid lien claim. So, if your contractor failed to follow the correct procedure, such as filing an NUP or undergoing arbitration, then you can sue them. The law requires them to reimburse you for attorney fees and court costs. Unfortunately, you must usually wait between 1 to 3 years to receive the court award, as these actions proceed rather slowly. Armed with this knowledge, you can now defend yourself against a lien on your property. It is wise for you to remain cognizant of filing dates, as any missed deadlines could negate the validity of any construction liens against you.

Get Help Defending Yourself Against Construction Liens

If you need help with construction liens, contact an attorney, such as one at Snellings Law LLC, at (973) 265-6100, for legal advice on how to proceed.