As a homeowner in the Garden State, your home is not merely a place to live, but also a valuable asset. You may wish to sell or refinance it over the course of your life. Unfortunately, mechanic’s liens on your property (also known as “construction liens” in New Jersey) can impede these efforts.
Liens are essentially clouds on the title to your home, usually filed by contractors or subcontractors who claim that they are owed money.
Imagine, for example, a roofer who claims that she fixed your roof without compensation, or a brick company that claims it provided siding to your garage but was never paid the contract balance. These entities can potentially sue you for breach of contract. But they can also secure their financial interests without immediately filing a formal lawsuit against you in New Jersey’s Superior Court, by filing a simple lien. What exactly is a mechanic’s lien, and what can you do if one is placed on your home?
As a New Jersey homeowner, you have hopefully never encountered a “mechanic’s lien” or “construction lien.” (These terms are often used interchangeably in New Jersey). These legal documents are somewhat obscure, and many homeowners have not heard of them at all.
A lien is a document that gets publicly filed in the New Jersey county clerk’s office, in the county where the relevant property is located. Note that there are 21 counties in New Jersey; the contractor would file the lien in the county where your home is, not necessarily the county where his or her business is based. The lien, once filed, becomes a cloud on your title, meaning that the title is subject to the contractor’s stated financial interest in it.
To understand how a lien functions, consider this example: You hire a window company to install new windows in your kitchen in your suburban home in Princeton. After the contractor finishes the work, you have a payment dispute. The company tries to charge you $3,000 more than the original contract, or claims that you asked for additional work, when you did not. You refuse to pay the additional sum. The contractor could then file a $3,000 mechanic’s lien in with the local New Jersey county clerk (Princeton is located in Mercer County). This essentially means that anyone who buys your property would buy it subject to owing the contractor that $3,000. This will make it difficult to sell or refinance the property, since no one would want to take property that is subject to this claim. Contractors therefore use liens as a means of incentivizing property owners like you to settle with them.
If you have never seen a lien before, you can easily find samples online. A New Jersey construction lien is a relatively short document, ordinarily just a few pages. Each of New Jersey's 21 counties 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 person or entity filing the lien must enter on the document the company’s name, the owner’s name, the location of the property, and the amount of money still due, among other pieces of information. The lienor must also describe the labor or material provided (in other words, how did the contractor improve the property?).
In most situations, you should be able to avoid the nuisance of having mechanic’s liens filed on your property by engaging in a reasonable negotiation with your New Jersey contractor before the lien is filed. Liens are typically a sign of frustration and a relationship that has broken down. The contractor believes you are either ignoring payment requests or have no intention of entering into a good faith negotiation.
If your contractor asserts that he or she is owed an extra sum of money, do not just ignore the phone calls or invoices. While you might think that this “strong signal” will convince your contractor to simply go away, the contractor might view it as a sign of disrespect, prompting a lien or a lawsuit or both.
You and the contractor may have a good faith disagreement about whether certain work was part of the contract, or about the quality of that work. Rather than ignoring the issue, have a frank discussion about it, or consider going to mediation.
In mediation, a third-party neutral (often an attorney or individual with experience in the construction industry) can help you and your contractor to negotiate a fair settlement.
In both negotiation and mediation, you should be open to clever settlement strategies. Rather than paying a lump sum of money, for instance, perhaps payments could be made over time. Rather than a monetary settlement, maybe you could offer the contractor a public endorsement or reference. Rather than fighting in court, you could offer the contractor discounted payment in exchange for a limited scope of ongoing work. The creative possibilities are endless.
Of course, there are legal remedies available to New Jersey homeowners to fight a lien after it is filed. However, you are likely to save time and money if you find a way to settle the payment dispute with the contractor. This does not mean you need to give into all of the contractor’s demands, but it does mean that you should keep in mind the costs of legal action if the contractor files a lien.
