The New Jersey Construction Lien Law - A Consumer Protection Statute
Since Hurricane Sandy, many invalid construction liens have been filed against local homes.
When discussing consumer protection laws in New Jersey, the conversation typically revolves around the Consumer Fraud Act (CFA). That is for good reason. The CFA provides that if a plaintiff wins, then the defendant must pay three times the plaintiff's actual damages ("treble damages") and must also pay the plaintiff's attorney fees. While the CFA is by far the most often used consumer protection law, it is not the only one.
When it comes to home improvement contracts, the New Jersey Construction Lien Law (NJSA 2A:44A-1 et seq.) provides homeowners with important consumer protections. A contractor who improperly files a construction lien against a home must pay the homeowner's attorney fees and costs to have the lien removed and any other damages incurred by the homeowner due to the improperly filed lien.
A valid construction lien requires a three step process.
1. Notice of Unpaid Balance and Right to File Lien
First, a contractor must file with the county clerk, and serve the homeowner with, a Notice of Unpaid Balance and Right to File Lien ("NUB") within 60 days of when work was last performed, or materials were last provided, at the site. If the contractor does not file a NUB, then the contractor may not file a lien. If the contractor waits more than 60 days to file the NUB, then the contractor may not file a lien.
2. AAA Arbitration
Second, within 10 days of filing and serving the NUB, the contractor must request arbitration with the American Arbitration Association ("AAA"). The request for arbitration must also be served on the homeowner. The arbitrator will decide if, and in what amount, the contract may assert a lien. If the contractor does not request and go through AAA arbitration, then the contractor may not file a lien.
The arbitration is typically done "on the papers" but either side may request a hearing to present evidence. The decision of the arbitrator is made within 30 days of application. The AAA rules for NJ residential construction lien arbitration are found here: http://goo.gl/ZTlfbQ
3. Construction Lien
Third, only after filing a NUB and obtaining a AAA arbitration decision, the contractor may file a construction lien against residential property. That lien must be filed within 90 days of when when work was last performed, or materials were last provided, at the site.
Once filed, the contractor may move to foreclose on your property and obtain payment for the amount found in the construction lien. The suit to foreclose on the lien must be brought within 1 year of the date of the filing of the lien or within 30 days of a demand made by the homeowner. If the contractor does not bring suit within the 1 year period, or within 30 days of a written demand, the lien expires - it is ineffective and unenforceable.
Many Bad Construction Liens Have Been Filed in Our Area
I have reviewed all of the construction liens filed in Atlantic, Ocean and Monmouth Counties since Hurricane Sandy (from November 2012 through July 2013). The majority of the liens filed by home improvement contractors were filed without first filing a NUB or obtaining a decision by an AAA arbitrator. They are illegal and unenforceable. However, they constitute a cloud on the homeowner's title which could prevent the homeowner from selling the property or obtaining mortgage financing.
If your home has been improperly liened by a home improvement contractor, you can sue to have the lien removed.
As indicated above, the home improvement contractor is required to reimburse you for your reasonable attorney fees and costs to have the lien removed.
When interviewing an attorney to represent you in such matters, ensure that the attorney has experience litigating construction lien claims.