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In this blog, presented by SunRay Construction Solutions and Joshua Quinter, Principal, Offit Kurman, Attorneys at Law, you can learn about the various processes that should be taken into consideration after you file a construction lien in New Jersey. This will help you in ensuring that you do get paid successfully after filing your lien.
Construction Lien
Here are a few baseline things. Let’s begin with what a construction lien is. A construction lien is only a pre-judgment attachment. This means that it gives you the attachment to the real estate that you may otherwise not be able to get unless you file a lawsuit and get a judgment, etc. One key point to note is that in New Jersey, there are two types of liens – construction lien and municipal mechanics lien. Once your lien is filed, there are three scenarios:
- The first scenario is that you let your lien sit. Although the statute provides a certain amount of time before you need to file a lawsuit to enforce your lien, in some cases, letting your lien ‘sit’ can be valuable for you. If the financial impact is not much, then it is recommended that you let your lien sit.
- Next, the scenario is filing a motion to enforce the lien which filing a complaint in the court.
- Finally, the third scenario is bringing a breach of contract action which is separate from your lien action.
In New Jersey, there is a key concept called the Entire Controversy Doctrine. What this doctrine stands for is that if you are bringing a lawsuit to court, you must bring all your claims in one suit. This is unlike other states, such as Pennsylvania, where you do not bring your mechanics lien claim in the same case as your breach of contract action.
However, in New Jersey, all the claims, parties, everyone related to a specific project in dispute must be brought in one action. And if you fail to do so and you do not achieve a remedy, then you cannot go back and start over again.
Primer on Process
Here is a little bit of primer on process.
- As mentioned earlier, there are two kinds of liens in New Jersey:
- Construction liens attach to the real estate; and
- Municipal mechanics liens attach to the money held by the owner.
- Now, if you file a municipal mechanics lien and the pot of money is empty, then your lien does not get attached to anything.
- So, why do we file a construction lien? Well, when you file a construction lien, it creates practical problems which result in discussions short of litigation. The lien could make it difficult for the owner to sell the property, it may result in violating mortgages, or it may create an impact and look bad to the investors.
- Even municipal mechanics liens create problems by typing up the pot of money which is budgeted for paying the contractors.
- To enforce the lien, you need to file a complaint whether it is a construction lien or a municipal mechanics lien. Most people are under the impression that if they file a lien and it gets talked about then leverage is created and dollars show up. However, that is not the case. You have to initiate a lawsuit to get things moving.
- Also, the initiation of the lawsuit will also include a breach of contract claim and all the accompanying elements of a lawsuit, such as you will have to file your pleadings, written discovery, document reviews, depositions, experts, etc.
It is very important to remember that although liens are powerful tools, you will have to spend time and money to get through the end of the process successfully.
Proof Differences
So, what are the differences in your proofs to prove a lien claim?
- Generally, to prove a lien, you only must show that the work was done and incorporated in the project. That is the nature of liens and the theory behind filing a construction lien. But, if there is a contract claim, then you need to show the existence of the contract, how the contract was breached (specific terms that were breached), the root cause for the breach, and the final damages.
- When you go to enforce your lien, one of the common issues in the majority of cases is the argument of defective or untimely workmanship. What you need to remember is that lien cases allow the arguments to be treated as an affirmative defense whereas in contract cases, it is treated as a counterclaim. So, in a counterclaim scenario, not only will the opposite party not have to pay you, rather you may end up paying them instead.
- The proofs remain the same even if the liens are “bonded”. You will still need to prove that you provided the work and that it was incorporated in the project. The remedy differs slightly. If the lien is bonded, then the remedy would be you getting the cash from whoever secured the bond. But if the lien is not bonded, then the lien is still attached to the real estate, and it follows the process of a sheriff's sale.
- The process of a sheriff's sale can be troublesome depending upon the sale value of the property and your position in the priority list. If you are a couple of places down, then there are chances that all the money is distributed before your turn comes up, and there is nothing you can do in such situations.
- So, make sure that you check out how many dollars and cents are involved and what’s your position in the priority list.
Attorneys’ Fees
Generally speaking, when dealing with liens, you cannot recover your attorneys’ fees. This is a general rule across all states. However,
- You can get your attorneys’ fees if it is provided for in the contract or by statute.
- In New Jersey, there is no statutory claim to attorney’s fees in the lien laws and the prompt pay statutes are also not very strong. It does not offer a lot of help in contract actions.
- So, the key point to remember and follow here is to make sure that your contract provides for the recovery of attorneys’ fees and costs. You will need to word it carefully, so it is recommended to get in touch with an attorney who can use the appropriate language.
- Also, do not forget that you cannot lien for attorneys’ fees.
Practical Considerations
Finally, here are some practical considerations for you to remember and follow:
- Cost – Take a good look at the money that is owed to you and which remedy will have the biggest impact. Although liens are considered as one of the best tools, you cannot recover your attorneys’ fees or if your lien is not worth much or if you are not high in the order of priority, then it may not be the most feasible option for you.
- Proofs – You need to consider how complicated your proofs are and whether there is any scope for tricky counterarguments, such as defective work, untimely workmanship, etc. In some situations, you may prefer to just leave the contract action as it may complicate things for you and just go ahead with the lien action as the proofs are easier, or in some cases you may decide to go ahead with both the actions.
- Relationships – The final point to consider is relationships. This often gets pushed back, but dealing with liens often creates a negative impact on your existing relationship with the owner, contractor, subcontractor, etc. For example, if you are working with an owner with whom you also have another project six months down the line and that job is worth three times of what you are getting paid on the current job, then deciding not file a lien may be a good option to preserve that relationship and not lose out on future work.
Read More: A Contractors, Subcontractor’s & Supplier's Step-By-Step Guide to Getting Paid
All in all, you need to be mindful about who you choose to fight with, what will impact your relationship with that person, what impact it will have on your future work, your standing in the industry, etc.
So, these are some of the key areas that you must focus on if you are planning to file a lien and go till the end of the process. Remember that a lien action is a time and money-consuming process, so, make sure that you consider all the ramifications and take a decision accordingly.
