Errors Made in Filing Residential Construction Liens
Although some contractors may be unaware, the process for filing a residential construction lien is markedly different than the process to file a construction lien with regard to a commercial property. As to a commercial property, the requirements are relatively simple. First, there must be a written contract to provide materials and services. Next, the services must have been provided pursuant to the contract. Further, there must be non-payment for the materials or services by the owner of the commercial property. Finally, the lien claim must be filed within 90 days of the last time that materials or services were provided. Most contractors wrongfully assume that this same process applies to residential construction projects.
The first thing that a contactor must do prior to filing a residential construction lien is file a notice of unpaid balance and right to file a lien with the county clerk’s office within 60 days of the last day of providing materials or services. This step is not required with regard to a commercial construction lien. At the same time, this party must also file a Demand for Arbitration with the American Arbitration Association and must serve the owner within 10 days. Thereafter, the arbitrator will conduct a hearing, which is typically on the papers as to whether or not the construction lien should stand. This should be completed within 30 days. If the construction lien is deemed proper, then in that event, the contractor must then file the residential construction lien within 10 days of the arbitrator’s decision. Should the contractor fail to file the lien within 10 days it is deemed invalid.
The most common mistake that contractors make with regard to residential construction liens is that they simply treat it as a commercial lien and never file a Notice of Unpaid Balance and Right to File a Lien. Typically, if the contractor forgets to do that they also forget to serve a Demand for Arbitration. Under these circumstances, the lien claim against the residence would be invalid. At times, a contractor may file a Notice of Unpaid Balance and Right to File a Lien as well as the Demand for Arbitration, however, they miss the other deadlines. Also, some contractors may even forget to record the lien after the arbitrator finds it valid. Once again, if this is not done in accordance with the statute, the lien claim is deemed invalid.
Under both the Commercial Lien Law, as well as the Lien Law governing residential properties, if a lien claim is not filed in accordance with the act it should be removed. Otherwise, the owner may be entitled to counsel fees, costs, and sanctions in obtaining the removal of the lien claim. I typically advise owners that if a lien claim is invalid they serve a Demand for Removal followed by a period of time to allow the contractor to remove the lien. If this is not successful, the homeowner can proceed with an action to remove the lien claim.