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Mechanic's liens on developments surge in New York City

NYC Mechanic's Liens (Source: Property Shark)

The credit crunch that has made it harder for developers to pay contractors has led to a near-doubling of the number of mechanic's liens filed in New York City, real estate attorneys said.

The tally of mechanic's liens increased from an average of 394 per month in 2006 to an average of about 769 over the past three months for construction projects in the five boroughs, according to data from real estate analysis firm PropertyShark.com.

Mechanic's liens are filed by contractors to publicly establish their claim of payment if they have not been paid or have not been paid in full. The action, filed with the county clerk's offices, records the claim on the property. A lien makes it more difficult to sell real estate because in general lenders do not want to loan money while outstanding claims exist on a property.

White Plains real estate attorney Ronald Steinvurzel said the lack of financing is the reason for the increase in liens.

"That is the real driving force behind the liens and foreclosure actions. Even if there is a great relationship between the owner and the contractor, if [developers] can't get money from the bank, they just can't pay," he said.

There was an average of 769 liens filed per month between September and November, 2008. The figures for last month run through November 24, according to PropertyShark.com.

In 2006, there was an average of 394 mechanic's liens filed per month, with a high of 503 in August, according to the data. The following year, there was an average of 442 per month, with October recording the most at 533. The average so far this year is 616 per month. The greatest number of filings was in September, when there were 800.

The PropertyShark.com data is imperfect because it only includes a maximum of one lien per contractor, for each month, per property, among all private building classes except one- and two-family homes in the five boroughs, while there could be more liens filed on a given property.

Steinvurzel represented a New Jersey asbestos abatement contractor who sued Swig Equities for $764,100, at 25 Broad Street in the Financial District, in October, after first filing a lien against the building. At three Manhattan construction projects, Steinvurzel is representing a contractor with two claims greater than $200,000, and another for less than $100,000. His client is considering filing liens on the projects because they have not been paid.

Larry Hutcher, a partner with Manhattan law firm Davidoff, Malito and Hutcher, estimated that his firm has filed 25 percent more liens this year compared to 2007, as developers have stretched payment terms from 30 days to 180 days or more.

Most mortgages contain a provision that liens must be removed within 30 or 60 days or the lender can consider the loan in default, real estate attorneys said.

"The lien generally enables you, as the creditor, to put pressure on the developer," Hutcher said.