Service Area: Notice and Mechanic’s Lien Services

Massachusetts Mechanic’s Lien in a Bankruptcy

Posted on March 16, 2018 by - In Other Commercial Credit News

What Happens to Your Massachusetts Mechanic’s Lien in a Bankruptcy?

This week we shared an article that focused on the impact of bankruptcy on mechanic’s lien claimants for projects in Massachusetts. In How Bankruptcy Affects Mechanic’s Lien Rights, authors Gregory M. Boucher and Steven Reingold, explain what happens under the automatic stay, the importance of complying with the bankruptcy code, and the key element of when a lien “relates back.”

What Happens Under the Automatic Stay?

Once a bankruptcy petition is filed, the automatic stay prevents creditors from further pursuing the collection of debts. This injunction occurs the moment a party files for bankruptcy protection, hence the “automatic” of automatic stay.

If you are furnishing to a construction project and the project owner files for bankruptcy protection, you can still perfect or file your mechanic’s lien without violating the automatic stay. However, you must comply with section 362(b)(3) of the bankruptcy code and should you need to file suit to enforce your mechanic’s lien, you would have to seek relief from the automatic stay.

It’s a bit trickier when another party in the ladder of supply, such as the general contractor, files for bankruptcy protection. According to Boucher & Reingold “…when a general contractor files for bankruptcy, a subcontractor or supplier might violate the automatic stay by taking action to assert or perfect a mechanic’s lien, even if the owner is not in bankruptcy.”

Might is the keyword here. Boucher & Reingold referenced a NJ case where the GC filed for bankruptcy protection and the court determined payments owed from the owner to the GC were property of the bankruptcy estate. And, as with all things in the mechanic’s lien world, whether a lien filing violates an automatic stay may be state-specific and could be based on attachment.

When the Lien Relates Back or Attaches

Authors Boucher & Reingold use the phrase “relates back,” however, you may have also heard it referred to as attachment. When does a lien attach to the property? In the state of Minnesota, liens attach from the time of first furnishing materials or services. In Ohio, liens are “…effective from the date the first visible work or labor is performed or the first materials are furnished by the first original contractor, subcontractor, material supplier, or laborer to work, labor on, or provide materials to the improvement.

Boucher & Reingold cite Massachusetts and Pennsylvania as additional examples of states where the lien attaches or relates back to the date of first furnishing, and the state of Florida, where the lien attaches to the date of the recording of the Notice of Commencement.

“…in Florida, such rights “relate back” to the date of the recording of a Notice of Commencement in the public records concerning the real property improvements, which typically precedes that start of the work. In those states, where the first date of labor or materials, or the recording of a Notice of Commencement, precedes a bankruptcy petition, a claimant may still proceed with asserting and perfecting its mechanic’s lien rights.”

Claimants should be cautious in states where statute doesn’t allow lien rights to relate back, warns Boucher & Reingold. “However, in those states whose mechanic’s lien laws do not provide for a claimant’s rights to “relate back,” such as New Jersey and New York, a claimant has no ability to assert or perfect its mechanic’s lien rights once a party files for bankruptcy protection without first seeking relief from the automatic stay.”

Know Before You Go

Become familiar with the dates lien attach in the various states, so that you are aware of potential problems. If a party within the ladder of supply files for bankruptcy, ensure your potential or existing mechanic’s lien filing is not in violation of the bankruptcy code.

Proactively, you may want to consider monitoring all parties with a service such as bankruptcy monitoring, which will alert you of a party’s bankruptcy filing. Time is of the essence when a party files for bankruptcy protection, and the sooner you know the faster you can act.

Carefully Review Settlement Agreements

Posted on March 12, 2018 by - Credit Risk Management, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Carefully Review the Settlement Agreement & Be Prepared to Accept the Terms of the Agreement

In Degraw Const. Group, Inc. v. McGowan Bldrs., Inc., 2017 NY Slip Op 32080 – NY: Supreme Court 2017, parties executed a settlement agreement, which in addition to a payment settlement, required the parties to release one another from further claims. Despite the agreement, the subcontractor filed mechanic’s liens and attempted to proceed with suit. Much to the subcontractor’s dismay, the court upheld the terms of the settlement. The subcontractor’s liens were void and the subcontractor had to pay damages to the general contractor.

