NEW JERSEY MECHANIC’S LIEN LAW
With Changes Made in 2011
Section Contents—Pre-lien Notice(s)
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Name of Notice
Who Must Use This Notice
When
How to Serve
Verified or notarized?
Section Contents—Mechanic’s Lien
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Who is Entitled to a Lien?
When to File/Record
Where to File/Record
How to Serve
Amount of Lien
Property Subject to the Lien
Furnishing Information
Verified or Notarized
Priorities
Lien Release Bond
Miscellaneous Issues
Section Contents—Lawsuit to Foreclose Lien
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Introduction
When
Where to File
Arbitration
Need a Lawyer?
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General Notes
Be Careful:
The courts consider a mechanic=s lien to be a
privilege and not a right. You receive its benefits only if you
strictly adhere to the state law requirements. Bottom line:
miss a deadline by one day and you have lost it. Unlike
other areas of the law where you can argue equities, find
technical exceptions, and lawful excuses, there is no
forgiveness here. In this case, knowledge is not only power,
it=s a necessity.
New Legislation:
New Jersey replaced it’s centuries old mechanic’s lien
statutory system with new legislation in 1994. This was
followed by changes in 2010. Even further changes were
made when the governor signed into law revisions on
January 5, 2011. Like all mechanic’s lien statutes, the new
rules must be strictly complied with or you may lose your lien
rights. In general, the new law was meant to simplify
matters and in many cases it does so.
Written Contract
Contract
Requirement:
In most states a mechanic’s lien can be foreclosed upon
either a written or verbal contract. In those states it is
nevertheless recommended the contract be in writing. New
Jersey is different. It mandatorily requires that everyone,
whether generals, subs, or suppliers, have a written contract
in order to have the right to later file a mechanic’s lien. But
the New Jersey statutes go even further. They require that
all change orders and contract addenda be in writing. Be
very careful about this aspect of the law. If an extra is not in
writing, it cannot be part of your lien. Attempt to get your
change order signed before the extra work is done. If there
is a refusal to sign, at least send a written confirmation. (It is
uncertain at this stage of the law as to whether this will be
effective.)
It need not be a formal, comprehensive contract. In fact, the
statute talks only in terms of a writing which describes the
price and the improvement.
As of 2011, material suppliers will satisfy this requirement by
a delivery or order slip signed by a general contractor,
subcontractor, or authorized agent. Typically these are
signed by anyone on the job at the time and in most cases
such persons are the authorized agent. The statute goes so
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far as defining a signature also as a “mark or symbol”, which
is intended to authenticate it. Apparently signing “OK”,
“Received”, or someone’s initials, would probably be
sufficient (2A: 44A-2).
In this State you will be writing down dates for at least three documents:
a) Notice of Unpaid Balance and Right to File Lien; b) Contractor’s Lien Claim;
and c) lawsuit to foreclose the mechanic=s lien. Write down all the deadlines in
your calendar. Use a highlighter or red pen. If you have a staff, use a Afail safe@
system by doubling up and putting it in their calendar also. This reminds you
twice. The first calendar entry should be two weeks before the due date as a
preliminary reminder.
On the second calendar entry, do a white lie to yourself. Put the due date
as one week before it is actually due as insurance in case you get busy or need
legal advice.
Time is money. You will waste a lot of valuable time running around and
doing it at the last moment, as opposed to doing it early.
PRELIEN NOTICE
This state requires a prelien notice be sent out on residential projects
before the mechanic=s lien is filed/recorded. For simplicity, this notice will be
referred to as a APrelien Notice@. The basic information on this Notice is as
follows:
Name of Notice:
Notice of Unpaid Balance and Right to File Lien.
As of 1994, there is no longer a requirement to serve a
prelien notice except for residential construction. Residential
construction is defined as construction or improvement to a
one- or two-family dwelling, condominium, cooperative,
townhouse, subdivision, or other planned unit development.
