This article originally appeared in the December 2023 issue of Security Business magazine. When sharing, don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter.
Security integrators are in the business of protecting people and property; however, sometimes they need their own protection – not just from personal injury and property damage, but also from people who do not pay them for their work. If you do not get paid on a job, you can send an invoice, follow up with a letter, or bring a lawsuit. Alternatively, you also may have the option to file a mechanic’s lien.
Notwithstanding the funny name, mechanic's liens are a powerful and often abused legal tool for contractors, subcontractors, and suppliers to secure and obtain payment for work that they performed on real property. While the procedures and requirements vary from state to state (and even county to county), liens are usually not complicated documents. They typically include the amount of money allegedly not paid, the last date that labor or materials were provided, the location of the project, and other relevant data.
The Power of the Lien
Liens are usually filed with a local clerk and recorded on the property docket, and the fact they are filed in the public record and impair the title of real property makes them very powerful – and also subject to abuse.
Indeed, not all mechanic's liens are meritorious. For example, a party who files a lien without having performed any verifiable work has abused the process and could be liable for consequential and punitive damages. Another example is a party who files a lien after already receiving full compensation.
Sometimes there is a genuine dispute between the contractor, subcontractor, and/or owner about the amount due and owing. Sometimes liens include an unreasonably high amount, are filed with no legal basis, include false information, or are filed beyond the applicable statute of limitations.
Because liens can adversely impact title to real property, liens can be used just to pressure the owner (or tenant) to pay or even used to take revenge in a dispute.
Just because a contractor thinks they are owed money does not mean they have the right to file a lien. Liens typically have shorter statutes of limitation (months) when compared to statutes of limitation for money damage claims (years).
The time to file a lien is typically measured from the date the contractor last provided labor or materials. This can be a source of abuse – because sometimes that date is unclear. Other times, contractors insert a false work completion date to make it look like their lien was timely filed. A lien with a false work completion date can be considered facially valid – even though, when challenged, it is determined to be invalid. Facially valid liens take longer to challenge and are more expensive to challenge, so the incentive to lie is high.
In addition to challenging a lien as untimely or otherwise deficient, an owner of property subject to a lien can also litigate the merits of the lien. In some states, this means requiring the party who filed the lien to prove it in court. This is like daring them to prove that they have a valid underlying claim for money.
In New York, for example, you can send a notice to a party who files a lien and demand that within 30 days they initiate an action to enforce the lien. I have used this law with success. However, notwithstanding this tool, New York is among the states where it is hard to get rid of a lien. The law is very favorable to contractors and allows them to use the lien as an offensive weapon in a payment dispute. Contractors know it is time consuming and expensive to get rid of the lien.
Filing a mechanic’s lien merely to gain leverage in a dispute is a really bad idea. It is unethical and can subject the filing to direct damages (resulting directly from the filing of the lien), consequential damages (resulting indirectly from the filing of the lien), and punitive damages (imposed to punish and deter the improper use of the lien law).
Lien may be a funny word, but abusing the process for filing one is not funny. Only use this powerful tool when the law allows and not merely to gain an advantage in an underlying payment dispute.
Timothy J. Pastore, Esq., is a Partner in the New York office of Montgomery McCracken Walker & Rhoads LLP (www.mmwr.com), where he is Vice-Chair of the Litigation Department. Before entering private practice, Mr. Pastore was an officer and Judge Advocate General (JAG) in the U.S. Air Force and a Special Assistant U.S. Attorney with the U.S. Department of Justice. Reach him at (212) 551-7707 or by e-mail at [email protected].
