The construction industry in the Garden State has faced tough times since the Great Recession. With some property owners trying to reduce costs, contractors and subcontractors occasionally face the unfortunate scenario of being stiffed for their materials, labor, and services.
Imagine that your company performs roofing work on a residential home in Newark, but then the homeowner who hired you refuses to pay all the monies owed at the conclusion of your work. Fortunately, New Jersey law gives you a powerful mechanism with which to put pressure on the owner and obtain the payment to which you are entitled: mechanic’s liens (also known as construction liens).
What are mechanic’s liens, and how do they work in New Jersey?
If a property owner fails to pay you, you will rightfully feel angry. But before you run to file a mechanic’s lien or a lawsuit, remember that persistence and negotiation might actually be more cost-effective ways to approach the issue.
In addition to mailing additional copies of your final invoice and/or statements, telephone the owner. Also send an email with a reminder about the contract balance. Try writing a formal demand letter on your company’s letterhead. More often than not, these persistent attempts at collection will work, saving you the time and money associated with legal action.
If these initial steps do not work, however, consider hiring a lawyer to write a demand letter on law firm letterhead, which will sometimes prompt a response more quickly. (It would be most effective to retain a New Jersey-based lawyer with some experience in construction law). A lawyer will typically be willing to write a demand letter for a reasonable amount of money, and it will show the property owner that you are serious about guarding your rights.
For more on retaining a lawyer, check out Guide to Finding an Excellent Attorney.
While the above strategies may work in many cases, there will still be situations where owners will refuse to pay your company the monies that are owed. Of course, New Jersey law allows you to simply sue for simple breach of contract, or some other related cause of action (such as what's known as quantum meruit).
But under the state's Construction Lien Law (N.J.S.A. § 2A:44A:1 et. seq.), you are also allowed to file what's called a mechanic’s lien, which can be a faster tool with which to pressure the owner to pay. A lien is publicly filed in the county clerk’s office in the county in which the property is located. These clerk’s offices are usually located in the same building (or nearby) the county’s local Superior Court.
The lien becomes a cloud on the owner’s title, meaning that the title is subject to your company’s financial interest in it. For example, if you put a $5,000 lien on the Newark home in the example above, a buyer of that property would purchase it subject to owing you that $5,000. This will make it difficult for the current homeowner to sell the property (or to refinance it through a bank or other institutional lender), since no one would want to take property that is subject to your claim. In other words, the lien can incentivize the owner to settle with you in order to get you to clear the title.
A New Jersey construction lien is a relatively short document, generally just a few pages. Note that there are 21 counties in New Jersey, and each county clerk has its own version of the form that you must use. For example, here is a version of the construction lien form in Morris County.
Under the statute, the lien must include your company’s name, the owner’s name, the location of the property, and the amount of money still due, among other pieces of information. You must also describe the labor or material you provided (in other words, how did you improve the property?).
If you are a subcontractor or supplier and worked for a general contractor that failed to pay you, you must list the primary contractor's name and address too. You will see that your signature needs to be notarized.
Unfortunately, much of the legislative language is somewhat dense. As with most states’ lien statutes, New Jersey’s lien law contains many rules and exceptions, depending on the type of property involved and the work performed. But there are some general important concepts to remember as you consider filing a lien on behalf of your construction company:
As you can see, the timing of the filing is perhaps the most critical aspect of a successful lien. New Jersey’s legislature is clearly trying to incentivize potential lienors to make their claims quickly, and not allow liens to be filed years after a construction project is completed. While this gives owners some comfort in knowing that lien periods have expired, it means that you must act quickly to ensure that you do not lose any lien rights.
New Jersey is more serious than many states about preventing contractors from filing inflated or fraudulent lien claims. Under the statute, after you file your construction lien, you must sue the property owner to enforce the lien within one year from the last date that you provided labor or materials to the property. Alternatively, if the property owner services you with a “demand to commence action,” you must do so within 30 days of being served with that notice.
Under N.J.S.A. § 2A:44A-9, “The amount of a lien claim shall be limited to the contract price, or any unpaid portion thereof, whichever is less, of the claimant's contract for the work, services, material or equipment provided.” In other words, you cannot file a lien for more money than the total amount of the unpaid contract. (You cannot include, for example, delay costs, attorney’s fees, or interest).
Moreover, under N.J.S.A. § 2A:44A-15, “If a lien claim is without basis, the amount of the lien claim is willfully overstated, or the lien claim is not filed in substantially the form or in the manner or at a time not in accordance with the provisions of this act, the claimant shall forfeit all claimed lien rights…. [and] also be liable for all court costs, and reasonable legal expenses, including attorneys’ fees, incurred by the owner, contractor or subcontractor, or any combination of owner, contractor and subcontractor, in defending or causing the discharge of the lien claim.”
In other words, if you try to file a fraudulent or “willfully overstated” lien (i.e., for more money than you deserve under the contract), you could face serious penalties.
If you file a lien with the New Jersey county clerk and serve the property owner with a copy of that lien, your action is likely to be perceived as aggressive. Taking this step might put the owner on the defensive and cause him or her to get lawyers involved, or otherwise retaliate by publicly claiming that you did shoddy work.
Perhaps filing a lien is the adversarial direction that you need to take, unfortunately, if the owner is refusing to pay what you are owed. But regardless, you should be prepared for this sort of antagonism once the filing is complete.
Also remember that liens and the laws surrounding them in New Jersey can be highly technical. Some parts of the statute were recently amended (in 2011), while other aspects of the statute are much older. If you are owed a substantial sum of money, it is likely worth your investment in a consultation meeting with an experienced construction or real estate attorney in New Jersey who can advise you of your rights.