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Is it legal for a contractor to file a lien even with a verbal contract?

New YorkConstruction Contract

I hired a contractor to do some work with a verbal contract. I paid him most of what he had asked for, but because job took longer and we are waiting on a loan to clear to finish, he is threatening to put a lien on my home. I am planning on paying him what he asked for when we started but he keeps adding money because it has taken longer to get the loan! Can he do that legally?

2 replies

Oct 31, 2019
In order to file a valid and enforceable mechanics lien on a New York home improvement project, the contract for the improvement must typically be in writing. Further, charging interest or late fees will typically only be allowed when the agreement included the ability to charge those costs. And, a New York mechanics lien can't include things like collection costs, attorney fees, or other extraneous amounts. So even where a lien is allowable, interest penalties and the like cannot be included in a lien claim, itself.

New York Home Improvement Contracts

The requirements for a New York Home Improvement Contract are created by New York General Business Law 36-A. That section is pretty broad as to what is considered a "Home improvement," and that term encompasses most repairing, remodeling, and other construction work done on a consumer's home. Typically a payment schedule must be included in that written agreement, and any late fees or charges should also be included. If the contractor fails to put the agreement to writing, they could actually become liable for penalties and fees of up to $2,500. So, the considerations extend beyond the ability to file a mechanics lien.

From the contractor's perspective...

Before going after a contractor too harshly, though, it might be worthwhile to view the dispute from the contractor's perspective. To them, they've been suffering from slow payment due to something that's completely out of their control. So, it's natural for them to be uneasy about payment or to even expect interest costs or late fees. But, when a dispute has broken out and tempers begin to rise, it's likely a good idea to try and calmly discuss the issue and thoroughly explain both sides of the situation. A contractor that's fully informed about why payments are being held up may be less prone to take drastic recovery actions. Further, if they know that they might be in store for an even rougher dispute over the failure to execute a home improvement contract, they may be more inclined to be patient in exchange for not going down that road.

Notifying the lender of a potential payment dispute might speed up a draw

Lenders move infamously slow. But, nudging a lender into finalizing a loan and releasing funds might help to speed up payment. Plus, lenders are extremely wary of mechanics liens -  so, if the loan has already been agreed upon and it's just an issue of a slow draw by the lender, they may be more inclined to release payment to avoid issues with the property title. Granted, if the loan agreement hasn't been finalized, that might actually work against an owner.
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Nov 1, 2019
A written contract is not required to file a mechanic's lien for residential construction work in New York.  However, the contractor was required by law to have a written contract with certain legal requirements (See NY GBL 771).   Without the written contract it is difficult, and often impossible, for a contractor to establish a contract value.  But that doesn't mean the contract cannot establish a value for a lien through other legal theories (known as quantum meruit or unjust enrichment claims). Keep in mind that there may be additional penalties to the contractor for not having a written contract including having it's home improvement license revoked (if it is a jurisdiction that requires a license - not all parts of New York do).  If it is a license jurisdiction, and the license is revoked as a penalty by the issuing agency then the lien cannot be filed or enforced as a contractor must hold a valid license at the time the lien is filed and at the time the lien is enforced.  Some jurisdictions also specifically require all change orders (or "extras") to be in writing and can issue violations for that as well.   While most jurisdictions will not revoke a license simply because of the lack of a written contract, the lack of a contract does open the door to an investigation and potential hearing where the entire job is on the table and subject to review and, at a minimum, issuance of fines by the governing jurisdiction.
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