To Our Clients, Co-Counsel and Friends:
Not a single recipient of this Update needs us to advise you that the economy is in a troubling condition. The mainstream media has focused the public’s attention on the status of the banking industry, the stock market and the federal bailout of the auto industry. The question that we discuss here, however, is what the status of the economy means for the construction industry and how our clients can best protect themselves in this difficult economic climate.
Lehman Brothers filed for bankruptcy. Merrill Lynch and Wachovia were bought-out. Fannie Mae and Freddie Mac were taken over by the federal government. The banking industry is in a state of flux and still quite reluctant to issue new financing vehicles or otherwise to extend existing financing. Owners have run out of funds and contractors are running out of time. But what does that mean for those of us in the trenches building our nation’s infrastructure? The answer is fairly obvious: payments on construction, demolition and abatement projects have slowed and, in many cases, stopped.
Indeed many contractors have sought our counsel on this very issue. Our advice is fairly simple: make all amicable attempts at payment but, if not successful, the contractor must file a Mechanics’ Lien. The statute of limitation for filing a Mechanics’ Lien in New York is eight (8) months and in New Jersey is 90 days, both running from the last date that work was performed on a project. After our office files and serves the Mechanics’ Lien we can then initiate an action to foreclose on the lien. If, however, a Mechanics’ Lien is not timely filed the contractor cannot maintain an action to foreclose on the lien and will be left with only the somewhat more challenging breach of contract action.
Indeed, given the state of the banking industry, the increase in Mechanics’ Liens has been staggering. For example, the number of Mechanics’ Liens filed in New York City skyrocketed from a monthly average of 394 in 2006 to a monthly average of 769 in September, October and November 2008. We expect this number to continue to rise as contractors find themselves with ever-increasing accounts receivable.
If you have any questions regarding this Update, a particular claim for payment or a general construction or environmental law issue, please do not hesitate to contact us.