Common Defenses in Mechanic’s Lien Foreclosure Cases

Filing a mechanic’s lien may not be enough to get paid. While it works as a lien on the real property you improved, if not voluntarily paid, you will have to make a decision regarding what to do next. The lien itself can not secure payment for monies owed. Here is an all too common scenario:

Your company was hired as a subcontractor for a job located at 123 First Avenue, New York. The general contractor who hired you to work on the job never paid you. Believing the owner did not pay the general contractor for your work, you filed a mechanic’s lien against the property at 123 First Avenue. Even though you filed a lien, neither the owner of the property nor the general contractor paid you to satisfy the lien.

Since you filed the lien and have not received payment, you will need to decide which direction to take to secure payment.

Do you:

1. Extend the mechanic’s lien as long as you can (approximately 3 years) hoping that someone contacts you to pay voluntarily,
2. Foreclose on the mechanic’s lien,
3. Extend and maintain the lien to protect your interests on the real property and simultaneously file a civil debt collection lawsuit for the balance owed against the party who hired you,
4. Or, in some instances, if you were hired by the owner of the property, you can start a civil action and consider including a cause of action to foreclose on the mechanic’s lien.

Securing Payment

In order to decide which route to take, you will need to consider the costs and fees involved in each of the scenarios, the legal process, the likelihood of success in obtaining judgment, and the likelihood of converting the judgment into cash.

Extending the Mechanic’s Lien

Costs and fees to extend the mechanics lien will differ based upon the number of extensions.

For example, the initial filing of the lien should be relatively inexpensive. The first extension is easy as it is just a matter of processing paperwork without court permission. For the second extension (year three), an application must be made to the court for permission to extend. As the years progress, the amount of work increases. A firm familiar with mechanic’s liens should be able to keep the fees at a minimum. The out-of-pocket costs are minimal. However, if there are multiple tax liens and other liens, one would need to make an economic decision as to how much they wish to invest in filing or extending.

Foreclosing on a Mechanic’s Lien

When it comes to foreclosing on a mechanic’s lien, it’s important to understand:

1. The costs and fees involved
2. How many liens are filed against the property and the priority of the liens
3. The owner’s equity in the property
4. The legal issues that come into play

Anyone who has a lien on the property can join in on your mechanic’s lien foreclosure action which could include the general contractor and other subcontractors/suppliers. Once you serve and file your summons and complaint, the other side and all those who filed liens may join in. Parties can defend, counterclaim and crossclaim against those involved in the project.

Common Defenses and Counterclaims That Arise During Mechanic’s Lien Foreclosure Cases

Once you serve and file your summons and complaint, the other side and all those who filed liens may join in. Parties can defend, counterclaim and crossclaim against those involved in the project. Common defenses and counterclaims include breach of contract and willful exaggeration of the amount of the lien.

If a lienor misstates the amount owed in their lien and demands more than what is owed, the property owner can look to have the lien declared void and ask that the court not grant recovery of the lien based on Section 39 of the Lien Law.

In addition, the property owner could ask for a penalty as well as any attorneys’ fees incurred while defending the action.

Other defenses and counterclaims include.

3. Poor craftsmanship and defective work: A claim may be made that the creditor failed to perform the services and work in a proper manner. Or that the subcontractors that foreclosed on the liens were not skilled artisans and incapable of performing the work. Since the premises were left in an unfinished or faulty condition, the owners were required to pay others to complete or redo the work.
4. Failure to perform: The lienor subcontractor failed to perform the work as requested, did not complete the job, or failed to provide the materials requested and is not entitled to be paid.
5. The plaintiff failed to act accordingly to mitigate their own damages.
6. Unclean hands: The subcontractor failed to appear and perform the work as agreed to therefore there is no liability on the part of the defendants due to lo plaintiff’s unclean hands.
7. Doctrines of laches, waiver, and collateral estoppel.
8. Statute of frauds: The statute of frauds requires a written contract for transactions in excess of $1,500.00. The reality is that often a written contract does not exist. If not, a claim can be made that the subcontractor’s action is barred by the statute of fraud — that the plaintiff put forth a contract that the defendant never agreed and/or the modifications of the contract, the dreaded change orders, are not on paper and barred by the statute of fraud.
9. The lienor received materials that they did not use and charged the defendants. The subcontractor received payment for work performed under the contract indirectly, and the defendants purchased the materials intended to be paid for under the contract.
10. The lien and/or service was improper: In the event that the plaintiff failed to serve and/or file its alleged lien or proof of service as required by lien law, the lien may be void and unenforceable. Similar to other types of litigation, service of the lien, including the necessary filing, must be solid. Same as in a straight debt collection action.

Crossclaims That Arise During Foreclosure Cases

Anticipate and expect other subcontractors and those who have filed liens against the property to join in your foreclosure action. Once you begin your mechanic’s lien foreclosure action, all those who have a lien can join in and ask for a piece of the pie. Lienors can also file crossclaims against the others.

Common crossclaims filed by others who have liens on the property usually include:

1. A request for priority: The other lienors would request priority over all or some of the other claims against the property basically asking the court to adjust and determine the equity of all the parties to this action and determining the validity, extent, and priority of each and all of the liens and claims.
2. Requesting that all other persons be forever foreclosed of all equity of redemption or other liens, claims, or interest in and to said property.
3. That the property be sold and the lienor paid the amount of its lien with interest, expenses of the sale, and the costs and disbursements from the sale.
4. That the lienor has a judgment against the owner of the property for any deficiency that may remain after applying payment received as a result of the sale.
5. That the lienor is awarded costs, reasonable attorneys’ fees, and disbursements resulting from this action.

If you have questions about mechanic’s liens or beginning a mechanic’s lien foreclosure action, contact Frank, Frank, Goldstein and Nager for a consultation. We have the experience that pays.