Willful Exaggeration of a Mechanic's Lien - Only Established at Trial
Think you’ve got a strong claim for willful exaggeration of a mechanic’s lien filed by your contractor or subcontractor? Not so fast. The lien can be withdrawn or discharged at any time and with it goes your claim.
The ability to file a mechanic’s lien against someone’s property is a powerful weapon. But it comes with some risks. If the property owner can establish that the lien was “willfully exaggerated,” the contractor filing the lien could be liable for damages equal to the amount that the lien was exaggerated plus other costs. It is a statutory remedy intended to keep the lienor honest.
One not-so-well-known aspect of this remedy is that it can only be asserted as a counterclaim in the lienor’s action to foreclose upon its lien and damages can only be assessed after a trial. That means if the lienor just files the lien, but never starts a foreclosure action in court, the issue of willful exaggeration cannot be asserted.
In a recent case in the Supreme Court, New York County, practitioners were reminded that even where a foreclosure action has been started by the lienor, the counterclaim for willful exaggeration of the lien can be rendered moot if the lien claim is discontinued before trial.
In New Age General Contracting v. 1882 Third, LLC, the lienor commenced its foreclosure action and the owner counterclaimed for willful exaggeration of the lien. As the case progressed, it became clear that the contractor did not possess a home improvement license and that both its lien and its claim for unpaid balances, could no longer be sustained. The contractor voluntarily dismissed its action. But the owner persisted in wanting to pursue its counterclaim for willful exaggeration damages.
The court held that damages under the Lien Law for willful exaggeration may only be awarded after a trial in an action to foreclose the lien. Even though the lienor commenced a foreclosure action, it escaped any counterclaim for willful exaggeration, no matter how valid it might otherwise have been, because it discontinued the case before trial.
Contact GDB Construction Law attorney Randy J. Heller, Esq. for more information.
Further information on mechanic's liens can be found on our blog:
What Can You Lien For? And What Not?
You Must Renew a Bonded Lien, Or Else
Filing A Mechanic's Lien. Again. And Again.
A Willfully Exaggerated Lien - It's Not Just the Amount