Mechanics liens are statutory rights. That means there are notice rules, deadlines, and requirements to exercise these rights. Plenty of contractors and subs have lost their lien rights over simple mistakes. Under New Jersey’s lien laws, there are specific rules concerning who can actually sign a mechanics lien. As a NJ Superior Court decision emphasized recently, failing to execute a mechanics lien properly has serious consequences.
New Jersey mechanics lien form requirements
N.J. Stat. §2A:44A-8 establishes what form a mechanics lien needs to be in, in order to be valid. Near the end of the mechanics lien form, there is specific language that’s required for the notarial block. This notary statement reads:
“before me, the subscriber, personally appeared (person signing on behalf of the claimant) who, I am satisfied is the Secretary (or other/manager/agent) of the Corporation (partnership or limited liability company) named herein and who by me duly sworn/affirmed, asserted authority to act on behalf of the Corporation (partnership or limited liability company), and who by virtue of its Bylaws, or Resolution of its Board of Directors (or partnership or operating agreement) executed the within instrument on its behalf”
Before New Jersey amended their lien laws, the statutes specifically required that the lien be executed by a “duly authorized officer.” In 2011, the duly authorized officer language was removed, and this new notary block was added. So what does all that mean?
Well, if the mechanics lien is being filed on behalf of a business entity, the person signing must be authorized to do so by the company. This was the costly mistake made by a New Jersey subcontractor.
NJ mechanics lien signed by a “manager”
The case in question is Diamond Beach, LLC v. March Associates, Inc., stemming from a lien claim filed in 2008 – before the notary language was changed.
Diamond Beach, LLC (Diamond), owned some vacant land and contracted with March Associates, Inc. (March) to develop a condominium community. March brought on Sloan & Company, Inc. (Sloan) as a subcontractor do perform the carpentry work on the project.
- Owner: Diamond Beach, LLC
- General contractor: March Associates, Inc.
- Subcontractor: Sloan & Company, Inc.
Manager executes lien after GC goes bankrupt
During the project’s lifespan, March filed for Chapter 11 bankruptcy, and failed to pay Sloan for work performed. In response, Sloan filed a mechanics lien against the project. However, the person who signed the mechanics lien claim (Robert Luderer) failed to identify themselves as a “duly authorized officer.” Instead, he referred to himself as the “Accounting & Information Systems Manager.”
In response, Diamond Beach challenged the enforceability of the claim. The basis of the challenge was that Mr. Luderer was not a “duly authorized officer.” Therefore, they moved that the court discharge (i.e. remove) the claim because he lacked the authority to sign it. Sloan argued that Mr. Luderer was part of the “executive team” that entitled him to participate in management and Board meetings.
Trial Court: Manager wasn’t duly authorized
During the trial, Sloan failed to produce any Board member who participated in the election of Luderer as a duly authorized officer. Nor could they offer any written proof or credible testimony that the election occurred. In 2015, the trial court dismissed the mechanics lien claim and awarded attorney’s fees and court costs to Diamond Beach.
Appeals Court: Basically, “duly authorized” still applies
In the court of appeals, Sloan argued that the new 2011 amendments to the NJ mechanics lien form applies retroactively. They meant that the new notary block language – which didn’t specify a duly authorized officer – should apply. Sloan insisted that, since Luderer was a “Manager,” he was authorized to sign the lien on the company’s behalf.
The appellate judge said that the legislature didn’t pass the amendments to clarify or change the meaning of the term “duly authorized officer.” And furthermore, even if the amendments did change the meaning, the court denied that the amendments applied retroactively.
In response, Sloan brought the case to the Superior Court.
Superior Court: Still not authorized to sign
Once the case reached the Superior Court, there were two issues at hand:
- Does the 2011 law change apply retroactively to all cases before it?
- Was the proper test used to determine if Luderer was authorized to sign the claim?
Ultimately, the first issue didn’t matter to the outcome. Instead, we’ll focus on whether the “Accounting and Information Systems Manager” was authorized to sign.
Sloan – the claimant – argued that the court focused too heavily on whether the Board complied with the incorporation documents and by-laws when electing him. Instead, they said, the court should have considered the totality of circumstances. The judge responded by emphasizing the danger of allowing individuals to bind corporations and harm shareholders who are not an officer of the corporation. Furthermore, the procedural requirements for mechanics liens were intended to be applied strictly.
So the court concluded that, under both the previous and the post-2011 requirements, Mr. Luderer was not authorized to sign the mechanics lien. Therefore, the lien claim remained discharged. In addition, Sloan was ordered to pay Diamond Beach’s court costs and attorney’s fees.
A NJ mechanics lien must be signed by an authorized individual
This is a hard-learned lesson that you must comply strictly with construction lien laws in your project’s state.
When filing a mechanics lien on a behalf of a business entity, ensure that the person executing the lien claim has the authority to do so. Depending on which business entity is filing, be sure that the organization’s governing documents, agreements, or a written board resolution provide proof of such authority.
Signing a NJ mechanics lien without it could be an extremely costly mistake.