A contractor has filed a lien against my home, what can I do?
Homeowner Rights Under the New Jersey Construction Lien Law.
You hired a contractor to make home improvements - perhaps you were re-doing a kitchen or bathroom - or you hired someone to make substantial repairs after Hurricane Sandy - or you had to entirely replace your home with a stick-built or modular home. Whatever your circumstance, at some point, you had a disagreement with the contractor about the pace or quality of the work. Despite the problems, the contractor kept asking for more money. You told the contractor either that you would not make a payment or that he was fired. Then, the contractor filed a construction lien against your home. What can you do?
II. Background: Understanding the New Jersey Construction Lien Law
Occasionally, you will hear of a “mechanic’s lien”. In New Jersey, we do not have “mechanic’s liens”, we have “construction liens”. The mechanic’s lien law was replaced with the construction lien law more than 20 years ago. As to residential construction liens, the New Jersey Construction Lien Law establishes a 3 step process that must be followed in order to have a valid construction lien.
(1) The NUB The contractor must file a Notice of Unpaid Balance and Right to File Lien within 60 days of when the contractor last performed work or delivered materials at the subject property. This document is known by the acronym “NUB”. The NUB must also be served on the homeowner.
(2) Arbitration After filing and serving the NUB, the contractor must apply for arbitration with the American Arbitration Association and notify the homeowner of the arbitration. The arbitration will be completed in 30 days or less. The arbitrator will determine if the contractor is entitled to file a construction lien and if a lien is permitted, the arbitrator will determine the amount of the lien. Note that the arbitration does not decide the underlying dispute - it is not a decision that the contractor is entitled to any money. Rather, it simply decides if the contractor is permitted to file a lien. In order to get paid, the contractor must sue the homeowner in the Superior Court after the lien is filed and within one year of the date that the contractor was last on site.
(3) The Lien Only after filing a NUB and completing arbitration, may the contractor file a residential construction lien. The lien must be filed within 120 days of when the contractor last performed work or delivered materials at the subject property. The construction lien must be served on the homeowner.
III. How To Attack A Construction Lien Claim
A. Did The Contractor First File A NUB And Complete Arbitration?
A construction lien is illegal and may be discharged if the contractor did not follow the required procedure. If the contractor did not file a NUB or complete arbitration the lien is illegal and unenforceable. County recording officers do not require proof that a contractor has followed proper procedure before filing a lien. Thus, your first area of inquiry should be to investigate whether a NUB was filed and whether arbitration was completed. You can often determine this by simply looking at the construction lien document itself. There are areas on the form that request the contractor to fill in the date the NUB was filed and the book and page number where it is recorded. If those lines are left blank, it is a good indication that a NUB was never filed. Likewise, there is an area on the construction lien form that requests that the contractor fill in the date of the arbitration and the amount of the arbitration award. Again, if these lines are left blank, it is a good bet that the contractor did not complete the required arbitration prior to filing the lien. Several New Jersey counties have their land records online. You can search these websites to see if there is a NUB filed against your property. If your county’s records are not online, you could go the clerk’s office and perform a search or ask that a title company do a search for you for a nominal cost. See: [http://njrecording.com]
B. Is The Construction Lien Time Barred?
A construction lien is valid for one year from the date when the contractor last performed work or delivered materials at the subject property (not from the date of the filing of the lien). Given that it can take up to 120 days to file a lien, this means that a filed lien may only be effective for approximately 8 months before it expires and is no longer valid. If the contractor has not filed a lawsuit against you in the Superior Court, the second step should be to investigate the date that the contractor claims he last performed work or delivered materials at the subject property. This date is found right on the construction lien itself. If more than one year has passed, then the lien is no longer valid. Further, you do not have to accept the contractor’s claim of when he was last on the job site. If you have evidence that the contractor had not been on the job for more than 120 days from the filing of the construction lien claim, you may assert that the lien is void because it was filed out of time. If the contractor has not filed a lawsuit to foreclose on the lien, the Construction Lien Law imposes an affirmative duty upon contractors to file a discharge of lien after the on year period has elapsed.
C. Was There a Written Contract?
A contractor can only assert a construction lien for money owed pursuant to a written contract. If there was no written contract, then the contractor may not file a construction lien claim. Pursuant to the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., verbal contracts for home improvements in excess of $500 are illegal in New Jersey.
