Friday, May 17, 2013

How Can I Enforce My Mechanic's Lien in Buffalo?

A mechanic's lien is a wonderful tool but it does not get you paid unless you enforce the lien.  Mechanic's liens are enforced through "lien foreclosure" litigation.  A mechanic's lien is foreclosed upon in much the same way as a mortgage is foreclosed upon.  When you don't pay your mortgage, the bank forecloses and can have the property sold to pay off the debt.  Similarly, when a mechanic's lien is not paid the lienor can foreclose and have the property sold to pay off the debt.

Lien enforcement proceedings are complex, time consuming and usually expensive.  Because of this, it is usually advisable to locate an attorney familiar with the Lien Law and with construction litigation (particularly lien foreclosure litigation).  A knowledgeable attorney can help a lien holder avoid common pitfalls and develop a cost effective plan to enforce the mechanic's lien and secure payment of its outstanding debt.

Vincent T. Pallaci is the managing member of Kushnick Pallaci PLLC.   Kushnick Pallaci PLLC regularly counsels clients on filing and enforcing mechanic's liens.

Sunday, May 12, 2013

Foreclosing on a mechanic's lien in Buffalo

Have you filed a mechanic's lien in Buffalo and now are wondering what is next?  Watch the short video below about foreclosing on a mechanic's lien.



Kushnick Pallaci, PLLC represents contractors, subcontractors, suppliers, owners and developers in construction litigation in every county in New York from its offices in Buffalo and Long Island.  

Friday, May 10, 2013

Why Buffalo Should Know and Understand Lien Law Section 76

The Buffalo construction industry should know and understand New York's Lien Law Section 76.  See the video below for more information.  





Monday, April 22, 2013

How Do I File a Mechanic's Lien in Buffalo, NY?

How do I file a mechanic's lien in Buffalo?  The easiest (and best) way to file a mechanic's lien in Buffalo is to hire a professional to do it for you.  But if you choose to file the lien yourself, and attempt to navigate the Lien Law on your own, this information presentation may be of help in understanding the process:


Sunday, January 6, 2013

Need Help Getting Paid on Your Construction Contract?

Watch out Buffalo: missing a key deadline could be the difference between getting paid for your work and chasing a debt for years on end.  One of the biggest mistakes that a contractor can make is missing a deadline for a mechanic's lien, a payment bond claim or pursuing a trust diversion claim.  The chart below will help remind you of the important deadlines that every account manager, chief financial officer and controller should know to make sure that past due accounts don't go uncollected forever.


Friday, October 26, 2012

Buffalo Contractors Should Take Care to Maintain Proper Lien Law Trust Records


The Lien Law trust laws, contained within Article 3A of the Lien Law, are something that most contractors have heard of, but very few understand.  This is unfortunate since the Lien Law trust laws are one of the few areas of the law that are, arguably, intended to protect contractors, or more particularly, subcontractors, suppliers and vendors (as opposed to owners).  In a nutshell, Article 3A of the Lien Law requires every "trustee" to keep all funds that he receives on a construction project in a "trust account" for the benefit of the trust beneficiaries. Just who is a trustee is not always clear but the following general guidelines may be helpful:  1) if an owner receives a construction loan the owner is a trustee; 2) a general contractor is always a trustee of funds received from the owner; 3) a subcontractor can be a trustee if he, she or it owes money to a sub-subcontractor, materialman, vendor or supplier; or 4) a sub-subcontractor and beyond can be a trustee under the same circumstances as a subcontractor.  A simple rule of thumb is that if you are receiving money on a construction project in the State of New York and you owe money to someone else for labor or materials that they supplied to you on that same project then you most likely are a Lien Law trustee and all monies that you receive are "trust funds."

Lien Law trustees must pay all beneficiaries of the trust before they can use the funds for non-trust purposes.  Most importantly, you cannot use the funds for another project and you cannot use the funds to take your profit until you have satisfied all trust claims.  While the Lien Law does require you to maintain these funds in a trust account, it is generally accepted that you do not need a separate account for each project.  Rather, you must keep separate books and records for each project.  But keeping the funds in one account is not, in and of itself, a trust violation.  Your books and records for the project should show the name of the project, the date and amount of payments received and the date, amount and payee of each payment made from the trust funds.  For example, if the general contractor (GC) receives a $100,000 payment from Owner (O) on Project X and then pays $25,000 to Subcontractor A, $25,000 to subcontractor B and $25,000 to supplier C, each of those transactions must show up on GC's books and records.  Each would be a proper use of the Lien Law trust funds.  The remaining $25,000 from O on Project X, assuming no other beneficiaries have trust claims, can be used by the GC as it sees fit whether that be to take profit, use on another project or something else.

In the above example, GC gets into trouble when Subcontractor D is still owed money but rather than pay Subcontractor D, GC takes $25,000 to order materials for Project Z.  This scenario results in a Lien Law trust violation.  The consequences can be disastrous for the trustee.  First, the court has the ability to order the trust funds repaid if possible.  Second, diversion of trust funds is a crime that you can be prosecuted for.  Third, diversion of trust funds exposes corporate principals to personal liability.  Fourth, diversion of trust funds exposes the trustee to potential punitive damages and attorneys' fees awards.  In summary, diverting trust funds can put you in a whole heap of trouble.  While troublesome for the trustee, everyone below him that was owed money and was not paid is offered the additional leverage of the trust claim in their pursuit of the money they are due on the project.

