What You Need to Know About Mechanic's Liens Contractors, Subcontractors, Architects & Suppliers

 Mechanic’s liens are one of the topics I am most often consulted about. This is  especially true at the present time with the state of the economy. It is not  that the economy brings new kinds of issues, there are just a lot more of the  same kinds of issues. Contractors, subcontractors, architects and suppliers are  all worried about not being paid and what will happen if co-op and condominium  clients or individual shareholders and unit owners cannot pay their loans and  in turn, pay them. Similarly, co-ops and condominiums are worried about  foreclosures on those mechanic’s liens and how these issues will affect the building.  

 The first task is to understand what they are. Mechanic’s liens are a creature of statute and the laws vary from state to state. They  are basically a notice that is placed on the title to the property, showing  that contractors, subcontractors, suppliers or architects claim they are owed  money. On commercial property in New York State, they generally must be filed  within 8 months of the last date of work. For residential property, they must  be filed within 4 months of the last day of work. What constitutes the last day of work can sometimes be open to debate. However,  it is important to remember that just filing the lien does not get the  contractor or the architect paid or mean that the shareholder or co-op building  is going to lose the property in a foreclosure sale. It is an involved process.  

 Bonding

 If the lien is for a dollar amount where the owner has the financial ability to  bond it or deposit the money with the court, it will take a great deal of the  pressure off of the owner. The lien then becomes a civil fee dispute and no  longer involves the real property itself. However, sometimes the lien is so  large that the owner may not be able to bond it. In those situations, there may  be no choice, but to deposit the money with either a surety or the court.  

 Liens which are filed as a result of shareholder improvements present  interesting issues because the co-op may or may not have “consented” to the work and it was probably not done for the “benefit” of the building. This might make the mechanic’s lien vulnerable to attack, especially if the shareholder files for bankruptcy.  The problem I usually see with liens involving condominiums, is that some  lawyers mistakenly place the lien on the entire building, instead of only on  the unit. The building should have knowledgeable legal counsel examining the  documents, because improperly filed liens can create problems for the building  and a good attorney may find a loophole.  

 Most well-drafted alteration agreements will require the shareholder to remove  the mechanic’s lien or risk having the co-op do it and charge the cost back to the  shareholder. Most lenders and title companies will want the mechanic’s lien to be removed or bonded before a closing can occur on any loans or  refinancing. For smaller liens an indemnity letter may suffice.  

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5 Comments

  • this is an extremely helpful explanation. I recieved a lien on my coop for $16,000 from the contractor doing the work. My coop is now giving me only 10 days to satisfy or bond. I am not sure how to proceed.
  • Can one file a lien on a commercial building for work done on a water loss dry out an repair n the the state if CA? Please reply to email
  • A developer of a large multi million dollar housing development has a mechanics lien against the project for $15,000 in plumbing supplies. Does this have any effect on any type of approvals the developer seeks to obtain from the local planning/zoning boards in NY.
  • Some of these questions are answered at http://www.nymechanicsliens.com
  • Thought-provoking piece . I loved the info , Does anyone know if my company could obtain a fillable a form document to use ?