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Mechanics Lien: A Vehicle to Secure Payment | Gone is the COVID-19 “Grace Period”

We all know the hurdles of getting paid for work performed while being a contractor, subcontractor, supplier or materialman.  In the construction industry, a mechanic’s lien is a security interest in the title of the property that can be filed by a contractor, subcontractor, supplier or materialman when they have not received payment for performed services or furnished materials. 

When a mechanics lien is against a public or governmental project, the lien is a security interest against the funds of the project instead of the property per se.  Filing a mechanic’s lien puts the property owner on notice and other interested parties of your claim and the money owed to you and your business under either a private or public project.

COVID-19 has created a situation where many companies and individuals have experienced severe financial distress, including filing for bankruptcy relief, others are still in dire straits trying to manage this unprecedented time and the collection process has become even more cumbersome and fraught with delays due to court back logs.  Also, the extension of the filing deadlines and then the subsequent elimination of those extensions without clear guidance further hindered businesses from getting back afloat.  During the pandemic, projects have been delayed for months and, as a ripple effect, payments have been delayed and cash flow has quickly been depleted from the pockets of general contractors and property owners alike.

As discussed in our previous Blog “A Grace Period for Litigants: Governor Cuomo’s Executive Orders During the COVID 19 Pandemic,” courts have seemed to agree that Governor Cuomo had the statutory authority to “toll” the statutes of limitation.  However, we are no longer in that “grace period” and, if you are owed any money, you should be diligent and act quickly since New York State Lien Law has specific time limits for filing a mechanic’s lien.  New York State Lien Law is also full of nuances around the type of project, the labor being performed, or materials being furnished, the type of residence, as well as other key elements of a viable lien. 

As a general rule, mechanic’s liens are required to be filed within eight (8) months following the date of the last services performed at a commercial project.  On the other hand, you will have less time when dealing with single family residential projects since the mechanic’s lien in these projects must be filed within four (4) months of last date worked.  Per New York State Lien Law §17, a lien is valid for a year from the filing date, although it can be extended pursuant to a court order or by commencing a lien foreclosure action.  Not only must the lien be filed but it also must be served on all the necessary parties as delineated in the lien law, i.e. party that hired you, construction manager and property owner.

It is imperative to take a closer look at your calendar and make sure you preserve your right to get paid by properly filing a mechanic’s lien.  COVID-19 may have given you some breathing room, but those extensions have expired, and you must act quickly to preserve your lien rights.

PRACTICAL TIP FOR CONTRACTORS AND SUBCONTRACTORS:

When dealing with public improvement projects please make sure to obtain vendor identification numbers for the party with whom you contracted.  Also, subcontractors should also be sure to obtain a copy of the prime contract.  Many times subcontractors perform work and agree in their subcontracts to be bound by the prime contract but never obtain a copy of same.  It is important for you to maintain complete contracts for your projects and financial records regardless of the type of contract – stipulated sum, cost plus or maximum guaranteed and regardless of whether you are the general contractor or subcontractor on the project.