Articles 1 through 3-A of New York's Lien Law have, as their bedrock purpose, the protection of those who perform labor, or furnish materials, for the improvement of real property in the State. Few things are simpler than to follow the checklist in Lien Law § 9 to complete a notice of lien (for a lien on a private improvement; the requirements for the contents of a notice of lien are found in Lien Law § 12) and to serve and file the lien notice.
While the lien notice must be prepared with some care, and the procedures for service and filing followed precisely within deadlines set forth in the statute, a facially valid, timely, and properly served notice is a powerful, and inexpensive, weapon for the unpaid contractor or supplier.
Moreover, once the notice of lien is on file, although to be sure it can be "bonded off" (or paid!) generally the party against whom the lien is filed will not readily be able to get rid of it. For the private owner, of course, a mechanic's lien is a cloud on title, and may be an event of default under a mortgage. While publicly-owned real property cannot, of course, be foreclosed upon (public liens run only against unpaid contract balances) a general contractor, against whom a public or private lien is filed, may have funds withheld, which can cause problems in paying other "downstream" parties. Plus, the general contractor against whom a lien is filed may go into default under his contract by reason of the lien, incur difficulties with sureties, lenders, etc.
Because the notice of lien is so easily filed, and there is no judicial or other oversight (apart from a clerk who will verify only that the notice looks proper as to form) the device is sometimes abused. While the lienor is at liberty to insert any figure he wishes as the dollar amount for which the lien is filed, to deter undue exuberance in this regard, the Legislature has provided Lien Law §§ 39 and 39-a. Section 39 makes a "willfully exaggerated" lien void, forbids the lienor to file another or further lien for the same claim as one judicially determined to be void, and provides a summary procedure for the speedy vacatur of second or subsequent liens filed in violation of the prohibition.
Lien Law § 39-a goes further, and provides that, in an action in which the court shall have declared a lien to be void by reason of willful exaggeration, the lienor may be required to pay costs incurred to bond off the invalid lien (or interest on funds deposited to discharge the lien), reasonable attorneys' fees, and an amount stated in the statute as being equal to "the difference by which the amount claimed . . . in the notice of lien exceeded the amount actually due or to become due thereon." Notwithstanding the language just quoted, as it is willfulness, rather than error, which the statute is intended to deter, recent case law states that the damages recoverable will only correspond to the extent by which the lien was willfully exaggerated, not any greater amount by which the lien, although incorrect, was not willfully over-stated.
A problem with Lien Law §§ 39 and 39-a is that each section contains language that the finding of willful exaggeration must be "in an action or proceeding to enforce a mechanic's lien." Long ago, courts inferred from such language that a determination of willful exaggeration could only be made upon the trial of the action to enforce (foreclose upon) the lien. Since that the wheels of litigation grind slowly, not to mention that the statute allows a generous amount of time between the filing of the lien and commencement of the foreclosure action (which time may be extended, variously by court order or in some cases by a simple filing) often an unhappy result will be that the trial of a willful exaggeration claim may arrive only years after the lien notice was first filed.
At stages of the litigation prior to trial, generally liens will not be vacated on motion, other than for defects mentioned in Lien Law § 19(6) (private liens) or § 21(7) (public improvement liens). Essentially, these provisions allow the lien to be vacated only where "it appears from the face of the notice of lien that the claimant has no valid lien by reason of the character of the labor or materials . . . for which a lien is claimed," or there is a clear formal defect in the lien notice, or the same was not duly and timely filed.
Based on the foregoing, courts have held - and some continue to hold - that absent one of the grounds stated in Lien § 19(6) or § 21(7), a court lacks "inherent power" to summarily discharge, on motion, a lien claimed to be willfully exaggerated, and that the requisite proof that the lienor "deliberately and intentionally exaggerated the lien amount," which proof can be made only at trial.
Notwithstanding the numerous cases so holding, however, now and then there have been cases in which summary judgment finding willful lien exaggeration has been granted or, more significantly, upheld on appeal (as appellate decisions are more influential than trial-level decisions). If you have a strong case that a lien against you has been willfully exaggerated, and you would like to dispose of the lien without waiting months or years for the case to come to trial you should immediately contact your construction attorney.
If you have any questions about the information set forth in this Legal Alert, call us at 914-428-2100.