What is Meant by the Requirement of Filing a Mechanic’s Lien in Good Faith?
If you look in detail at the case law, some court decisions require as a prerequisite, that a mechanic lien be filed in good faith. What exactly does that mean and should we be concerned with that requirement?
Without being irreverent or flip, it happens in very few cases and it’s not something that should keep you up at night. In other words, it only applies in substantially unreasonable or outrageous cases. In almost all situations, it doesn’t even arise during the trial.
The genesis of the rule is that the mechanic’s liens statutes protect only those in good faith who furnish labor or materials. As a corollary, it is meant to protect the innocent from having their interests in real property encumbered by liens outside the contract or of which they are unaware.
Here are some examples in which the court expunged or denied a mechanic’s lien for bad faith misconduct of a contractor:
1. The contractor billed the homeowner for expensive plumbing fixtures, sinks, and granite table tops. A private investigator was able to get into the newly constructed residence of the contractor and verified in the materials have been installed at that location.
2. A general contractor claimed an additional $10,000 was due because the custom stairwell subcontractor had to re-fabricate the stairs because they were not flush with a landing. In actual fact, the sub did no such thing and the money was pocketed.
3. An engineering firm billed a client over $100,000 for designing and installing soldier piles that was meant to shore up a downward slope at the back of the property. Although some minor retaining walls were installed, that engineering work was never done.
This also means that typical disputed items, such as increased pricing for materials, extras, extended overhead because of delays, ambiguous drawings or specifications, charging for additional work to correct punch list items that the contractor alleges were not his responsibility, and similar items, would not defeat mechanic’s lien.
So without being too cocky, continue to perform professionally, but do not be unduly alarmed if you get an attorney’s demand letter that alleges bad faith compliance.