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Real Estate Law

Construction Liens- The Nub of the Matter

For those who work on construction jobs, getting paid is certainly far better than the alternative. Creditors with a lien are in a much better position to be paid, particularly if a bankruptcy filing enters the equation. It is critical, therefore, for creditors to understand their rights under New Jersey law.

The New Jersey Construction Lien Law (the “Lien Law”) replaced the old Mechanic's Lien Law in 1994. Neither of these laws is applicable to public projects. The new Lien Law (N.J.S.A. 2A:44A-1 et seq.) eliminated the filing of a Mechanic's Notice of Intent. Instead, it is necessary to file certain information within 90 days following the date of the last work, services, materials or equipment provided with the Clerk of the county in which the property is located.

A lien claim may only be filed if there is a written contract between the lien claimant and its customer (whether it be the owner, contractor or subcontractor). A lien claimant will lose any rights that it may have to enforce the lien, and the lien itself, if legal action is not instituted within one year of the date of the last work under the contract. The one-year time period starts from the time of last work or services provided, not from the date of the filing of the lien.

If the project is “commercial”, as opposed to “residential”, a lien claimant is entitled to, but is not required to, file a "Notice of Unpaid Balance and Right to File Lien" (NUB). A NUB is also filed with the Clerk of the county in which the property is located.

A lien claimant must take additional steps on a residential project. The Lien Law includes the following under the definition of residential: a one- or two-family dwelling; a condominium; a housing cooperative; and a townhouse development. However, the distinction between residential and commercial is not clear under the law, particularly with respect to work performed on common elements such as drainage and streets.

If work is done under a residential construction contract, the lien claimant must do more to insure that the lien is properly filed and perfected. These steps include: filing a NUB; serving a Demand for Arbitration under the American Arbitration Association program created for residential construction lien claims, and then, if successful in the Arbitration, filing the lien claim with the Clerk in the county in which the property is located. All of these steps must be completed within 90 days from the date of the last work, services, material or equipment provided.

A Bankruptcy Judge in New Jersey recently ruled that lien claimants on what arguably was a commercial project had to follow the residential lien requirements, which included a NUB filing. It was also ruled that if the lien filing process was not completed before the bankruptcy petition was filed, the creditor did not have a valid lien. It is therefore very important to address payment and lien issues promptly and aggressively or your lien rights may be lost.

From Real Estate - New Jersey Law Blog posted 2007-04-27.