At some point in a contractor’s career, he or she is likely to encounter a payment dispute with an owner or other contractor in connection with a construction project. Experienced contractors may be generally aware of their mechanic's lien or construction lien rights (the New Jersey equivalent of a mechanic's lien in some other states) with respect to private jobs in New Jersey. However, even experienced contractors may be unaware of how to go about using those lien rights to obtain payment. Fewer are aware that in New Jersey the process for filing a construction lien differs depending upon whether a private project is commercial or residential. The residential lien process involves additional steps that a contractor must complete in order to protect construction lien rights. This post addresses the process for filing a construction lien in New Jersey against private residential property.
When a construction project involves a home or other residential property, before a contractor or supplier can file a construction lien they must take the additional step of filing a Notice of Unpaid Balance and Right to File Lien with the county clerk in the county where the property or home is located. The filing of a Notice of Unpaid Balance is an additional step that an unpaid supplier or contractor must take to protect its right to obtain payment through the sale of the property. The Notice of Unpaid Balance details the amount of money the supplier or contractor claims it is owed for materials supplied or work completed.
Filing of the Notice of Unpaid Balance has to take place within 60 days of “the last date that work, services, material or equipment were provided for which payment is claimed…” N.J.S.A. 2A:44A-21(b)(1). It is important to keep in mind that, as in the case of construction liens against commercial projects, you must have a written contract, signed by the owner, general contractor or subcontractor, if you hope to file a construction lien against a residential project. N.J.S.A. 2A:44A-2. For suppliers, this requirement may be satisfied by “a delivery or order slip referring to the site or project to which materials have been delivered or where they were used and signed by the party against whom the lien claim is asserted or that party's authorized agent.” N.J.S.A. 2A:44A-2.
Once the Notice of Unpaid Balance is filed, within 10 days it must be served on the owner of the property and relevant contractors. N.J.S.A. 2A:44A-21(b)(2) and N.J.S.A. 2A:44A-7. Unless the contract provides for a different procedure, within 10 days of the filing of the Notice of Unpaid Balance, the contractor or supplier has to begin an arbitration proceeding, by filing what is known as a demand for arbitration, with the American Arbitration Association. N.J.S.A. 2A:44A-21(b)(3). The point of the Notice of Unpaid Balance arbitration is to protect residential owners from invalid or frivolous claims. The arbitrator has the power to determine whether a contractor or supplier is entitled to file a lien and in what amount. Thus, it is wise to submit to the arbitrator proof that you are entitled to file a construction lien and that the owner in fact owes the contractor or supplier money based upon a contract.
Unless otherwise agreed by the parties, the arbitrator has 30 days after receiving the demand for arbitration to resolve the arbitration. However, if no response is filed, the determination is to be made within 7 days of the expiration of the time to respond set by the arbitrator. N.J.S.A. 2A:44A-21(b)(7).
If the arbitrator ultimately determines that at least some portion of the unpaid amount is valid, then the contractor or supplier within 10 days of receiving the determination must file a construction lien with the county clerk in the amount determined by the arbitrator. If the construction lien is not filed within the 10 day period, the lien claim becomes invalid. N.J.S.A. 2A:44A-21(b)(8).
If the arbitrator determines that a construction lien can be filed, the claimant must ultimately file a lawsuit in order to obtain a judgment to enforce the construction lien. In addition, in the Notice of Unpaid Balance Arbitration no determination is made as to the validity of any breach of contract or other claims. Thus, even if an arbitrator determines a lien claim is invalid, and the Notice of Unpaid Balance must be discharged, a contractor or supplier may still pursue breach of contract or other claims. Determinations or judgments as to these other claims may be made in court if a party files a lawsuit, or in a separate arbitration or other proceeding if the relevant contract provides for the same.
Although the Notice of Unpaid Balance Arbitration does not resolve all issues between contractor and owner, the decision of the arbitrator often does result in a settlement discussion between the parties. By reaching a settlement, the parties can avoid the expenses and burdens of a lawsuit.
If the arbitrator makes an error in rendering his or her award in the Notice of Unpaid Balance Arbitration, the Construction Lien Law does provide an appeal procedure. A lien claimant or property owner can appeal the decision by filing a complaint in the New Jersey Superior Court, Law Division. N.J.S.A. 2A: 2A:44A-21(b)(10).
Our firm devotes a significant amount of its practice to New Jersey construction law and litigation, including construction liens. As part of this practice, we serve as attorneys in Notice of Unpaid Balance Arbitration proceedings. We welcome you to contact us for further information if you have received a Notice of Unpaid Balance and Right to File Lien or if you wish to file one.
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