Articles Posted in Real Estate Hints and Help

So you have finally updated your home by addition, new kitchen or other improvement. You tried doing it by the book, went through the normal channels; obtained estimates, interviewed contractors, investigated their references and made that home improvement using your hard earned dollars. The work commences, is substantially complete and your contractor suddenly disappears, starts showing up sporadically, or starts pressuring you for more money. Ultimately, you dispute the contractor’s view of the costs, his final project or some of the final punch list items and make the decision to withhold payment. What happens next? The Contractor likely files a mechanic’s lien with the county clerk.

New York

Since the home improvement was done to your “real property”, the contractor has the legal right to file a lien, without legal process or litigation. In New York, a contractor who has not been paid for services rendered or materials furnished for the improvement of real property can file a mechanic’s lien against your home. See N.Y. Lien L., Art. 3, § 40 (2010). In other words, the unpaid contractor has the power to get in the way your ability to transfer or finance your real property (i.e. sell or refinance your home) until it is paid.

In New York, mechanic’s liens are filed in the office of the county clerk where the property is situated, and can be filed without first commencing a law suit. Once properly filed, the mechanic’s lien-like an outstanding mortgage-is an impediment to clear title. New York allows a contractor to file a mechanic’s lien against your home even if the underlying “contract” was oral (not in writing). Cynically, even though the work conducted may not have been what you wanted or you do not accept the work, the contractor may seek to “enforce” their right to payment through a lien without intervention of a court. This turns the normal idea of “due process” on its head, giving the contractor (and others) significant power.

This seemingly unfettered right to encumber real property without process does not come without a a responsibility. The law has several safeguards to protect homeowners. First, although a contractor does not need a homeowner’s permission to file the lien (and in New York, does not even need to first notify the homeowner about filing) there are stringent requirements that must be met in order for such lien to be valid.

For example, the home improvement contractor must file the lien in the county clerk’s office, then notify the homeowner of the filing by sending a copy of the lien by both regular and certified mail within thirty (30) days of the filing date, and then finally must provide the clerk with an “affidavit of service” advising the clerk that the homeowner has been properly notified of the lien’s filing. More importantly, if the contractor wilfully exaggerates the amount or nature of the lien, the law permits a counter-claim for treble damages and attorneys fees. Also, the encumbrance on your title does not last indefinitely. The contractor must file an action to “foreclose” the lien within one year, or seek court intervention to extend its duration.
Generally, the liens expire on their face after one year (unless extended), and after three (3) years in the eyes of most title companies.

The Bottom Line

Be careful. When contracting with the home improvement contractor protect yourself by requiring “lien releases” at each stage of the construction. When a dispute is inevitable, be sure that you have the paperwork to show how much you have paid and how much you agreed to pay. If it’s a really big job, pay an attorney a flat rate to advise you on the contract.

We at Klose & Associates help contractors and home owners realize clear agreements as to what improvements are going to cost, and how to handle the disputes that arise.
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When I bought my house I saw some unexplained pipes in the wall. The owners said that the house was heated by natural gas, they had never used oil. The inspector made no mention of the potential that there might have been an underground tank. I wasn’t taking any chances. I called a tank investigation company.

Under the Navigation Law of New York, the owner is absolutely and unconditionally responsible for oil contamination. In fact, the Department of Environmental Protection is entitled to clean up the site and bill the owner for the costs associated with cleanup.

Luckily, the tank inspection company found the tank (1000) gallons, and we refused to close unless the Sellers cleaned up, which they did at a cost of more than $30,000 (often not covered by home owners insurance). That would not have been a happy day for a new home owner. I learned my lesson, and I try to impart that knowledge to my clients.

In today’s real estate market of short sales, mortgages underwater, depressed prices and a buyer’s market, where financing can be a tricky and arduous journey there is one contingency that may protect the buyer– the appraisal contingency, often negotiated by attorneys for real estate buyers.

Stated simply, the appraisal contingency is designed to give a buyer the right to cancel the contract if the home does not appraise for the price the buyer agreed to pay. Take the case of a Florida couple who contracted to buy a house from for $620,000. The purchase and sale contract provided that the sale was “contingent upon this property appraising for no less than $620,000.” The purchasers commissioned an appraisal which apparently came in at $560,000, and refused to close.

In response, the Sellers secured an appraisal which valued the real estate at $635,000. The sellers sued for breach of contract, arguing that any appraisal of $620,000 or more obligated the purchasers to buy the house. The purchasers argued that since it appraised for less (by their appraiser) they could terminate. The Florida appellate court favored the buyers, ruling: “In our view, ‘appraising for no less than $620,000’ means that no appraisal may be less than $620,000,” the court ruled.

So, you want to buy a house, condominium, cooperative apartment or vacant land with your significant other in New York. You have been serious about this life partner for years, but you aren’t bound by the typical bonds of legal matrimony.

Did you consult with your real estate attorney, did you ask that attorney about a partnership or “co-habitation” agreement? What are you going to do if you are no longer interested in “cohabiting?” Too many times, people don’t ask these questions, and get burned later. Take for instance the common predicament of this individual.

As a real estate lawyer, I always ask unmarried couples whether they want a basic partnership agreement about what happens when they dissolve their relationship from a real estate perspective. In addition to a real estate partnership agreement, non-married couples should consider a cohabitation agreement, which is a contract that includes provisions about each partner’s separate property, debts and financial responsibilities and spells out the division of goods, property and responsibilities should the relationship dissolve.