An Unfounded Lien: What’s an Owner to Do? And Can it Recover its Attorneys’ Fees?
A subcontractor has liened the property although the owner has paid in full for its work. The general contractor has disappeared. What should an owner do next? And will its attorneys’ fees be recoverable?
In New York, a mechanic’s lien, although filed in the county clerk’s office on the project owner’s land record, secures only to funds:
owed to the party directly above the lienor: each tier of subcontractors, materialmen, and laborers has its own “lien fund,” and pursuit of that is its only recourse; and
that have been approved for payment: if the owner did not by contract or change order consent to the payment sought, that dollar amount does not get included in the “lien fund.”
Thus, if at the time the subcontractor filed the notice of mechanic’s lien, the owner did not owe the general contractor money for work performed, there is no fund to which the subcontractor’s lien can attach, and the lien is void. In such a case, the owner has several options under the Lien Law. It should determine whether the lien is “facially valid,” i.e., without knowing any facts the lien, on its face, complies with the statutory requirements. If so, the owner may serve the lienor with a “Demand for Verified Statement,” which seeks detailed information about the items of labor and materials furnished and the terms of the subcontract under which they were furnished. If the lienor fails to provide a responsive statement within five days, the statute sets up a path by which the owner can seek cancellation of the lien in a summary proceeding. If the lienor does timely respond, then with the information provided by the subcontractor, an owner can verify the lienor’s claim.
If, upon the owner’s proof of payment, the subcontractor still refuses to release the lien, the owner need not commence its own lawsuit, or wait for the lien’s expiration or a foreclosure action. Instead, the owner may serve notice on the lienor of a deadline, no less than thirty days, by which the lienor must foreclose the lien or show cause why it should not be canceled. If the subcontractor does not commence the foreclosure action, then by operation of law the lien will have lapsed, and can be summarily discharged.
If the subcontractor does nevertheless commence the foreclosure action, now the owner can move to vacate the lien. Although presumably the owner will show its proof and prevail, there is no statutory mechanism for reimbursement of the owner’s attorneys’ fees.
It is often frustrating for an owner that, except for under very limited circumstances, the Lien Law does not authorize it to recover attorneys’ fees in litigation. One of the limited circumstances qualifying for reimbursement of attorneys’ fees is where a party demonstrates that a lien was “willfully exaggerated” (Lien Law § 39-a). The standard for whether a lien is willfully exaggerated is where the inflated amount cannot be explained by “a mere inaccuracy or honest mistake.”
Instinctively, to an owner, a lien with no basis whatsoever will certainly seem willfully exaggerated to warrant attorneys’ fees! That was not the conclusion in Matter of Endo v. Liebold Contracting, Inc., 168 A.D.3d 1048 (2nd Dep’t 2019). There, “after failing to persuade the [lienors] to remove the mechanic’s lien voluntarily upon proof of payment in full,” the owner commenced a summary proceeding, arguing that the lien was facially invalid (although in doing so its submission went above and beyond “facial validity”). The petitioner also sought an award of attorneys’ fees, pursuant to Lien Law § 39-a.
Case precedent on willfully exaggerated liens makes clear that the issue cannot be decided summarily, but only on summary judgment or after a full trial. That is apparently why the Matter of Endo petitioner’s attempt to short-cut the process and collect attorneys’ fees was unsuccessful. Although initially the motion court had granted full relief to the petitioner (voiding the lien and awarding attorneys’ fees), on the lienor’s reargument motion, it vacated so much of the order as awarded attorneys’ fees to the petitioner, and denied that relief. The Appellate Division affirmed, citing Lien Law § 39-a, and the New York court rule authorizing monetary sanctions for frivolous court submissions (22 N.Y.C.R.R. § 130-1.1), stating only that “[a]n award of attorneys’ fees was not warranted under the circumstances herein.”
While the Matter of Endo petitioner was fortunate to obtain a summary discharge of the mechanic’s lien, it did so at its own expense. To trigger the fee-shifting statute of Lien Law § 39-a, an owner will have to endure a more time-consuming litigation through summary judgment or, worse, trial. Matter of Endo serves as a healthy reminder for owners to pick worthwhile battles in discharging meritless mechanic’s liens.