Some Background

McGowan Builders, Inc. (McGowan) was the general contractor for two projects: YMCA of Greater New York (YMCA Project) and Nan Shan Development of CPC Queens Senior Center/Day Care Center (Nan Shan Project). For both projects, McGowan hired subcontractor Degraw Construction Group, Inc. (Degraw) to construct concrete foundations, walls and floors.

As with many construction projects, disputes arose. To resolve the disputes, McGowan and Degraw executed a settlement agreement, “Agreement for Termination for Mutual Convenience and Mutual Release.” The settlement agreement dictated that McGowan would pay $150,000 in installments to Degraw, and that both parties agreed to a “mutual release.”

According to the court opinion, the mutual release specified that “[McGowan] and Degraw agree that upon full performance of their obligations hereunder, any and all claims that could have been asserted under the YMCA Subcontractor Purchase Order and the Nan Shan Subcontractor Purchase Order shall forever be released…”

Essentially, the parties agreed the $150,000 would settle debts and the parties agreed they would forfeit further mechanic’s lien actions.

In a Tennis Match of Correspondence

In what can be best described as a tennis match of correspondence, the parties served up letters & responses.

First up, McGowan notified Degraw it would not remit further payment, as McGowan had discovered defects on the YMCA Project. (Until this time, McGowan had paid $100,000 of the $150,000 settlement.) The terms of the settlement agreement had a clause for ‘latent defect claims’:

“[R]elease each other from all potential claims against each other on the YMCA and Nan Shan projects except for claims arising from latent workmanship defects and claims arising from Degraw’s indemnification obligations…”

Unsurprisingly, Degraw then sent a demand for payment & advised it would pursue all remedies, including a mechanic’s lien against the projects, if McGowan did not remit payment.

McGowan served back, reminding Degraw of the terms of the settlement agreement: “The lien claims that you are threatening to file on these projects are contrary to the express terms of the Settlement Agreement. Any sum that may be claimed to be due in a lien filed on either project will be completely arbitrary because the Settlement Agreement does not allocate the principal amount of the settlement and/or the current unpaid balance of $50,000 between the YMCA and the NAN Shan Projects.”

And, of course, McGowan’s correspondence wouldn’t be complete without a subtle jab “As previously advised, if you are foolish enough to file a lien on either the Nan Shan or the YMCA project swift action will be taken to obtain a Court Order for the discharge of such lien(s)…”

Degraw Serves Up Liens, McGowan Counters with Discharge Bonds

Despite the terms of the settlement agreement, Degraw filed two mechanic’s liens. The lien on the YMCA Project was filed for $214,590.46 and the lien on the Nan Shan Project was filed for $87,096.01.

McGowan, in turn, obtained discharge bonds for both liens.

Degraw proceeded with suit to enforce its liens, and McGowan filed a motion to have the liens declared as barred per the settlement agreement, to have the lien amounts declared as willfully exaggerated, to recover damages and to have Degraw’s suit dismissed.

The Court’s Findings

  • Liens Barred Based on Settlement Agreement: The terms of the settlement agreement were clear. When the parties executed the agreement, they waived the right to proceed with further claims. Therefore, Degraw’s liens were unenforceable.
  • Liens Willfully Exaggerated: Simple math confirms the liens were exaggerated. The agreement was for $150,000, of which $50,000 was unpaid. The liens were filed for a total of $301,686.47.
  • McGowan Recovers Damages: Because the liens were in violation of the settlement agreement and willfully exaggerated, McGowan was the prevailing party & was awarded $25,645 in damages.
  • Degraw’s Suit Dismissed: If there was still any question regarding the validity of Degraw’s liens, let the court’s final finding end it – the liens and suit were dismissed.

