Willfully overstated lien claims are specifically excluded under the New Jersey Construction Lien Law. The New Jersey Construction Lien Law permits subcontractors to encumber land in an expedient manner, while providing the contractor or owner with minimal due process rights. As a result, the New Jersey legislature has imposed strict safeguards, which protect the contractor or owner against the improper filing of construction liens on real property.
One safeguard provided by the legislature is the explicit requirement that the lien be based upon a written contract. N.J.S.A. 2A:44A-1 This prevents subcontractors from filing liens that are based upon unsigned change orders at the end of a project. Another safeguard is the requirement that the amount of the lien reflect the actual work or materials supplied by the subcontractor. Id. The lien claim must equal the Contract price or any unpaid portion of the Contract price, whichever is less. N.J.S.A. 2A:44A-9. This prevents subcontractors from filing overstated liens that are not supported by the amount of the actual work or the materials supplied according to the contractual rate.
Should the liening subcontractor fail to adhere to the strict letter of the law, the owner and contractor are imbued with specific remedies in order to counter the effect of substantial encumbrances and costs naturally generated by the construction lien:
If a lien claim is without basis, the amount of the lien claim is willfully overstated, or the lien claim is not filed in substantially the form or in the manner or at a time not in accordance with the provisions of this act, the claimant shall forfeit all claimed lien rights and rights to file subsequent lien claims to the extent of the face amount claimed in the lien claim. The claimant shall also be liable for all court costs, and reasonable legal expenses, including attorneys’ fees, incurred by the owner, contractor or subcontractor, or any combination of owner, contractor and subcontractor, in defending or causing the discharge of the lien claim. The court shall, in addition, enter judgment against the claimant for damages to any of the parties adversely affected by the lien claim.
N.J.S.A. 2A:44A-15(a).
The disposition of willfully overstated lien claims and lien claims without proper basis have been analyzed in a number of New Jersey cases. See, Patock Const. Co., Inc. v. GVK Enterprises, LLC, 372 N.J.Super. 380, 858 A.2d 1148 (N.J. App. Div. 2004) cert. denied (Feb. 16, 2005); Legge Industries v. Joseph Kushner Hebrew Academy/JKHA, 333 N.J.Super. 537 (N.J. App. Div. 2000); Reeve v. Elmendorf, 38 N.J.L. 125 (1875); McPherson v. Walton, 42 N.J. Eq. 282, 11 A. 21 (N.J. Ch. Div. 1886). “A construction lien claim that is not supported by a written agreement and for a total agreed price rather than the services performed may . . . constitute a willful overstatement.” Patock, supra, 372 N.J.Super. at 388 (citing Gallo v. Sphere Constr. Corp., 293 N.J.Super. 558, 566, 681 A.2d 1237 (Ch. Div. 1996). Furthermore, a lien claim authorized by the parties’ contract is only authorized to the extent of the work and materials provided, which does not include lost profits. Gallo, supra, 293 N.J.Super. at 566. Additionally, “a willful overstatement connotes an intent to recover that to which the claimant knows he is not entitled; in other words, a claim made in bad faith.” Legge, supra, 333 N.J.Super. at 561.
Thus, the victim of an improperly filed construction lien is not without remedy. If a subcontractor files a willfully overstated lien claim, without proper basis, the contractor or owner: 1) must forfeit and discharge its lien claim; 2) must pay the full value of the contractor or owner’s attorney’s fees and costs incurred in maintaining or defending an action based upon the lien; and 3) will be liable for consequential damages emanating from the improper lien.
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