Remember that this prelien notice is only the first step in
protecting your mechanic’s lien. You must also take the
second step of filing the construction lien claim.
Who Must Use
this Notice:
Unlike most states where only subcontractors and suppliers
are required to file the prelien notice, all lien claimants are
required to file the notice in this state. This means generals,
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subs, equipment/material suppliers, laborers, design
professionals, and any other persons claiming a lien.
When:
How to Serve:
See Time Deadlines table.
The prelien notice must be filed in the County Clerk’s office in
the county in which the project is located. On commercial or
industrial property, it is not necessary to serve anyone with the
prelien notice.
On residential projects, you must serve copies of the notice
after filing with the County Clerk. If you are a general
contractor, serve the owner by certified mail, return receipt
requested, at the last business or residence address. If you are
a subcontractor or supplier having a contract with the general,
you will serve the owner and general contractor. If you are a
sub-subcontractor or supplier with a contract with a
subcontractor, you will serve the subcontractor, the general
contractor, and the owner.
It is recommended that the notice be served within 10 calendar
days after filing with the County Clerk (as is done with
construction lien claims).
If more moneys are owed to you after serving your first prelien
notice, it is a good idea to file an Amendment to Notice of
Unpaid Balance and Right to File Lien. Service is done in the
same fashion as the original notice.
Verified or
Notarized?:
Added Benefit
of Prelien
Notice on
Commercial
Property:
A verified notice simply means you sign it and are representing
the contents are true and accurate. A notarized notice is signed
in front of a Notary Public or other official. The notice must be
both verified and notarized.
Although it is not required to serve such a notice on commercial or
industrial property, it is recommended you do so. It is especially
handy if the property is later sold or permanent financing is
recorded. If you file your prelien notice before this happens, the
new buyer or lender takes subject to your lien rights.
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Mandatory
Arbitration:
New Jersey is the only state which mandatorily requires any
disputes arising out of a prelien notice for residential projects
(does not apply to commercial) to be quickly resolved through
binding arbitration). After your serve your prelien notice, it is
required that you take the following additional steps:
A.
Unless the parties have agreed in writing to another
arbitrator, you must serve within 10 days of the Notice of
Unpaid Balance and Right to Lien, a Demand for Arbitration
with the American Arbitration Association. It will be an
expedited proceeding with one arbitrator.
B.
If the arbitrator believes that some of your work is defective
or there are valid set-offs or defenses, he/she may require
you to post a bond in the amount of your lien.
C.
The arbitrator will hold a hearing and make a decision as to
the probable validity of the lien. It is not binding either way,
but is simply a signal that you have a likelihood of
prevailing in court and the Notice was filed in good faith
D.
If the arbitrator determines you have a valid lien, within 10
days thereafter but no later than 120 days from the last
performance of work, file your actual construction lien
claim.
This is a very beneficial procedure but it goes very quick, so pay
attention to the time deadlines.
MECHANICS= LIENS
Name of Lien:
Who is Entitled
to a Lien:
Construction Lien Claim.
A mechanic=s lien is primarily for general contractors,
subcontractors, laborers, as well as material/equipment suppliers.
But it also covers licensed architects, engineers, and land
surveyors (who are not employees of the owner or general). It
additionally covers a number of claimants who have a direct
contract with the owner, including not only the general contractor,
but construction managers as well.
It also includes
subcontractors and sub-subcontractors. Sub-sub-subcontractors
do not appear to be entitled to a mechanic’s lien.
The lien also applies to material and equipment suppliers who
have a direct contract with the owner, general contractor, or a
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subcontractor.
If you have a direct contract with a subsubcontractor, unfortunately, you are out of luck.
The old rule was a lien is not allowed for an equipment or material
supplier who has a contract directly with another supplier
(“supplier to supplier” rule). As of 2011 this was changed: a
supplier to a supplier is allowed, but only within the first three tiers
of the contracting chain. So, a supplier can deal with another
supplier who has a direct contract with the general contractor, but
no further down the chain.