The Takeaway

Settlement agreements are not uncommon in the construction industry. We often assist with exchanges of release of lien for payment. But, it’s imperative for parties that execute an agreement to understand that the agreement may be enforceable, just as with any other contract. Review the terms of all agreements, and as a best practice, seek legal guidance before signing anything!

Is “Final Payment” Written on the Check?

Posted on March 9, 2018 by - In Other Commercial Credit News

Is “Final Payment” Written on the Check? Consider it Final and Paid.

In a recent Mississippi case, one general contractor argued that a payment it received from the owner did not satisfy the total claim amount. The check the general contractor received and subsequently deposited included the phrase “Final Payment.”

The general contractor attempted to recover the remaining balance owed and ultimately, the general contractor proceeded with suit to recover unpaid monies. Amidst litigation of additional issues, the court had to determine whether “Final Payment” written on the check operated as an accord-and-satisfaction of the claim.

Unfortunately for the general contractor, by depositing the “Final Payment” check, they accepted that payment as payment in full and were barred from further recovery.

What is Accord & Satisfaction?

Essentially, accord and satisfaction is synonymous with paid in full. According to the court opinion, Mississippi statute dictates that accord and satisfaction exists if:

  • Something of value is offered “in full satisfaction of a demand” – i.e. the check
  • The offer is “accompanied by acts and declarations [that] amount to a condition that if the thing is accepted, it is accepted in satisfaction” – i.e. the phrase “Final Payment” on the check
  • “The party offered the thing of value” must “understand that if he takes it, he takes subject to such conditions” –  i.e. understand the meaning of “Final Payment”
  • The party accepts the item and/or offer –  i.e. depositing the check

Based on the four parameters, as you can see, the court determined the payment the general contractor received, did qualify as accord and satisfaction.

“However, Mississippi law is clear that, despite whatever contentions a party may make to the contrary, cashing a check marked “final payment” constitutes an accord-and-satisfaction agreement, which precludes that party from bringing future claims for additional payment.”

But, But, But…Final Doesn’t Really Mean Final

This case was recently reviewed by attorney, Matthew Devries in “Paid in Full” Wives’ Tale True? When Endorsing A Check, Yes Ma’am!. In his review, Devries states “The contractor conceded that it cashed the check but argued that it repeatedly asserted to the owner…that it did not consider the “final payment” to be final and that it would continue seeking the remainder of what it was owed.”

For whatever reason, it reminds me of the cliché, “You can’t have your cake and eat it too.” The contractor can’t cash a check, marked as final payment, and then continue collection efforts. Perhaps it’s that pesky word “final” that was getting in the way.

Be Careful!

Checks are monetary agreements and should be treated with care. As a former bank employee, I can tell you there are guidelines for accepting & depositing checks (albeit, they may not always be enforced or followed).

For example, the payee line on the check must match the deposit account name, if you write “for deposit only” on the check you can’t get cash back from the deposit (must be a separate transaction), and post-dated checks can’t be tendered until the specified date.

If you receive payment, and there are conditions or terms within the payment, seek a legal opinion before accepting the payment.

Bond Claim and Stop Notice Rights in California

Posted on February 26, 2018 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Furnishing to a Public Project in California? Here’s What You Should Know about Bond Claim and Stop Notice Rights

Bookmark this post; here’s everything you should know about securing bond claim and stop notice rights on public projects in California!

How Do I Know if It’s a Public Project?

Generally, a public project is the improvement of public works or building under formal contract made by any government authority, e.g., the state, county, city, or political subdivision.

Whereas, a private project is generally for an improvement contracted by a private entity, e.g., a person, company, or corporation.

Do I Have to Send a Preliminary Notice?

Yes! Serve notice upon the prime contractor and the public entity within 20 days from first furnishing materials or services.

If you are contracting directly with the prime contractor, the preliminary notice isn’t required, but it is a best practice to always serve a notice upon all parties.

What if My Preliminary Notice is Late?

A late notice may be served, but the bond claim and/or stop notice, when later served, will only be effective for materials and services provided 20 days prior to serving the notice and thereafter. A late notice may also be referred to as a Trapping Notice.

Are Payment Bonds Required for California Public Projects?

