How Not to Let Your Mechanic’s Lien Lapse6/27/2016 | By: Randy J. Heller, Esq. | GDB 2016 Summer Newsletter
Mechanic’s liens are often very effective enforcement tools. They allow anyone doing work on a property to file a notice in the county records that the person is owed money for their work, which creates a lien on the property. But mechanic’s liens come with their own set of esoteric rules and lots of traps for the unwary. One such trap tests the lienor’s ability to make a diary entry for a date three years down the road.
Filing a mechanic’s lien can have both short term and long term benefits, by creating a problem for the property owner or general contractor, which forces them to pay the money owed. In the short term, the filing of a lien might stop a pending payment by the property owner to the general contractor, or interfere with a loan funding to the owner. It might constitute a breach under the owner’s lease or a contract. In each of these cases, it might create an immediate thorn in the side of the party being liened and provoke a settlement of the outstanding debt just to make the lien go away.
But even where there is no short term impact, a lien can serve as a long term security device, basically allowing the person who did the work to start a “foreclosure action” in court and use the lien to enforce any judgment they may obtain in that action. On a private project, the person who did the work may eventually be allowed to force a sale of the building that was liened. On a public project, they may be allowed to collect against any money the owner owes the general contractor.
Nevertheless, being on top of the calendar is critical to actually realizing any benefit. The New York Lien Law provides that when you start a foreclosure action, accompanied by the filing of a Notice of Pendency — a notice filed with the County Clerk or the public owner giving constructive notification to the world of the pendency of your foreclosure action — your lien automatically gets a 3-year extension. But alas, there’s the rub — keeping track of the expiration date 3 years into the future. As a side effect, the filing of a Notice of Pendency can automatically give every other lienor at the project the same 3-year lien extension, which can be a good thing, or simply complicate the record keeping.
In a recent case involving the construction of a property in Nassau County, the pile driving subcontractor, claiming it was unpaid, filed a lien and then started a foreclosure action by commencing the lawsuit and filing a Notice of Pendency. It was a complicated action involving at least 7 trade contractors who had filed liens. Perhaps due to its complexity, the lawsuit went on for over 3 years.
As it turned out, the calendaring system of the defendant/owner proved better than that of the plaintiff/subcontractors. As the third year elapsed, the defendant/owner moved for an order terminating some of the liens since the Notice of Pendency had not been renewed before the expiration of its 3-year term. The court agreed, holding that: “While a Notice of Pendency may be extended for additional three-year periods upon a showing of good cause, the extension must be requested prior to the expiration of the prior notice…and a lapsed Notice of Pendency may not be revived.”
In other words, if you snooze, you lose. By letting the Notice of Pendency expire after 3 years without renewing it for an additional 3-year term, the pile driver’s mechanic’s lien expired and could no longer be revived. Worse yet, the liens of four other subcontractors, which were riding on the coattails of the pile driver’s [now expired] Notice of Pendency, had expired as well.
Therefore, the court granted the motion to strike the foreclosure causes of action on behalf of five of the lienors, and their mechanic’s liens and the Notice of Pendency were stricken from the land records. Since the mechanic’s liens were their only means of enforcing the amounts they were seeking against the owner, they were left with nothing — except for perhaps a malpractice action against their attorneys who lacked an effective system for making a diary entry 3 years down the road.