For clarity, New Jersey classifies the tiers not based on your
license, but who you have your contract with:
1st Tier: (Commonly a general contractor). Any contractor,
regardless of their license, who has a direct contract with the
owner. This could be a traditional general contractor or a licensed
subcontractor (roofer, painter, plumber, electrician, etc. who has a
direct contract with the owner). But for simplicity, in these
examples, we will make the assumption that person is a general
contractor.
2nd Tier: (Commonly a subcontractor or supplier to the general
contractor). A subcontractor or supplier who has a direct contract
with the general contractor.
3rd Tier: (Commonly a sub-subcontractor or supplier to a sub). A
subcontractor or supplier who has a direct contract with another
subcontractor.
Unfortunately, there can be no liens for a “sub-sub-sub” or a
supplier to a “sub-sub”.
By statute, the following persons or entities do not have lien rights:
(a) work pertaining to mining, removal of timber, gravel, soil, or
sod, unless it is an integral part of or required by some additional
work; (b) fuel for machinery or equipment; (c) material and
equipment that has not become permanently attached to the real
estate and can be easily removed without damage; (d) evaluative
work, such as feasibility studies, which do not result in actual
construction work; and (e) equipment or materials that are subject
to a UCC Security Agreement (for example, moveable fixtures,
counters, shelving, restaurant equipment, and the like).
When to File/
Record:
See Time Deadlines table. The time periods are not extended for
warranty or service calls for work provided after completion.
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Where to
File/Record:
Filed with the County Clerk of the county in which the project is
located.
How to File:
The clerk’s office is quite busy and cannot always “file of record” a
document on the spot. Instead they typically mark your copies as
received and in the days and weeks later, process it for filing
(formally record it on their computers and dockets). So, New
Jersey came up with a compromise. When going in person, you
will immediately get a stamped copy back. It will be formally
stamped as “filed of record” (2A: 44A-6). This lodging date satisfies
a requirement of it being “filed “ on time. If you send your lien in by
mail, the same process occurs, except you will get a stamped copy
back in your return envelope.
How to Serve:
Within 10 business (not calendar) days after lodging (stamped as
“filed of record”) with the County Clerk, service is made on the
owner by Certified Mail, Return Receipt Requested, at the last
business or residence address. You can serve a copy, but it must
have a copy of your signature and date signed.
Many attorneys mail the original to the clerk and at the same time
mail certified a copy to the owner or general. This practice is no
longer allowed because the mailed copy does not have a court
stamp. This means that employees are going in person to the
court or using messengers--on the way back to the office they
mail it certified mail with the stamped copy.
Remember, you must serve by certified mail and ordinary mail
simultaneously (2A: 44A-7).
There is a provision that allows you to do this late if it does not
cause the other party “material prejudice”, but do not take any
chances.
If you are a general, you serve the owner only. If you are a sub or
a material supplier with a contract with the general, serve the
owner and general. If you are subcontractor or supplier with a
contract with a subcontractor, serve the subcontractor, the general
and owner.
Amount of
Lien:
Primarily for unpaid labor, material, and equipment supplied.
The statutory form of mechanic’s lien does not include blanks
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for interest or finance charges, so it is uncertain whether you
can receive these amounts. The amount you are owed is
reduced by any mechanics’ liens filed by others under your
contract. In other words, either the owner or the general
contractor can deduct the amounts of mechanics’ liens owed
from the amounts due you.
As of 2011, the statute defines the lien amount as including
monies owed on the base contract, retainage, and
“amendments” (2A: 44A-2). It is uncertain whether the later
refers to change orders. But based on the rule that the contract
must be in writing, it may be the case that arbitrators and
judges will insist upon written and signed change orders--so
beware.