In California, payment bonds are generally required for general contracts greater than $25,000. However, it is possible the project owner won’t require a bond.

As a best practice, always attempt to obtain a copy of the payment bond at the beginning of the project.

Unpaid? If a Payment Bond is Available, Serve a Bond Claim

If a payment bond was obtained, and you have not been paid for furnishing, you can make a claim against the bond. A bond claim should be served upon the surety and prime contractor within 15 days from the recording of a notice of completion or cessation, OR within 75 days from completion, if no notice of completion or cessation is recorded.

If the bond claim does not prompt payment, file suit to enforce the bond claim after furnishing materials or services, but within 6 months from the period in which stop notices may be filed.

STOP, in the Name of Unpaid Parties #SongTitleFail

In addition to a bond claim, you may proceed with a Stop Notice. A Stop Notice is a notice, to the party paying for the work of improvement, of money due, which can obligate that party to withhold sufficient funds to cover noticed amounts.

You should serve the stop notice upon the public entity within 30 days from the recording of a notice of completion or cessation, OR within 90 days from completion, if no notice of completion or cessation is recorded.

File suit to enforce the stop notice no sooner than 10 days from service of the stop notice, but not later than: 120 days from the recording of a notice of completion or cessation, OR 180 days from completion, if no notice of completion or cessation is recorded.

Notice of the action must be served upon the public entity within 5 days from filing suit.

Does California Have Prompt Pay Laws?

Yes, there are prompt pay laws in California. Generally, payment should be remitted within 7 days from receipt.

“7108.5.  (a) A prime contractor or subcontractor shall pay to any subcontractor, not later than seven days after receipt of each progress payment, unless otherwise agreed to in writing, the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each subcontractor’s interest therein.”

However, there are caveats – I encourage you to review the applicable statute or seek a legal opinion if you have questions.

Links to Prompt Pay Law in California

Do you have additional questions related to bond claim and stop notice rights on public projects in California? Contact us!

Form for Registering Liens on Leasehold in Alberta

Posted on February 23, 2018 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Will Changing a Form Make It Easier for Claimants to Register a Lien on Leasehold in Alberta?

Registering a builders’ lien in Alberta? It’s imperative to correctly identify and notify all parties within the ladder of supply, and ensure the form is completed in its entirety.

In Encore on Enforceability of Defective Liens, author Jonathan Martin reviewed an Alberta case where the lien claimant correctly identified the fee simple owner in its lien, but failed to identify the leasehold interest. Subsequently, the court vacated the claimant’s lien for failure to comply with statute.

Alberta Lien Requirements in Tenant/Leasehold Situations

In Alberta, if furnishing to a tenant improvement, the statute provides for a notice prior to the lien.

Where the lien attaches to a leasehold interest, a claimant may serve notice upon the fee owner at least 5 days prior to first furnishing materials or services. This notice will allow a lien against the fee interest unless the fee owner responds with a notice of non-responsibility within 5 days from receipt of the claimant’s notice.

The lien must be filed within 45 days from last furnishing and within 45 days from substantial performance, completion or abandonment of the contract.

The Case of Encore Electric Inc. v Haves Holdings, 2017 ABQB 803

The fee simple owner of the property is Albari Holdings Ltd. (Albari) and the leasehold interest is held by Haves Holdings Country Hills Gym Ltd. (Haves), operating as Gold’s Gym.

Haves hired Encore Electric Inc. (Encore) for the improvements to the property. When Haves failed to pay Encore, Encore filed a lien. The lien form completed by Encore contained a space to list the fee owner and space for an interested party other than the fee owner; however, Encore only identified the fee owner.

Among other issues addressed, Encore argued the form it completed was sufficient for a lien on the leasehold interest of Haves. And despite failing to identify the leasehold, Encore claims it should have been given the opportunity to correct the form.

But, as author Martin recaps, the court stated the document can only be amended if the lien was registered against the correct interest (fee simple vs. leasehold).

“…[O]n the basis that a lien that names the incorrect owner can be rectified and upheld because of the substantial compliance provisions of the Act, so long as it is registered against the correct interest.

