(From the Nassau Lawyer, February 2002)
RESPONDING TO THE FILING OF A MECHANIC'S LIEN
By: Joseph P. Asselta, Esq.*

Your client calls you frantic. A mechanic's lien has just been filed against his project and it is interfering with his payments (if the client is the general contractor) or is disrupting the financing for the project (if the client is the owner). He wants the lien removed yesterday. You tell him that the easiest and quickest way to remove the lien is to pay the claim in exchange for a lien release, but (of course) he tells you that he disputes the claim and has no intention of paying it. What are his options?

First, if your client is the owner of the project, his contract with the general contractor will usually require the general contractor to remove any liens that are filed. Thus, the owner should make a written demand on the general contractor to immediately remove the lien. If the lienor was hired by a subcontractor, the general contractor should make a similar demand on the subcontractor.

If your client is the party responsible for removing the lien (by contract or by default), the next thing you need to know is whether the project at issue is a private or a public improvement¹. As discussed below, there are some differences in the remedies available.

Most clients will tell their lawyers that since they do not owe the lienor the amount sought in the lien, the lawyers should be able to immediately "get rid of" the lien. Unfortunately, this is usually not an option. The Lien Law only provides for the summary discharge of liens in very limited instances². Only where it appears from the face of the lien that the lien is defective may an application to summarily discharge the lien be granted by a court. Defects on the face of a lien include, for instance, a lien for items that are not considered lienable labor or materials (i.e., profit), a lien which does not name the proper owner of the property or a lien which is not timely filed. A dispute over the amount due the lienor, however, is not a defect obvious from the face of the lien and will not serve as a valid ground for summary discharge.

A common response to the filing of a mechanic's lien is to "bond off" the lien³. This refers to the filing of a surety bond as security in place of the property or contract funds against which the lien initially attaches. After a proper bond is filed, the lien is considered "discharged"; it will no longer act as a cloud on the title to the property nor will it continue to hold up further project payments. However, the lien is still enforceable against the contractor and the bond, and it may be foreclosed on by the lienor.

The "bonding off" of a mechanic's lien is usually a two-step process. The first step is to have a court⁴ set the amount of the bond that will be needed to discharge the lien. The Supreme Court in Nassau County uses the formula of 109% of the lien amount plus $250.00. This routine step may be avoided if the lienor's attorney consents to the amount of the lien bond. Most attorneys are willing to extend this professional courtesy and stipulate to a lien bond in an amount equal to 110% of the lien amount.

The second step is to submit the original bond in the amount ordered by the court (or stipulated to by the lienor's attorney) to the court for an order approving the bond and directing that the lien be discharged from the property or project.

On private projects, in lieu of furnishing a bond, an owner or contractor may also discharge a lien by depositing with the county clerk where the lien is filed, a sum of money equal to the lien amount plus interest to the time of deposit⁵.

On public projects, upon the filing of a mechanic's lien, the public owner is entitled to withhold from payments due the contractor one and one-half times the amount of the lien⁶. A contractor may apply to the court for an order reducing the amount being withheld from the contractor to the amount of the lien plus one year's interest and costs and directing the owner to pay over the balance to the contractor⁷. As sometimes an owner will withhold all payments due the contractor upon the filing of a lien, the foregoing procedure may be a useful one.

A mechanic's lien will automatically lapse if it is not extended or foreclosed on within one year of its filing. A one-year extension is easy to obtain and does not require court approval. Thus, waiting for one year in hopes that the lienor forgets to foreclose or extend the lien is rarely an option. However, the author has seen more than one instance where a lienor commences a foreclosure action within the statutory period but fails to file a notice of pendency, as required, within that same period. In such a case, the lien is deemed discharged.

Those clients who strongly believe that they do not owe any money to the lienor, or that they owe less than the amount claimed in the lien, may have a claim against the lienor for the willful exaggeration of the mechanic's lien. Such a claim, if proven, results in the lien being declared void and the lienor being held liable for damages to the owner or the contractor. The damages recoverable include the amount of any lien bond premium, reasonable attorneys' fees and an amount equal to the difference by which the lien amount exceeds the amount actually due the lienor.

While many clients and attorneys are generally familiar with the concept of "willful exaggeration", many are unaware that such a defense can only be raised when (and if) the lienor has commenced an action to foreclose on his lien⁸. As discussed, a lienor can wait up to one year (and longer if he extends his lien) to foreclose on the lien, if he chooses to foreclose at all. Faced with this situation, the owner or contractor has the right to serve a notice on the lienor demanding that he foreclose on his lien within thirty days⁹. If the lienor fails to timely foreclose, the owner or contractor may seek an order vacating and canceling the lien. If, on the other hand, the lienor does commence the foreclosure action, the owner or contractor may then counterclaim for willful exaggeration and for the statutory damages.

Finally, it should be noted that upon making a written demand, an owner or contractor is entitled to receive from the lienor a statement itemizing the labor and/or materials, and the value thereof, which make up the amount of his lien, as well as the terms of the contract under which such items were furnished¹⁰. If the lienor fails to provide a proper itemized statement within 5 days, the owner or contractor may apply for a court order compelling the statement. If the lienor still fails to furnish the itemized statement, an application may be made for an order canceling the lien.

In conclusion, the filing of a mechanic's lien need not necessarily be cause for alarm for a client, or his attorney. While a lien has the potential to cause severe hardships on a project, its effect can usually be minimized through the use of some of the tools provided for in the Lien Law.

* Joseph P. Asselta is a partner in the law firm of Agovino & Asselta, LLP, located in Mineola, NY. He is also the Chair of the Nassau County Bar Association's Construction Law Committee.

1.There are some projects that are not lienable at all, i.e. federal and Port Authority projects.

2.Lien Law §19(6) (private liens); Lien Law §21(7) (public liens).

3.Lien Law §19(4) (private liens); Lien Law §21(5) (public liens).

4. If the lien is a private improvement lien, the court is the Supreme Court of the county in which the property is located. Lien Law §19(4). If the lien is a public improvement lien, the court is the Supreme Court of any county. Lien Law §21(5).

5.Lien Law §20.

6.Lien Law §21(6-a).

7.Lien Law §21(6).

8.Lien Law §39.

9.Lien Law §21-a (public liens); Lien Law §59 (private liens).

10.Lien Law §38.

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