The three challenges set forth above are not an exhaustive list of the possible challenges to a construction lien claim. There are other challengers to a construction lien. However, the three set forth above represent the most common challenges to a residential construction lien.
IV. How Can I Have a Construction Lien Removed?
A construction lien can interfere with your ability to sell the property, to obtain a mortgage or to get certain grants associated with storm repair (e.g. RREM). Thus, you do not want a construction lien - even an expired one - to remain on your property. There are four ways to have a construction lien removed: (A) post a bond, (B) make a deposit into court, © file an Order to Show Cause, and (D) sue the contractor in Superior Court.
A. Posting a Bond
Posting a bond requires that you go to a licensed bonding company to pay 110 per cent of the lien plus the bonding company fees. In the residential context, this method is rarely used due to the costs involved. However, in certain circumstances it makes sense - for example, when you need to get a mortgage, a government grant (e.g., RREM), or sell the home. In those circumstances, posting a bond may be the fastest way to clear the title to your home. Once the bond is posted, the bonding company will receive a document from the Clerk of the Superior Court in Trenton stating that the lien may be discharged of record. To get your money back from the bonding company, you will then have to go to court to get an Order discharging the lien (the lien will be previously discharged by the bond, the order permits the bond to be released so that you can get your money back). The turn around time from the filing of the bond to the discharge of the lien is typically 2-3 weeks.
B. Depositing Funds into Court
You can avoid bonding company fees by depositing 110 per cent of the lien amount with the Clerk of the Superior Court in Trenton. Not everyone has the ability to do this. For example, if the lien is for $50,000. You would have to write a check for $55,000 to the Clerk of the Superior Court - and pay, by a second check, a $25 transaction fee (as of 2015). Depositing funds into court may the fastest way to release a lien - but it is so rarely used that it has been my experience that the Clerk’s office is unfamiliar with the process. In every other circumstance, to deposit funds into court requires a pending lawsuit and corresponding docket number. The Construction Lien Law permits you to deposit funds into court without first filing a lawsuit against the contractor. Like posting a bond, depositing funds into court will result in a document issued by the Court Clerk, which permits the lien to be discharged. The funds will remain on deposit with the Court Clerk until you get a court order discharging the lien or the contractor gets a judgment against you. The turn around time from the depositing of funds into court to the discharge of the lien is typically 2-3 weeks.
C. Filing an Order to Show Cause
If the facts show that either the line was filed with first either filing a NUB or completing arbitration, or if more than 12 months have elapsed from when the contractor claims he was last on the property, then you may apply in the Chancery Court to discharge the lien in a summary proceeding known as an “Order to Show Cause”. In an Order to Show Cause, you file both a motion and a Complaint seeking discharge of the lien. On the return date - typically 4-6 weeks - the Court has the ability to enter an order discharging the construction lien and awarding you attorney fees and costs. If the lien is invalid and if the contractor counter - sues for breach of contract, the Court will discharge the lien and transfer the contract action to the Law Division of the Superior Court to proceed as any other lawsuit would.
D. File a Lawsuit
If you are not time pressed to remove the construction lien, and if you have other claims against the contractor, you may simply file a lawsuit against the contractor. Depending on the amount in controversy and the complexity of the facts and law, it typically take 1 - 3 years for the dispute to be resolved. As indicated above, if the lien was wrongly filed, you are entitled to attorney fees and court costs to have it removed.
So, a contractor has filed a construction lien against your home. You have options. You have rights. If there was no NUB or no arbitration, the lien is void. It is illegal. If more than one year has elapsed. The lien has expired and is no longer valid. It is illegal. If the lien is defective, the law provides that the contractor must pay your reasonable attorney fees and costs to have it removed. If you are time pressed, you can either bond over the lien or deposit funds into court to discharge the lien. If you have a few months, you can file an Order to Show Cause to discharge the lien in the Chancery Division of the Superior Court. If time is not an issue, you can sue the contractor in the Law Division of the Superior Court.
Michael T. Millar, Esq.
98 East Water Street • Toms River, N.J. 08753
T: 732-914-9114 • F: 973-457-0269 • E: email@example.com