Property
Subject to
the Lien:
A mechanic=s lien applies only to private projects. The lien
applies to the property itself as well as offsite infrastructure
(example: utilities). No lien is allowed in public projects against
government property.
There is a continual debate in states as to whether a
mechanic’s lien goes against a subsequent purchaser. For
example, contractor does work for owner A who then sells to
B. Within the time limitations allowed, contractor files a lien
after B takes title. In many states, B would take subject to the
lien, but not in New Jersey (2A: 44A-3(g)). If the lien is
recorded after B takes title, the contractor loses. This assumes
B is a bona fide purchaser who is innocent of the facts leading
to the lien. Solution? Make sure you record your Notice of
Unpaid Balance and Right to Lien as soon as possible and
before close of escrow to B. This will allow B’s interest to be
encumbered.
Tenant
Improvements:
As of 2011 (2A: 44A-3), there is clarification on this issue as
well. A lien is allowed against the tenant’s interest as well as that of the owner,
only if:
1. The owners signs a written contract with the contractor which provides
the owner’s interest is subject to a possible lien (the amount is limited
to the money agreed under the contract, last partial payments made)—
something that almost never occurs, or
2. The owner pays the majority of the cost of construction, or
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3. The lease specifies the owner is liable for unpaid construction bills for
tenant work. In leases involving the construction of large improvements
such as warehouses, factories, shopping centers, etc., it is common for
the owner to finance the improvements in exchange for a long-term
triple net lease, and by virtue thereof the landlord has indirectly agreed
to pay for the bills. But there is typically separate contracts solely
between tenant and the contractor for additional work, and
NationalLawDocs has yet to see a lease where the landlord would be
responsible for those items.
Furnishing
Information:
Verified or
Notarized?:
Priorities:
Lien Release
Bond:
The general contractor may demand a verified list from
subcontractors of the names and addresses of all
subcontractors and suppliers on the job. The recipient then
has 10 days to furnish the list, verified under oath.
A verified notice simply means you sign it and are
representing the contents are true and accurate. A notarized
notice is signed in front of a Notary Public or other official. A
verified notice is all that is required in this state. The lien must
be both verified and notarized.
Many times an owner secures construction financing followed
by permanent financing. If you file your prelien notice before
the permanent financing is recorded, that lender will take
subject to your lien. Because of this added benefit, file your
prelien notices early.
The owner may post a bond and have the lien released by
securing a surety bond or making a deposit with the Superior
Court Clerk in the amount of 110% of the lien. You can then
continue as before with the lawsuit to foreclose, joining the
surety bond company, and if you are successful, you receive
the money from the bond.
Miscellaneous
Issues:
Written
Objection to
Lien:
If a general contractor or subcontractor receives a
mechanic’s lien, it must notify the owner and the holder of
the lien, in writing, within 20 days that it is contesting the lien,
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stating the reasons. If this is not done, the owner has the
option of paying the lienholder directly and deducting the
amount from your contract balance.
Full Discharge:
If you are paid in full after your lien is filed, make sure you go
to the County clerk’s office and file a Certificate of Discharge
of Construction Lien within 30 days or you can be assessed
court costs and reasonable attorney’s fees to discharge the
lien.
If your claim has been paid but you have not discharged the
lien and thirteen months have lapsed after the date of filing,
the owner can discharge lien by simply filing a discharge
certificate and affidavit.
Lien Waivers:
Previous law allowed a contractor, sub, or supplier to waive
his or her mechanic’s lien rights, but this can no longer be
done because it is against public policy. You can now waive
your lien rights only to the extent of the actual receipt of
moneys for the labor and materials you have conferred. This
means that the waiver is effective only upon receipt of a
payment for all or part of your services.
LAWSUIT TO FORECLOSE LIEN
Introduction:
Your lien is not valid forever. Because it directly affects the
owner=s title, it has a limited shelf life and must be enforced
within a short period of time. That enforcement is done by
filing a lawsuit to foreclose. Just like the time deadlines for a
Pre-Lien or Mechanic=s Lien, the courts strictly construe
these time limits which are called statutes of limitation.
