It’s pretty common for a property owner or a GC to claim that a lien has been improperly filed. Those defending against the lien claim will often argue that work was overstated and the amount on the lien is exaggerated. However, unless the claim amount or description of work is obviously flawed, this can be a hard point to dispute.
Most states have provisions protecting against the exaggeration of a lien claim, the filing of fraudulent liens, or both. But these cases aren’t always slam dunks, and fighting a lien claim for the sake of fighting can be costly and time-consuming.
Sometimes, a lien claim is obviously false, such as when a party files a lien after providing no work, or when someone grossly overcharges or double-dips. In these instances, claiming the lien was fraudulently filed is a no-brainer. However, other cases may not be so easy. To have a lien tossed aside, there usually must be more than a small mistake. Plus, a court may even require a full-fledged trial to get to the bottom of things. Unless the exaggeration or fraud is obvious, fighting an allegedly fraudulent lien filing could be an uphill battle.
Willful Exaggeration and Fraudulent Liens
The terms willful exaggeration and fraud are sort of self-explanatory. In these cases, an owner will argue that the lien claim has been overstated or has no basis in the first place. Each state’s tolerance for mistakes or overstatements will vary, but often, an accidental or unintentional overstatement on a lien claim will not result in liability.
For example, in a recent Illinois case, change orders were not approved but were performed and eventually included in a lien claim. The court found that those extra amounts were improperly included in the lien claim, and the extras were invalidated. However, the remainder of the lien was valid. What’s more, the claimant even won attorney fees. Because the work was actually done, and because the claimant truly believed they were owed payment for the change orders, the court found that including the change orders was not a willful exaggeration. Plus, since the claimant prevailed, the court found it proper to include attorney fees.
Levelset’s Chief Legal Office Nate Budde shares an important message: “Don’t File Fraudulent Mechanics Liens”
Just as with any other industry, there are bad actors in construction. Fraudulent mechanics liens have been filed for all sorts of crazy reasons, even as a misguided attempt to avenge a breakup. Luckily, there are steep consequences when a lien claim is truly fraudulent, up to and including potential criminal penalties.
Property owners and general contractors take note: this is not to say that lien claims should not be challenged. Just don’t assert a lien is fraudulent just because you’re angry a lien has been filed. Defending against the lien is great, but automatically asserting it’s fraudulent could be a waste of time and money. But if the lien is obviously fraudulent, go for it.
One other thing to keep in mind: just because a lien is invalid, that doesn’t mean it’s fraudulent. (Follow this link to read more about frivolous mechanics liens – liens that are invalid but not necessarily fraudulent.)
When there’s a genuine dispute, both sides should fight for their rights. Just be careful, because as these challenges escalate, it could turn into a costly endeavor.
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