Not all mechanic's liens that contractors file against a property in order to secure payment are meritorious. Sometimes, there is a genuine dispute between the contractor, subcontractor, and/or owner about the amount due and owing. But in other cases, contractors, subcontractors, or suppliers may try to exaggerate the amount of the lien that they file. Perhaps the lien's amount is purposely exaggerated, or even filed with no legal basis at all, just to pressure the homeowner or take revenge in a dispute. As a homeowner, what should you do if you believe a lien on your property is frivolous or exaggerated?
Mechanic's liens are a legal tool for contractors, subcontractors, and suppliers to obtain payment for work that they performed on real property. Liens are relatively simple documents, typically filed with a local clerk and recorded on the property docket. They essentially indicate the amount of money still owed to the contractor, subcontractor, or supplier for work, labor, or services that they performed to improve a piece of property.
Lien laws are highly specific, and regulations vary not just from state to state, but even from county to county, given the highly localized nature of property records in the United States. They can be filed on property that is either commercial or residential, and either public or private.
For example, imagine that you hired a general contractor to renovate your basement for $10,000. The contractor then hired a subcontractor for $2,000 to do the tiling of the bathroom. However, the tiling contractor was never paid. The tiling contractor could file a lien, and ultimately sue you, as the owner, to pay his $2,000, since he performed work to improve the value of your property. This lawsuit is known as "lien foreclosure" in most jurisdictions.
Obviously, liens can be a nuisance for owners. They serve as a cloud on title, as they are filed on the public property docket. In other words, the prospective buyer of a house would be unlikely to purchase it if there were liens for unpaid construction work still listed. The purchaser would become liable for these liens. For the same reasons, banks are hesitant to lend against real property that is encumbered with liens. Consequently, liens are frustrating for homeowners who wish to sell or refinance their homes.
If you are the owner of a piece of real estate, you will never be pleased if a contractor, subcontractor, or supplier files a lien on your property.
In most cases, homeowners will feel that the subcontractor should simply work out the dispute with the general contractor, or that the general contractor is not entitled to any more money from you. You might call these "good faith disputes." Here, you can have a sensible negotiation. Perhaps you agree on some payment plan, or some compromised amount of money. Or perhaps the contractor agrees to an additional scope of work in exchange for further payment.
But in some situations, liens can make no sense at all. For example, imagine that you have a lump-sum contract for a kitchen renovation for $7,000. One day, the contractor abandons the job after spending the full budget, and then puts a $100,000 lien on your home. How can the contractor possibly lien for an amount greater than the entire job, when this was a lump-sum contract? And how could anyone possibly have spent so much renovating a small kitchen? Such a lien is likely exaggerated.
Another example: Imagine that a contractor files a lien that includes attorneys fees in its numerical total. In most cases, attorneys fees are not "lienable," because they do not represent the value of the work, labor, or materials contributed to the real property. Similarly, a contractor normally cannot legally lien for lost opportunities; for example, if another project down the street could have provided a higher profit, a contractor who took your project instead cannot try to reclaim that difference through a lien.
What should you do in these situations? Some states actually have legislation that specifically prohibits willfully exaggerated liens. New Jersey, for example, has a statute that creates liability for those who file such liens. They can face damages and penalties, and their lien can be stricken. So, if you believe that an exaggerated lien has been filed on your property, you should contact an attorney to offer you counsel and perhaps write a strong letter to the lienor demanding that the lien be removed.
If a letter is unsuccessful, there is also a remedy through the courts. A lawsuit, often called a motion to "vacate" a mechanic's lien, asks a court strike a lien that is false. Any lawsuit can be time-consuming, unpredictable, and sometimes expensive, but it is essentially "calling the bluff" of the lienor.
Finally, remember that sometimes it makes more sense to settle with the contractor than to fight the lien through a court action. Particularly in home improvement situations, liens are sometimes small. It might be more economical to negotiate with the contractor in exchange for a voluntary removal of the lien. In most cases, contractors will be eager to collect some money and move onto other projects.