However, a lien registered against an incorrect interest cannot be rectified. In this case, the lien was registered against the ownership interest instead of the leasehold interest and could therefore not be rectified.”

Is the Solution to Revamp the Existing Lien Form?

Martin suggests perhaps a new form is the answer. Martin states Alberta’s lien form is the only form to indicate the project owner could be someone other than the fee simple owner.

“Alberta’s form is the only one to even mention that the “owner” can be the owner of an interest other than a Fee Simple, but not everyone outside of the legal profession knows what a Fee Simple is.

An obvious solution may be to simply create better forms, which include an easily accessible definition of “owner” under the legislation. The British Columbia form, on the other hand, does not even ask for the owner to be identified. So long as the correct people are given notice and the land is correctly identified, all is well.”

A Better Solution: Don’t Go It Alone

This is another reminder of the dangers associated with completing lien forms without legal guidance. Failing to list the leasehold interest on the lien left one claimant unpaid $686,000. That is a lot of money to lose for a ‘simple’ mistake.

Serving a Preliminary Notice in Minnesota

Posted on February 12, 2018 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Minnesota Construction Projects, Mechanic’s Lien Rights and the Preliminary Notice

The focus of today’s post is the preliminary notice for private projects in Minnesota.

First: Who Is Entitled to a Mechanic’s Lien & Should Serve a Preliminary Notice?

Per Minn. Stat. 514.01, the “usual suspects” are entitled to a lien filing. General contractors, subcontractors, material suppliers and those furnishing rental equipment.

“Whoever performs engineering or land surveying services with respect to real estate, or contributes to the improvement of real estate by performing labor, or furnishing skill, material or machinery for any of the purposes hereinafter stated, whether under contract with the owner of such real estate or at the instance of any agent, trustee, contractor or subcontractor of such owner…”

Is a Preliminary Notice Required?

Depending on where you fall in the ladder of supply, a preliminary notice may be required.

If you are a contractor who contracts with subcontractors or materials suppliers, you should include the notice within your written contract with the owner and serve a copy of the contract upon the owner. If no written contract exists, serve the notice upon the owner within 10 days of agreeing to work on the project.

If you are a subcontractor or material supplier, when contracting with the prime contractor or a subcontractor, serve notice upon the owner as soon as possible to trap funds, but within 45 days from first furnishing materials or services.

There may be circumstances in which a preliminary notice is not required:

– the project is non-agricultural and

– the project is not wholly residential and is more than 5,000 usable square feet or is to provide or add more than 5,000 total usable square feet of floor space, or

– a wholly residential project has more than four family units.

What Information Should Appear in the Notice?

Statute is specific regarding the contents and format of the notice. The notice should be in at least 10-point bold type, if printed, or in capital letters, if type written.

For contractors, who did not include notice within their contract, the notice should include the statutory language found in Minn. Stat. 514.011 Notice. Subd. 1 (a) & (b). Essentially, statute requires notifying the owner that unpaid parties within the ladder of supply may file a lien on the owner’s property and that the owner has a right to pay those parties directly with funds that would have been paid to the contractor.

For subcontractors & material suppliers, the preliminary notice should include the statutory language found in Minn. Stat. 514.011 Notice. Subd. 2. Aside from the statutory language, the notice should include your company’s name & address, the name & address of your customer, a description of the materials/services you are furnishing and an estimated contract amount.

Although the preliminary notice guidelines are specific, failure to strictly comply with the statutory requirements may not invalidate your lien.

“(b) A person entitled to a lien does not lose the right to the lien for failure to strictly comply with this subdivision if a good faith effort is made to comply, unless the owner or another lien claimant proves damage as a direct result of the failure to comply.”

Who Should Receive the Notice?

Whether contracting directly with the owner or further down the ladder of supply, the preliminary notice should be served upon the owner or the owner’s authorized agent.

If you are a material supplier, and are unsure who the project owner is, Minnesota statute specifically calls out your right to request the information from the contractor. If the contractor fails to supply the information, the contractor becomes liable for “…[A]ny actual damages sustained or expenses incurred by the subcontractor or material supplier because of the contractor’s failure to provide the information, plus reasonable attorney fees and costs.”

