New Jersey Construction Lien Law: Questions and Answers

Author: LegalEase Solutions 

Question:

Public improvement / Mechanic’s lien

Our client: owner, g.c.:

Notice of lien claim: within 60 days of our last work performed.

Correct. Pursuant to N.J. Stat. § 2A:44-132, a lien claimant may, at any time before the whole work to be performed by the contractor for the public agency is either completed or accepted by resolution of the public agency, or within 60 days thereafter, file with the chairman or other head officer or with the secretary or clerk of the public agency, a notice of lien claim verified by oath of the claimant or his agent.
Action to enforce lien: ?

Pursuant to N.J. Stat. § 2A:44-138, no lien created under this article shall be binding on the funds of the public agency, unless an action to enforce the lien claim be brought within 60 days from the time when the whole work to be performed by the contractor is either completed or accepted by resolution of the public agency.

Question:

Our client: subcontractor:

Notice of delivery of labor/material: within 20 days of our first work performed. If a notice is filed after the 20th day, we may assert a lien for
any labor/material provided after that filing date.

Correct. Pursuant to N.J. Stat. § 2A:44-128, within 20 days of the first performance work or the delivery of materials any subcontractor who seeks to assert a lien on a public work must file written notice with the municipal clerk, the chief financial officer of the county or the chairman of the commission, board or authority, whichever is appropriate, notice that he or she performed work or delivered materials.
If a notice is filed after the 20-day period, the person so filing may assert a lien under N.J. Stat. § 2A:44-128 for any labor or materials provided on or after that filing date.
Notice of lien claim: within 60 days of our last work performed.

Correct. Pursuant to N.J. Stat. § 2A:44-132, a lien claimant may, at any time before the whole work to be performed by the contractor for the public agency is either completed or accepted by resolution of the public agency, or within 60 days thereafter, file with the chairman or other head officer or with the secretary or clerk of the public agency, a notice of lien claim verified by oath of the claimant or his agent.
Action: ?

Pursuant to N.J. Stat. § 2A:44-138, no lien created under this article shall be binding on the funds of the public agency, unless an action to enforce the lien claim be brought within 60 days from the time when the whole work to be performed by the contractor is either completed or accepted by resolution of the public agency.

Question:

Public improvement / Bond claim

Our client: owner, g.c.:

Statement of amount due: within 90 days of our last work performed.

Wrong. Pursuant to N.J. Stat. § 2A:44-145, at any time before the expiration of one year from the last date upon which a beneficiary shall have performed actual work or delivered materials to the project, the beneficiary must furnish the sureties on the bond required by this article a statement of the amount due to him.
Bond claim: within 1 year of our last work performed.

Correct. Pursuant to N.J. Stat. § 2A:44-145, no action shall be brought against any of the sureties on the bond required by this article until the expiration of 90 days after provision to the sureties and the contractor of the statement of the amount due to him, but in no event later than one year from the last date upon which such beneficiary shall have performed actual work or delivered materials to the project.

Question:

Our client: subcontractor

Notice: Prior of commencing any work, provide written notice to the
contractor by certified mail, that said person is a beneficiary of the
bond.

Correct. Pursuant to N.J. Stat. § 2A:44-145, any person who may be a beneficiary of the payment bond and who does not have a direct contract with the contractor furnishing the bond shall, prior to commencing any work, provide written notice to the contractor by certified mail or otherwise, provided that he shall have proof of delivery of same, that said person is a beneficiary of the bond. If a beneficiary fails to provide the required written notice, the beneficiary shall only have rights to the benefits available hereunder from the date the notice is provided
Notice of claim: within 90 days of our last work performed.

Wrong. Pursuant to N.J. Stat. § 2A:44-145, at any time before the expiration of one year from the last date upon which a beneficiary shall have performed actual work or delivered materials to the project, the beneficiary must furnish the sureties on the bond required by this article a statement of the amount due to him.
Bond claim: within 1 year of our last work performed.

Correct. Pursuant to N.J. Stat. § 2A:44-145, no action shall be brought against any of the sureties on the bond required by this article until the expiration of 90 days after provision to the sureties and the contractor of the statement of the amount due to him, but in no event later than one year from the last date upon which such beneficiary shall have performed actual work or delivered materials to the project.

Question:

Private improvement / Mechanic’s lien

Our client: owner, g.c., subcontractor:
Lien filed: within 90 days of our last work performed.
Correct. Pursuant to N.J. Stat. § 2A:44A-6, a construction lien claim shall be filed with the county clerk not later than 90 days following the date the last work, services, material or equipment was provided for which payment is claimed.
Action: within 1 year of our last work performed.

Correct unless written notice to commence provided by owner. Pursuant to N.J. Stat. § 2A:44A-14, an action to enforce the lien must be made (1) within one year of the date of the last provision of work, services, material or equipment, payment for which the lien claim was filed; or (2) Within 30 days following receipt of written notice, by personal service or certified mail, return receipt requested, from the owner requiring the claimant to commence an action to establish the lien claim.

Question:

As long as there is still $$$ due by owner: The lien may only be enforced
against the property affected to the extent of the balance due to the person
with whom the owner has directly contracted to perform the labor on which
that lien claim is based. (to be confirmed)

Correct. Pursuant to N.J. Stat. § 2A:44A-9, the amount of a lien claim is limited to the contract price, or any unpaid portion thereof, whichever is less, of the claimant’s contract for the work, services, material or equipment provided.

