If you're a contractor, subcontractor or material supplier involved in construction projects in New York, you've probably filed a mechanic's or materialman's lien against a property when a contractor hasn't paid you for your work or materials. It's one of your most efficient and effective ways of obtaining payment, but it's not foolproof. If you don't file a lien properly and act within designated time limits, you could lose your right to use this valuable collections tool.
A recent ruling in the United States District Court for the District of New Jersey has significantly altered the legal landscape for filing Construction Liens in New Jersey. The Court in Cooper Elec. Supply Co. v. Linear Elec. Co., affirmed a bankruptcy court's decision holding that a construction lien filed after a debtor had filed for bankruptcy was void ab initio because it violated the automatic stay provision of 11 U.S.C. § 362, which provides for a stay on any "act or to create, perfect, or enforce any lien against property of the [debtor's] estate." No. CV 15-06429 (SDW), 2016 WL 781770 (D.N.J. Feb. 29, 2016); 11 U.S.C. § 362. Central to the Court's reasoning was its expansive reading of the property of the debtor's "estate," as defined in 11 U.S.C. § 362, to include accounts receivable. This expansive reading made way for the Court to conclude that the accounts receivable underlying the "Appellants' construction liens were [property] of the estate" and thus fell "squarely within the broad prohibitions of the automatic stay provisions." Id. at *3. An appeal to the United States Court of Appeals for the Third Circuit was filed on March 8, 2016.