Mechanics liens are extremely powerful tools for protection against nonpayment in the construction industry. However, just like any powerful tool, mechanics liens can be abused.
Parties who want to get more than their proper share, or who just want to cause problems for a particular project, sometimes file liens for these underhanded purposes. Knowingly filing an incorrect mechanics lien in bad faith just to further selfish or fraudulent purposes is problematic in several ways. Mechanics liens were created in order to promote fairness by protecting against the threat of nonpayment from parties with more leverage or in positions of power. Subverting this tool of fairness into a means to unfairly leverage undue payment is improper. Further, this type of improper lien filing can have serious and far-reaching consequences.
What Is a Fraudulent Lien?
While the range of fraudulent or otherwise improper liens is vast, varied and nuanced, there are situations where a lien’s fraudulent nature cannot be disputed. Filing a lien against a property at which the lien claimant performed no work, or filing a lien pursuant to a project for which the lien claimant was fully paid, are clearly, obviously and inarguably fraudulent.
While the claimant clearly has some reason for filing such a lien, even if such reasons are only known to him, there are no reasons that justify this type of lien filing. Common arguments for this type of lien are:
- the claimant is owed money on another job by the same general contractor or property owner, but didn’t file a lien on that project before time expired; or
- the claimant wants to file a lien because of personal reasons generally related to the identity of the property owner.
When people feel threatened or powerless, taking a strong and forceful action or presenting a combative front is a not uncommon, but generally unproductive, reaction. Filing a mechanics lien, which has significant impact and can force communication between parties, is one type of forceful action that can be taken.
Other fraudulent or improper liens are not so easy to determine. Liens for actual work done and unpaid, but that exaggerate the amount due; liens that use a false date of last work to skirt around a filing deadline; liens that claim a required notice was sent when it actually wasn’t—these are all improper liens, and filing any of them can result in significant consequences.
The Lien Is Improper: What Could Happen?
The short answer is a lot. And, for the fraudulent lien claimant, none of it is good. Some mechanics lien statutes clearly set forth particular consequences for filing and/or failing to release a fraudulent or improper lien. In other circumstances, the remedy may be found in alternate parts of a state’s law. While one consequence of filing an improper lien is that the lien is declared invalid and void, there are other ramifications for a fraudulent lien filer to worry about, and not just monetarily. Sometimes, the consequences can be criminal in nature.
New York provides examples of each of these potential outcomes. If a lien is “exaggerated” under the definition in Lien Law § 39, the lien will be declared void, and “damages may be awarded to the owner or contractor that can include:
- the costs of any bond;
- attorney fees; and
- “an amount equal to the difference by which the amount claimed to be due or to become due as stated in the notice of lien exceed the amount actually due or to become due thereon.”
If this is not bad enough, filing a fraudulent mechanics lien also can lead to a potential criminal prosecution. In U.S. ex. rel Roberts v. Ternullo falsely filing a mechanics lien—in this example, many mechanics liens—led to criminal charges and even jail time.
In that case, the owner/operator of a retail fence business “would frequently fail to deliver fencing contracted for by customers or deliver less than called for in the contract, and when full payment was not forthcoming, would file mechanics liens with the County Clerk …” As a result, the owner/operator was charged with multiple counts of forgery and the making of a sworn false statement, among other charges. As a result of the charges, the defendant was sentenced to prison time.
It may be an understandable desire to file a mechanics lien to prompt payment even when the payment is not due for that particular project. It is not understandable to file a completely fabricated mechanics lien just as a coercive or exploitative cash-grab. While the mechanics lien-specific rules and penalties vary from state to state, they can be significant. And, just because a mechanics lien statute may not specifically set out the consequences of fraud, that does not mean other laws do not. Filing a fraudulent or otherwise improper mechanics lien to score a quick payday isn’t worth it—and not just because it’s harmful to business reputation.