July 24, 2013
Contractors who believe they are owed money on a job can file mechanics lien claims. How can property owners protect their rights against lie
New York, NY (PRWEB) July 24, 2013
Richard E. Strauss, Co-Chair of Moses & Singer LLP’s Real Estate Department, recently addressed the tricky issue of mechanics’ liens in a news article featured in The Leader, a prominent publication sponsored by CoreNet Global, an association of commercial and real estate professionals.
“This is a problem which cannot be ignored,” Strauss warned. "The firm is currently in the midst of settling a multi-million dollar dispute involving a contractor bankruptcy. Perhaps this dispute and others like it could be alleviated if owners and tenants knew how to react when a claim appears at their door."
“A contractor can file a mechanics’ lien if they believe they are owed money for labor performed or materials furnished to improve real property,” explains Strauss. The lien secures its claim and encumbers the property before any determination of validity. Furthermore owners are not the only parties affected by the claim. “A tenant can also face a lease default just because the lien was filed.”
The lien can have a major impact on an owner’s ability to borrow against, refinance or sell the property. If the contractor wins in court but does not get paid, the lien may result in foreclosure, with the payment deducted from proceeds of the judicial sale.
The use of subcontractors further complicates the solution to this issue. Subcontractors may assert claims against the property if the lead contractor does not pay for their work. Any dispute between contractor and subcontractor can cause the sub to look for a “deep pocket”. Or, the claim could emerge if the contractor goes bankrupt. In either case, the filing creates leverage against the real estate owner.
“An airtight contract upfront combined with financial due diligence provides the best way to avoid potential problems and claims,” suggests Strauss. “However, if you receive a mechanics’ lien, inform your attorney immediately to determine what action can be taken to protect your position.” Usually owners who live up to their side of the contract can successfully defend against the claim.
A lien may be filed only up to the “lien fund,” which is the unpaid portion of the construction contract for the work actually performed. If an owner pays the primary contractor for all sums due under its contract, there is no lien fund available to the subcontractor. As a result the unpaid sub’s lien is invalid and likely to be discharged in court.
“Be mindful of individual state statutes,” Strauss adds. Each state may have variations which prompt a different set of actions.
For more details about this subject as well as related articles about real estate law, please see Richard Strauss’ biography.
Richard. E. Strauss is Co-Chair of the Real Estate Group at the law firm of Moses & Singer LLP in New York City. Since 1919 Moses & Singer has represented prominent businesses in their commercial real estate needs throughout the country. Richard has extensive experience in real estate litigation as well as real estate development, financing and work-outs.