March 11, 2019
By Bob Incollingo
From the homeowners’ standpoint, one of the most galling results of a home improvement contractor’s deviation from their agreement can be a construction lien recorded against title to the property by a subcontractor or supplier. Such a lien can be imposed even when the homeowners justifiably refuse to pay the prime contractor, or when the prime contractor abandons the work. So long as the subcontractor or supplier follows the strict rules for recording a residential construction lien, with preliminary limited arbitration and award of the right to lien, he or she can gum up title to the owners’ property until the lien is lifted following voluntary payment or payment enforced by sale, judgment of dismissal, or a bond around the lien claim. Even if the lien does not ultimately cost the owners the title to their house, which it can, it will prevent them from refinancing, and often cost significant additional interest equal to the difference between the terms of the construction loan and a less expensive mortgage.
Thankfully, the New Jersey construction lien law provides a way for homeowners to avoid the unpleasant and costly surprise of “second tier” lien claims from suppliers and subcontractors. Like the owner of a commercial project, a residential owner is entitled by statute to demand from any contractor or subcontractor an accurate and full list of the names and addresses of each subcontractor and supplier who might acquire lien rights against the project. The relevant section of the New Jersey construction lien law provides that the list – verified under oath – is due within ten days of demand, but it also provides in the alternative that the list may be due if required in the contract, in which case no further demand would be needed. N.J.S.A. 2A:44A-37.b. Here is a home improvement contract clause to demand the verified list and, before the owner makes any payment on the contract price, to require that the contractor prove that no one has grounds for a lien claim:
12. Verified List. Within ten (10) days of execution of this contract, Contractor and all of its subcontractors must furnish Owner with an accurate and full list of the names and addresses of each subcontractor, subsubcontractor and supplier who may have a right to file a construction lien against the Project, verified under oath by the person providing same in accordance with N.J.S.A. 2A:44A-37. As a precondition to Owner’s obligation to make any payment upon the Contract Price, Contractor shall certify in writing to the Owner that every listed entity which by agreement with Contractor or any Subcontractor has furnished labor, services, equipment, materials or supplies, according to plans and specifications, or extra items, with respect to the Work, has been paid in full for all services performed and goods delivered to the Project as of the date of request for payment and that all bills and claims of every nature, including any and all applicable federal, state and local sales, use, excise or similar taxes or import duties, license fees or other royalties, incurred in connection therewith have been fully paid and satisfied. As a further precondition to payment, Contractor shall further provide Owner with a signed, verified Release of Lien from each and every such listed entity.
A contractor or subcontractor who does not provide a complete, accurate list in compliance with the statute will be liable to the owner for damages, court costs, and attorneys’ fees which the owner spends to defend against a lien claim or to discharge a lien claim asserted by a party whose name is omitted from the list. 2A:44A-37.
South Jersey construction lawyer Robert J. Incollingo is a Director of the Camden Business Association, and practices construction law, business law, and real estate law in Gloucester County, Burlington County, and Camden County, New Jersey from his office in Cherry Hill. More articles like this appear on RJILAW.com.