Subcontractors are often times hired by common interest community associations to perform various kinds of work for both unit owners and for the Association. In certain circumstances, contractors may file liens against a particular property to ensure that they are paid for their work. This article explains the basic filing and notice requirements of Residential Construction Liens as well as rules specific to common interest community associations.
As defined in N.J.S.A. 2A:44A-2, a specific procedure must be followed prior to the actual filing of a construction lien arising out of a residential construction contract, in that the right to ultimately file the lien claim form must be predetermined by a separate and distinct arbitration proceeding to determine preliminarily the validity of the proposed lien. The "residential" section of the Act provides that as a condition precedent to the filing of any lien arising under a residential construction contract, a lien claimant shall first file a Notice of Unpaid Balance and Right to File Lien in accordance with the provisions of N.J.S.A. 2A:44A-20(a) and upon the filing of said Notice of Unpaid Balance and Right to File Lien shall effect service in accordance with provisions of the Act. N.J.S.A. 2A:44A-20(b); N.J.S.A. 2A:44A
The lien claimant is also required to serve a demand for arbitration and fulfill all the requirements and procedures of the American Arbitration Association to institute an expedited proceeding before a single arbitrator designated by the American Arbitration Association. N.J.S.A. 2A:44A-21(b)(3). The format for filing with the American Arbitration Association is very specific and must include information regarding the Notice of Unpaid Balance, the last known address of the property owner, and the names of any representatives of the unit owner, among other things.
The American Arbitration Association is not required to proceed with administration of the claim if it determines that the demand does not fulfill the filing requirements. However, once that is satisfied, the arbitrator must determine the validity of the amount of the lien, as well as the setoffs and counterclaims. The arbitrator is required to make these determinations within 30 days of receipt of the demand for arbitration by the American Arbitration Association. This period cannot be extended unless otherwise agreed to by the parties and essentially applies as well to the alternative dispute mechanism agreed to between the parties. N.J.S.A. 44A-21(b)(6). In the event that the arbitrator determines that there is an amount for which a valid lien shall attach to the improvement, the lien claimant must file the lien within ten days of receipt of the determination. The failure to do the above within the ten day period shall render the lien claim invalid. N.J.S.A. 2A:44A:21(b)(8).
A lien claimant may appeal from the arbitrator’s determination is in the form of the institution of a summary action in the Superior Court Law Division seeking vacation or modification of the determination. The court is required to render its decision after giving due regard to the time limits and procedures set forth in the act. N.J.S.A. 44A:21(b)(10). Once the arbitration proceeding results in a determination that the lien claim as set forth in the Notice of Unpaid Balance and Right to File Lien is approved, the filing of a construction lien claim must be completed within ten days.
In effect, the 90 day filing period is really a 50 day or less filing period given the timing of the filing of the Notice of Unpaid Balance and Right to File Lien. Any lien claimant contemplating the filing of the lien against residential real estate should take into account that prior to expiration of the 90 day period following the last rendering of work, services or materials, that the steps set forth above must be completed.
Once the Construction Lien is filed with the county clerk’s office, the owner of the home must pay the amount due, or withhold money from the General Contractor until the issue is resolved. If that does not occur, the Lien Holder must file a lawsuit within one year from the date that the Lien Holder last furnished its work. If a claim is not brought in Superior Court to enforce the lien, the lien is rendered invalid.
The Condominium Act specifically provides that liens may be created only against a particular unit in the same manner as any other encumbrance. N.J.S.A. 46:8B-20. Labor performed or materials furnished for common elements, however, are deemed to be performed with the express consent of every unit owner and the lien shall be filed against each of the units as a group. A common interest community unit owner may pay his or her portion of such a lien in order to discharge the lien against their respective unit. The lienor may proceed to satisfy the lien against any other unit that has not yet been discharged or paid its proportionate amount.
Both common interest community unit owners and residential contractors alike should be familiar with these statutes in order to protect their rights.