If a lien is placed on your property, it will be helpful to familiarize yourself with the statute that governs liens in New Jersey. Liens are controlled by the Construction Lien Law, codified at N.J.S.A. § 2A:44A:1 et. seq. As with most states, New Jersey’s lien laws are complex. They contain many rules and exceptions, depending on the type of property involved and the work performed.
Broadly speaking, you should know that New Jersey permits many different types of entities to file a lien on a home. According to N.J.S.A. § 2A:44A-3, “Any contractor, subcontractor or supplier who provides work, services, material or equipment pursuant to a contract, shall be entitled to a lien for the value of the work or services performed, or materials or equipment furnished in accordance with the contract and based upon the contract price."
This language is a bit dense, but essentially, it means that anyone who has an agreement to improve property with you directly, or an agreement with another contractor who has such an agreement with you, can file a lien if left unpaid. This commonly includes contractors, subcontractors, and material suppliers.
Now that you know that mechanic’s liens can create problems for you, how can you get rid of a lien once it’s filed? There are several strategies to get the lien removed in New Jersey. The first, as mentioned, is to negotiate a resolution with your contractor. There are a couple of other options.
A second option is to obtain what's known as a “lien bond,” through a surety company. The bond essentially guarantees payment to the contractor in the amount of the lien, if the contractor is successful on the legal claims, but also removes the lien from your property record.
A third option is to petition a court (specifically, the New Jersey Superior Court that serves your county) to remove the lien. Your grounds for removing the lien could include that the contractor never did the work that the lien claims, or that the work was already compensated.
You can also attack legal deficiencies in the contractor’s lien. The most common deficiency for New Jersey liens involves the strict deadline for filing. For residential properties, lienors have 120 days from the last date that labor or materials were provided to file their liens. But before filing the lien, lienors must first file an arbitration proceeding. Known as a “Notice of Unpaid Balance” or “NUB” proceeding, the contractor must serve a demand to arbitrate on the homeowner within 60 days of the last labor or materials on the property. If the arbitration proceeding permits the filing of the lien, then the lien can be filed. But all of this must be accomplished within 120 days.
Moreover, after a lien is filed, the law requires that the contractor file a lawsuit to enforce that lien (that is, to foreclose on your property) within one year. You can actually shorten this period to 30 days by serving the contractor with a “demand to commence action.”
In other words, contractors on residential projects must act fairly quickly to secure their lien rights. Fortunately for homeowners like yourself, many contractors will get tripped up by these deadlines. Courts construe them strictly, and if the lien is filed or served too late, it will be stricken.
What if you believe the lien filed by your contractor truly has no basis in fact, and is merely an attempt to force you to pay money you do not owe? New Jersey is more serious than many states about preventing (and punishing) contractors from filing inflated or fraudulent lien claims.
Under N.J.S.A. § 2A:44A-9, the lien amount must "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, a lienor cannot file a lien for more money than the total amount of the unpaid contract. (A lienor cannot include, for example, delay costs, attorney’s fees, or interest on what's allegedly owed.)
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, a lienor who files a fraudulent or “willfully overstated” lien (for instance, claiming more money than you deserve under the contract) could face serious penalties. These statutes might be helpful to you as you negotiate with your contractor to remove the lien and settle the dispute.
Liens are unfortunately a possible result of New Jersey construction projects. Homeowners should not be overly surprised if they face a lien filed on their property (or at least the threat of such a filing) during or after their project.
Fortunately, few contractors in the Garden State wish to actually initiate litigation against a homeowner in order to foreclose on a lien. Litigation is time-consuming and expensive. Most contractors would prefer to settle with you quickly for a reasonable sum. Keep this leverage in mind as you explore the legal options available to you under New Jersey law.
Finally, remember that liens and the laws surrounding them in New Jersey can be highly technical. Some parts of the statute were amended in 2011, while other parts are much older. Retaining an attorney with experience in construction or real estate law might be worth your expense, depending on the amount of money in dispute. For more on retaining a New Jersey lawyer, check out Nolo’s Guide to Finding an Excellent Attorney.