How Should the Notice Be Delivered?

In Minnesota, the preliminary notice should be served via personal service or certified mail. As a best practice, if sending via certified mail, pay the additional fee for “return receipt requested.”

If Notice is Required, the Lien is Unpaid Balance

If the 45-day notice is required, the lien is enforceable for the unpaid portion of the contract at the time the 45-day notice is served. On commercial projects, if the 45-day notice is not required, the lien is enforceable for the full amount owed, regardless of payments made by the owner. 

Help!

Have questions not covered in today’s post? Contact us today!

Is Pay-if-Paid Enforceable in Kentucky?

Posted on February 9, 2018 by - In Other Commercial Credit News

Supreme Court in Kentucky Decides Pay-If-Paid is Enforceable

Is pay-if-paid enforceable in Kentucky? According to one recent Supreme Court decision, yes.

We’ve previously discussed pay-when-paid and pay-if-paid, otherwise known as contingent payment clauses. But, here’s a quick refresher on pay-if-paid.

Pay-if-paid is generally interpreted to mean the subcontractor will receive payment from the general contractor IF the general contractor is paid by the owner. In other words, if the owner fails to pay the general contractor, the general contractor doesn’t pay the subcontractor.

The Court Enforced the Contract

In Superior Steel, Inc. v. The Ascent at Roebling’s Bridge, LLC, the contractual provision in question lies within the contract between the subcontractor and the construction manager.

Essentially, the subcontractor furnished outside the scope of the original contract and did not execute change orders. Then, when the construction manager sought payment for the additional work from the owner, the owner refused to remit payment to the construction manager. Thus, based on the contractual terms between the construction manager and subcontractor, the construction manager did not have to pay the subcontractor.

In its decision, the court provided an example of a pay-if-paid clause:

“A typical `pay-if-paid’ clause might read: `Contractor’s receipt of payment from the owner is a condition precedent to contractor’s obligation to make payment to the subcontractor; the subcontractor expressly assumes the risk of the owner’s nonpayment and the subcontract price includes this risk.”‘

Then, the court reviewed the plain language that appears within the contract. (Keep in mind, not only has the owner failed to pay the construction manager, but the subcontractor also failed to execute change orders.)

“[n]o additional compensation shall be paid by the Contractor to the Subcontractor for any claim arising out of the performance of this Subcontract, unless the Contractor has collected corresponding additional compensation from the owner, or other party involved, or unless by written agreement from the Contractor to the Subcontractor prior to the execution of the Work performed under said claim, which agreement and work order must be signed by an officer of the Contractor.”

Unjust Enrichment – Alternative Remedy

Author, Jeffrey R. Appelbaum, reviewed this case in his article Kentucky Supreme Court Enforces Pay-if-Paid Provision. In his review, he mentions that although the court enforced the pay-if-paid provision, the subcontractor is permitted to pursue unjust enrichment against the owner.

“[T]he court also relied on the pay-if-paid provision to reinstate the unjust enrichment verdict against the owner, concluding that although the equitable remedy of unjust enrichment does not exist when there is a contractual remedy, the existence of the pay-if-paid clause in the subcontract blocked the subcontractor from pursuing a contract remedy. As such, the subcontractor was permitted to pursue its claim for unjust enrichment against the owner, and that portion of the trial court’s judgment was reinstated.”

Two Takeaways

  • Always review your contract! Even when a state’s statute implies a clause is unenforceable

Kentucky Fairness in Construction Act “371.405 (2) The following provisions in a contract for construction shall be against the public policy of this Commonwealth and shall be void and unenforceable: (b): A provision that purports to waive, release, or extinguish rights provided by KRS Chapter 376, with the exception of partial waivers of lien rights provided by the contractor or subcontractor for progress payments”

  • If performing additional work or supplying additional materials, outside the original agreed upon contract, get approval for the additional work in writing!