Lien Law Section 75 requires all trustees to maintain careful and accurate books and records of all of these trust transactions.  Failure to maintain proper books and records creates a legal presumption that the trust laws have been violated.  While not a final determination, overcoming this presumption in litigation can be very difficult and, in many cases, impossible.  As a beneficiary of the trust, you are allowed, under Lien Law Section 76, to demand that the trustee provide you with a verified statement, in writing, showing each of the entries on the books and records of the trust account.  In other words, if a general contractor tells you he hasn't paid you because the owner hasn't paid him you can demand to see his books and records for the project and the general contractor is legally required to disclose them to you.

Another significant reason to be concerned about the Lien Law trust laws is that a contractor, or contractor's principal, that is found to have diverted trust funds, and is found liable for that diversion, cannot discharge the claim in bankruptcy.  That means the debt will follow the contractor for at least 10 years, and more likely 20 years, and there will be no way for the contractor to get away from it.  While that is a long time to wait, it is an added security for the subcontractors that are not paid as they will be able to pursue their claim notwithstanding a bankruptcy.  Especially in the current economy where many general contractors are declaring bankruptcy, being able to pursue a claim despite the bankruptcy is a strong deterrent against general contractors diverting trust funds instead of paying their subcontractors.

One very important caveat:  a Lien Law trust fund claim has a very short statute of limitations.  It must be brought within 1 year from the time that either the project was completed (if you are a general contractor) or 1 year  from the time that the payment was due from the general contractor or the project was completed, whichever is later (if you are a subcontractor).   Therefore, you must stay on top of anyone that owes you money and keep careful track of the money.  Don't be afraid to exercise your rights under Lien Law Section 76 if you have not been paid and you think someone may have diverted money on the project.  When in doubt, contact your attorney to find out what rights you have and to make sure you preserve any potential claims you may have.  A good construction attorney will be able to use tools such as the demand pursuant to Lien Law Section 8 or the demand for a verified statement pursuant to Lien Law Section 76 to help establish and set up a trust diversion claim for you.

Vincent T. Pallaci is a partner in the New York law firm of Kushnick Pallaci, PLLC.  His practice focuses primarily on the area of construction law including prosecuting and defending claims for diversions of New York Lien Law trust laws.

Buffalo contractors beware: Exaggeration your Buffalo mechanic's lien could lead to big trouble


Contractors have become as familiar with using mechanic's liens on their New York construction projects as they are with issuing change orders.  However, while issuing a change order that is exaggerated will simply result in denial of the change order, filing an intentionally exaggerated mechanic's lien can have a number of consequences that go beyond non-payment of the lien.

When a contractor is not paid one of the most common initial reactions is to file a mechanic's lien.  Unfortunately, some of those liens do not accurately reflect the amount currently due and properly lienable.  Of course there are certain contractors that intentionally inflate the lien thinking it will perhaps give them more leverage to negotiate or increase the chances of quick payment.  Some contractors file the intentionally exaggerated mechanic's lien simply to irritate and infuriate the person that owes the money and refuses to pay.  Still there are others that exaggerate the mechanic's lien but do so unintentionally.  The unintentional exaggeration can result from accounting errors, believing that certain items may be liened when, in fact, they may not or liening for the entire contract balance (including work yet to be performed) rather than the value of the labor and materials actually performed and unpaid for at the time of the filing of the lien.  All of these exaggerations can be trouble.

In New York, a mechanic's lien should only be filed for the amount of the labor and materials actually performed and unpaid for at the time that the lien is placed.  You also should not file a lien for items such as delay damages or liquidated damages.  While you can, of course, still sue for those damages under other theories, your mechanic's lien must be limited to the value of the labor and materials incorporated into the improvement of the real property.

An unintentional exaggeration of a lien may simply result in no being able to recover that portion which is not exaggerated. However, person challenging the lien will likely charge that the lien was intentionally exaggerated and you will be forced to defend yourself against this claim.  In addition to dragging out the time and cost of the litigation, it will test the accuracy and adequacy of your book and record keeping practices.  Challenging a lien that is exaggerated is a common defense because if the mechanic's lien proves to have been intentionally exaggerated there are devastating consequences to the lienor.

First and foremost a mechanic's lien that has been found to have been intentionally exaggerated is void.  You therefore lose your entire lien - even the legitimate portion.  Also, the lienor faces liability equal to the amount of the exaggeration.  In other words, if a lienor is properly owed $20,000.00 but intentionally exaggerates the lien to $50,000.00 then not only is that entire lien void, but the lienor can be held liable to the owner for the amount of the exaggeration ($30,000.00).  Some courts will even award treble damages meaning that the $30,000.00 intentional overcharge  becomes a $90,000.00 liability.  Intentionally exaggerating a mechanic's lien can also expose the lienor to attorneys' fees and other consequential damages.  For example, an owner faced with an intentionally exaggerated mechanic's lien may assert a claim for slander of title.  If successful, the slander of title claim could expose the lienor to significant damages - especially if the exaggerated lien prevented the sale of the property.

It is important to keep in mind that proving "intent" in the exaggeration can be very difficult.  An unintentional exaggeration or an arguable charge will not provide the relief available in association with an intentional exaggeration.  If faced with a potentially exaggerated mechanic's lien it is important to consult with competent construction law counsel that can guide you through this difficult area of law.  Construction counsel can help you better understand your situation and your rights and liabilities.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.