The Mechanic's Lien Law As Both Carrot and Stick
The ability of contractors, subcontractors, material suppliers, and design professionals to file a construction lien (in NY called a mechanic's lien) is a potent weapon against an owner to leverage getting paid monies due for work performed on a construction project. The lien acts as an encumberance against real property. The lien can only be discharged and removed by settling with the lienor, bonding over the lien by purchasing a surety bond (often requiring posting cash collateral with the surety in the amount of 110% of the face value of the lien) or litigating the merits of the lien in a forclosure litigation or related special court proceeding. Each of the above options cost the owner money and take time. In the meantime, as a practical matter the owner cannot sell, refinance or -- in the case of construction financing during the course of construction -- obtain payment on monthly requisitions without addressing the lien to the lender/title company's satisfaction. On the other hand, the Owner may purchase a bond or serve a Lien Law Section 59 demand on the lienor requiring it ti file a lien forclosure action within 30 days. If lienor does not, then Owner can obtain a discharge of the lien in court. If the Owner (or general contractor) chooses to litigate the merits of the lien claim, all parties will incur additional legal expense and spend months if not a year or more before the lien claim is adjudicated. Depending on a parties' position and perspective then, the mechanic's lien can be both a carrot and/or a stick which when used effectively may facilitate settlement and timely resolution of the lien claim.