New York Lien Discharged by Bond

Posted on February 5, 2018 by - Mechanic's Liens & Bond Claims

In New York, a Mechanic’s Lien Discharged by a Payment Bond is Still a Lien

In New York, on private commercial projects, a mechanic’s lien must either be extended or enforced within one year from the date the lien was filed. But, what happens if a payment bond is substituted for the lien? According to one recent court opinion, lien deadlines still apply.

Mechanic’s Lien Guide for Private Commercial Projects in New York

Generally, in New York, there is no preliminary notice required, though serving a non-statutory notice is recommended.

The mechanic’s lien deadline varies based on project type: commercial or residential. For commercial projects, claimants should file the lien within 8 months from last furnishing materials or services. The lien should be served upon the owner, the prime contractor, and the debtor, within 5 days before or 30 days after filing the lien. And, proof of service should be filed with the County Clerk within 35 days after the lien is filed.

Words of caution:  New York is an unpaid balance lien state and the lien is enforceable only for the unpaid portion of the contract, either what is owed by the owner or what is owed to your customer.  File the lien as early as possible to ensure funds are still available.

If you remain unpaid after filing the lien, file suit to enforce the lien within 1 year from the date the lien was filed, or, within the same time period, file an extension of lien.

EZ Runer Const. Corp. v. Blue Nirvana, LLC, 2017 NY Slip Op 31663 – NY: Supreme Court 2017

Let’s review the above case. First, here’s a quick look at the relevant parties:

– Lien Claimant (plaintiff): EZ Runer Construction Corp. (EZ)

– Property Owner (defendant): Blue Nirvana, LLC (Blue)

– Surety (defendant): Suretec Insurance Company (Suretec)

EZ furnished & installed plumbing to the real property owned by Blue. When Blue failed to pay, EZ filed a mechanic’s lien on October 1, 2014, in the amount of $14,712.43.

In July 2015, Blue filed a payment bond, with Suretec as the surety, to discharge EZ’s lien. Once the bond was filed, EZ’s lien was no longer against the property, but was instead against the bond.

Per New York statute, EZ had until October 1, 2015 to file a lien extension or to proceed with suit to enforce their lien, otherwise their lien would be extinguished.

“No lien specified in this article shall be a lien for a longer period than one year after the notice of lien has been filed… or unless an extension to such lien… is filed with the county clerk of the county in which the notice of lien is filed within one year from the filing of the original notice of lien…” – New York § 17

Unfortunately, EZ failed to file an extension or to proceed with suit by the October 1, 2015 deadline. Blue petitioned the court to extinguish EZ’s lien because EZ failed to comply with statute, and the court sided with Blue.

Lien Statute Applies, even if Bond is Filed?

Yes, in New York, even if a bond is filed to discharge the lien, deadlines remain the same.

“The claimant in order to perfect his claim shall within the time prescribed in this chapter for the filing of a notice of lien, file a notice of claim in the office of the clerk of the county where such bond is filed. “- § 37 (5) Bond to discharge all liens.

Another example where the statute does not vary is New Jersey. In New Jersey, when a lien is bonded off, the deadlines associated with suit to enforce the claim do not change. Whether a claimant is enforcing a lien or a claim against the bond, the deadline for enforcement remains within 1 year from last furnishing materials or services.

There are some states where statutory guidelines shift when a bond is filed to prevent or discharge a lien. For example, in Texas, if a lien is bonded off, the deadline for suit to enforce the claim varies, depending upon when the bond was recorded:

53. Stat. Sec. 53.208. ACTION ON BOND.

(a) A claimant may sue the principal and surety on the bond…

(d) If the bond is recorded at the time the lien is filed, the claimant must sue on the bond within one year following perfection of his claim. If the bond is not recorded at the time the lien is filed, the claimant must sue on the bond within two years following perfection of his claim.

In situations where a bond or other security is substituted for a lien on real property, carefully review the state’s statute.

It’s a Warning

New York statute is concise and appears to leave little room for interpretation; perhaps a blessing and a curse for those furnishing to commercial construction projects. It is imperative that would-be claimants be familiar with and follow the statutory requirements as prescribed.