Pursuant to N.J. Stat. § 2A:44A-10, the maximum amount for which an owner will be liable or an interest in real property subject to a lien under this act for one or more lien claims filed pursuant to this act shall not be greater than: a) In the case of a lien claim filed by a contractor, the total amount of the contract price of the contract between the owner and the contractor less the amount of payments made, if any or b) In the case of a lien claim filed by a subcontractor or supplier, the amount provided in subsection a., or the contract price of the contract between the contractor or subcontractor and the subcontractor or supplier, as applicable, pursuant to which the work, services, materials or equipment is provided by the subcontractor or supplier, less the amount of payments made, if any.

These two provisions operate to prescribe that an individual lien claim by a subcontractor or supplier can never be greater than the amount the claimant is owed and that, regardless of the amount owed to one or more claimants, the measure of the lien fund can never exceed the difference between the “total contract price in the owner’s contract with the contractor” and the amount the owner has paid to the contractor as of the filing of the lien claim

Question:

Bankruptcy vs. Lien:

G.C.’s bankruptcy: Filing a lien before a GC’s bankruptcy filing would turn Canatal into a secured creditor / Without a lien before the bankruptcy filing, Canatal would be an unsecured creditor.

Correct. Liens that are filed after the property owner has filed for bankruptcy are voided. Schoonover Elec. Co. v Enron Corp. (In re Enron Corp.), 294 B.R. 232 (2003). The bankruptcy of the owner or general contractor does not erase the subcontractor’s construction lien claims filed before bankruptcy, but such lien claims do not relate back to the date upon which the subcontractor first provided work, services and materials. Id. Rather, the lien attaches only from the date of the filing of such claims. Id.
If the g.c. goes bankrupt, then the subcontractor can still continue on with lien procedures against the property of the owner. This is allowed because the lien is on the owner’s property, not the bankrupt g.c.’s property.

Correct. Where the general contractor goes bankrupt, a subcontractor with valid lien can prevail against the owner. AEG Holdings, L.L.C., 347 N.J. Super. 511 (App. Div. 2002). Although both the owner and subcontractor may be free from fault as a result of the general contractor’s bankruptcy, the law favors satisfying the lien holder over the owner. Id.
Owner’s bankruptcy: Filing a lien before a owner’s bankruptcy filing would turn Canatal into a secured creditor / Without a lien before the bankruptcy filing, the Trust Fund law would govern if owner is financing construction through a loan. (to be confirm)

This needs clarification. N.J. Stat. § 2A:44-148, the trust fund law, applies to all money paid by the state of New Jersey or by any agency, commission or department thereof, or by any county, municipality or school district in the state, to any person pursuant to the provisions of any contract for any public improvement made between any such person and the state or any agency, commission or department thereof, or any county, municipality or school district in the state.

Question:

Can we lien the property even if nothing has been delivered yet?

No. Pursuant to N.J. Stat. § 2A:44A-3, any contractor, subcontractor or supplier who provides work, services, material or equipment pursuant to a contract, shall be entitled to a lien for the value of the work or services performed, or materials or equipment furnished in accordance with the contract and based upon the contract price, subject to the provisions of sections 9 and 10 of this act. A lien cannot be claimed with respect to work or material not actually provided.

Is our work for drawing, engineering, raw material, etc is “lienable work”?

Yes. In applying the statute courts have not required that materials or labor must be incorporated directly into a building before a mechanic’s lien can arise. Davis v. Mial, 86 N.J.L. 167 (E. & A. 1914).
Thus, the services provided by an architect are covered by the statute. Friedman v. Stein, 4 N.J. 34, 41 (1950); Turck v. Allard, 87 N.J.L. 721, 722 (E. & A. 1915).
One who transports construction materials to the building site is entitled to a lien for the transportation costs. Central R.R. Co. of N.J. v. Gallena-Poole, 107 N.J. Eq. 267, 268-269 (Ch. 1930), affirmed o.b. 110 N.J. Eq. 559 (E. & A. 1932).

And a watchman who guards the building during its construction is entitled to a lien for the services he performs. Improved B. & L. Asso. v. Larkin, 88 N.J. Eq. 52, 59 (Ch. 1917).
The rationale underlying these cases is that work done which is reasonably necessary for the ultimate completion of a building should give rise to a mechanic’s lien, even though the type of service provided is not as directly incorporated into the building as would be, for instance, the boards supplied by a lumber yard or the work performed by a carpenter. J. R. Christ Constr. Co. v. Willete Associates, 47 N.J. 473 (N.J. 1966).

Question:

Is there a priority for liens? I mean who filed first.

Yes. Pursuant to N.J. Stat. § 2A:44A-20, all valid liens filed shall attach to the interest of the owner from the time of filing of the lien claim in the office of the county clerk.
N.J. Stat. § 2A:44A-10 provides that no lien claim shall attach to the estate or interest acquired by a bona fide purchaser first recorded or lodged for record; nor shall a lien claim enjoy priority over any mortgage, judgment or other lien first recorded, lodged for record, filed or docketed.

Pursuant to N.J. Stat. § 2A:44A-22, every mortgage shall have priority as to the land or other interest in real property described and any improvement wholly or partially erected or thereafter to be erected, constructed or completed thereon, over any lien which may be established by virtue of this act provided the mortgage secures funds for certain enumerated purposes.

However, pursuant to N.J. Stat. § 2A:44A-20 (a), in the event that real property to which improvements have been made has been conveyed, leased or mortgaged, a lien claim validly filed under this act shall have priority over any prior conveyance, lease or mortgage of an estate or interest in real property, only if the claimant has filed with the county clerk prior to that conveyance, lease or mortgage, a Notice of Unpaid Balance and Right to File Lien.

Even if a Notice of Unpaid Balance and Right to File Lien is first-filed, the mortgagee is accorded priority to the extent that loan funds are utilized for the purposes set forth in N.J. Stat. Ann. § 2A:44A-22. It is only when the construction loan proceeds are misused that the holder of a NUB or a holder of a first-filed construction lien would retain its priority.