Wednesday, May 2, 2012

Enforcing Construction Lien Claims in New Jersey

Many contractors have broad comprehension of the hoops that are needed to file a lien claim under New Jersey’s Construction Lien Law (N.J.S.A. 2A:44A-1 et seq., the “CLL”). Many use LienItNow.com to file their construction liens. While many significant changes were made in the latest round of the New Jersey Construction Lien Law Amendments, much of the law was kept in place.   

Once a contractor completes the filing of a New Jersey Construction Lien Claim, however, they often are at a loss as to what happens next. Several questions may arise after the filing of a lien, such as: Can the property be transferred after a lien is filed and if so, what is the effect on the mechanics lien?  Who is liable if a bond is filed to discharge the lien claim?

Transfer of Property after a New Jersey Construction Lien Claim Has Been Filed

Generally, if a property is transferred after a construction lien is filed, the construction lien will stay on the property until it expires or is satisfied. However, a recent case in New Jersey illuminated an issue with residential contracts. With regard to residential construction, prior to filing a lien claim, the lien claimant must first file and serve what is called a Notice of Unpaid Balance and Right to File Lien (NUB) on the owner and contractor. At the same time, the residential construction lien claimant will need to file and serve a demand for arbitration, after which arbitrator will decide whether or not the lien claim can be filed with the county clerk. A construction lien cannot be filed on residential property unless the arbitrator permits it.

In a strange situation, however, property was transferred between the filing of the NUB and the filing of the construction lien claim. In the matter Marone Contractors, Inc. v. Colvin, decided by the Superior Court of New Jersey, Appellate Division, on July 14, 2011.  In that case, the court held that the construction lien claims were invalid because the lien claims were not filed against or served on the actual new owners of the properties. The Court also ordered that the lien claimant pay all court costs and reasonable attorneys’ fees in connection with the action brought by the homeowners, because it failed to timely discharge its unenforceable lien claims.

The court decision is not common, but it does highlight the dangers of not naming the correct owners. Of course, given the amount of time it takes for county clerks to receive and file title transfer and mortgage documents, not naming the correct owner could happen fairly often in a hot real estate market. The lesson here is that if you realize the construction lien is invalid, that you discharge it so as not to exposure yourself or your company to damages.
  
Owner of Property No Longer Liable

One way for an owner to protect itself from a New Jersey Construction lien filing is to have a bond posted to discharge the lien claim. The bond, which must equal 110% of the amount claimed by the lien claimant, stands as security for the lien claim, substituting the bond for the land and improvements upon which the construction lien was filed.

In Eastern Concrete Materials, Inc. v. Raritan Town Center, LLC, decided by the Appellate Division of the New Jersey Superior Court on July 7, 2011, the court was faced with the question of who must remain in a lawsuit after a bond is filed. At the trial level, the court entered judgment on the lien claim and the bond. On appeal, the Appellate Court reversed the trial court's judgment, holding that the judgment should only be against the the surety, and not the owner or the general contractor.  

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