Again, if you are literally one day late, the lien is ineffectual.
When:
Within one year from the completion of your work. The only
exception is if the owner serves a demand that the lawsuit
be started within 30 days, you must comply.
Arbitration:
Many construction contracts state that all disputes will be
decided by binding arbitration, as opposed to a court
proceeding by judge or jury. In fact, it has long been a
tradition to do so in the construction industry. Arbitration is
usually quicker and less costly, especially because it cuts
down on expensive discovery. The decision is final and
binding, with no right to appeal. You lose your right for a jury
trial, but few contractors want that in the first place. You
usually pick an experienced construction attorney or retired
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judge to hear the case in their conference room. It is just like
a court proceeding with the same general rules of evidence,
but more informal.
On the other hand, you can only foreclose your lien through
a court proceeding, not arbitration. So, how do you keep
your arbitration rights and at the same time preserve your
lien rights? Simple. You bring a lawsuit to protect the lien
and then immediately request the court to stay the court
proceedings. When arbitration is done, you go back to court
and turn the arbitration award into a judgment.
Need a Lawyer?
In this country, every individual has the statutory right
to represent themselves. This means they can prepare all
necessary papers, appear at hearings, and actually try the
case. In so doing, the court considers you to be acting either
in “pro se” or “pro per”. Before making this decision, consider
the following factors:
1.
You are a professional and thoroughly know
the ins and outs of not only the construction industry but of the
project itself. The best lawyer on his or her best day will
probably not know more than 50% of what you know.
2.
How is your public speaking abilities? If you
are uncomfortable speaking to a group, you will even more
uncomfortable in court or arbitration. You could be the
“sharpest wit in town” but may not be able to present your
arguments. Remember, appearing uncomfortable is perceived
as having deficiencies in your case. People usually think that if
you are not comfortable about your own facts, then they must
not be that strong.
3.
If the other side has a lawyer, you might want
to think twice about representing yourself. You will certainly
know the facts quite well, but you may be blindsided by legal
technicalities.
4.
You may also want to think twice if this is a
really nasty and emotional case. In other words, if the other
side is going for “blood”. Having a lawyer can shelter you from
this emotional trauma. No matter how strong you are, lawsuits
are taxing not only on your time, but on your physical and
emotional energies.
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5.
If you have a good case in which you have
complied with technicalities and performed good work, you are
essentially engaging in a collection action. These actions are
typically very simple because there are few defenses or
defects alleged by the other side. It makes it easier for you to
represent yourself because it is more a question of when and
how much they will pay as opposed to whether you will win at
all.
6.
If you have a binding arbitration provision, you
may consider representing yourself. These proceedings are
much more informal and the arbitrator tends to give you more
leeway. There are also fewer rules and not they are usually
not quite as strict.
7.
You could consider representing yourself but
get advice along the way from a lawyer. It is much cheaper
that way. On the other hand, the lawyer cannot watch over
every move and you might slip up. Many times lawyers can
also help you with preparing the forms, simply putting your
name on the pleading. You can also bring in your lawyer at the
end to actually try the case.
8.
Judges and courts do not give legal advice.
They only help you with what forms to use. However, clerks
can be invaluable in steering you in the right direction as far as
where to file, time limitations, the nature of the form or
pleading, etc. But, remember when it comes right down to the
ultimate advice, they cannot help you.
9. Judges usually treat you the same as an attorney
which means they expect strict compliance with the rules.
Although some judges give you more slack, don’t count on it.
10.
The biggest dilemma is whether you should
hire an attorney for a smaller case, typically in the $5,000 to
$10,000 range. You have to watch this because you may eat
up that amount in attorney’s fees. You never make money on
lawsuits, only lawyers do. Try to settle for the best price you
can get and move on.
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