A lien is a legal claim against a specific asset that grants a person a security interest over the asset subject to the lien. The asset with an attached lien becomes collateral to satisfy a debt or secure payment for the performance of an obligation.
A contractor can use a construction lien or what some refer to as a mechanic’s lien to obtain a security interest over the property they worked on when the owner refuses to pay them for the work they accomplished. The construction lien prevents the owner from selling the property until they pay what they owe.
What if the owner does not want to sell the property?
The rules for residential construction liens are more challenging to understand than construction liens attached to commercial property. In New Jersey, a contractor must first file a Notice of Unpaid Balance (NUB) and Right to File Lien within 90 days from when they fulfilled their obligations to the residential property owner. They then have 10 days upon getting the NUB from the county clerk’s office to serve the notice to the property owner and file a demand for arbitration. The contractor must notify the homeowner about the arbitration proceeding.
Once the arbitrator determines the owner does owe the contractor money, the contractor will have another 10 days to use the arbitrator’s decision to file the construction lien. New Jersey gives contractors 120 days from when they finished or performed their duties under a contract to file a construction lien on residential property. For commercial property, a contractor has 90 days to file the lien. A construction lien preserves the contractor’s right to foreclose on the property. It can force a sale of the property to collect the unpaid balance.
Construction liens protect the contractor’s interests
A property owner cannot refuse to pay a contractor just because they are not happy with the contractor’s work. The contractor put resources, time and effort into fulfilling their contract obligations. A construction lien protects contractors from unreasonable property owners.