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Hirsch v. H & D Prime Construction, Inc.

A-4387-07T3 (N.J. Super. App. Div. 2009) (Unpublished)

CONSTRUCTION LIENS — The portion of the residential construction lien statute that provides for allocation by lot or by tract governs all residential construction contracts and a lien claimant is required to apportion for services and materials it furnished on a lot by lot basis and cannot impose its aggregate lien across an entire multi-lot project.

Twenty single-family homes were built in an upscale neighborhood. The contractor hired a subcontractor to install siding and/or stucco on some of the homes pursuant to a residential construction contract. When the subcontractor received payment for only four of the thirteen homes it had provided labor and materials for, it filed a Notice of Unpaid Balance and Right to File Lien (NUB) pursuant to New Jersey’s lien law. It also made a demand for arbitration. A buyer closed on one of the homes with knowledge of the NUB. The buyer gave the developer a release of, and indemnification for, the lien. She also offered to pay the subcontractor to resolve the lien but the subcontractor refused the purchaser’s offer. Three days later, the developer filed a voluntary bankruptcy petition under Chapter 11 of the Bankruptcy Code. After the subcontractor obtained a stay in the bankruptcy proceeding, an arbitrator issued an award finding the lien claim valid. The subcontractor filed a construction lien claim against the purchaser’s property in the entire amount of the lien. The purchaser sued the subcontractor seeking to establish the proportionate value of services and materials provided to her home.

The Chancery Court dismissed the purchaser’s complaint. It agreed with the lienor that New Jersey’s statutes do not reference allocation by lot or tract. The Court believed that the primary purpose of the lien law was to simplify the lien process. It held that requiring the subcontractor to file thirteen NUBs, thirteen arbitration demands, and thirteen lien claims contradicted the intent of the statute. As a result, the lower court rejected the owner’s contention that the statute did not cover her home because the title of the statute referred only to condominiums and cooperatives. Instead, it held that references to “real property” in the statute should be broadly defined to include her home. The court was strongly influenced by the homeowner’s purchase of the unfinished home with knowledge of the lien. Mistakenly, the lower court believed that the deposit was available at the closing to pay the lien, but the parties had chosen not to do so. The buyer appealed.

The Appellate Division reversed and remanded for further proceeding consistent with its opinion. It noted that the statute’s purpose is not only to help secure payment to contractors and subcontractors, but also to ensure the rights of property owners who have met their financial obligations and to preclude imposing upon them the burden of double payment for work and materials. It thus strictly construed the applicable statutory provisions giving rise to a lien claim. It held that legislature did not intend that the availability or extent of protections afforded residential consumers be dependent on whether the owner lives in a single-family home or lives in a unit that is part of a larger complex. It ruled that the statute providing for allocation by lot or tract governs all residential construction contracts. Thus, it found that the lien attached only to a proportionate share of the lots included in the project’s residential construction contract. The Court stated that the construction contract required the subcontractor to apportion for the services and materials it furnished on a lot by lot basis. Finding that the amount due the subcontractor could be easily allocated and identified for each lot, it opined that the subcontractor was only entitled to the value of services and material it furnished to the owner’s lot, but not for the value of services and material provided to the other lots in the project.

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