Supreme Court Rules that Mechanic's Lien is Void Due to Willful Exaggeration and Homeowners are Entitled to Damages

The lien law affords contractors a safeguard for payment in connection with the improvement of real property in the form of a mechanic’s lien, which can ultimately be foreclosed like a mortgage. This is separate from, and in addition to, any breach of contract or other claims that may be asserted against the non-paying owner or contractor in connection with the project. In the recent case of Gregory Allan Cramer & Co. Inc. v. Robert Edward Rescoe and Erin Stacy Rescoe, the Court also reminds us that the amount stated in the lien must not be willfully exaggerated. If a lien is found to have been willfully exaggerated, courts have authority to, among other things, void the lien and award statutory damages to property owners. Cramer also stands for the principle that a construction contract for a home improvement project can be deemed unenforceable if the contract is not compliant with applicable consumer protection statutes, or is ambiguous with respect to key provisions—such as the project completion date.

In Cramer, the Rescoes hired Cramer & Co. an interior designer and contractor, to renovate and furnish their home in Westchester County. The contract entitled Cramer & Co. to a 25% commission on the total net budget, and required them to provide detailed documentation for all goods and services. The Rescoes ultimately paid Cramer & Co. over $780,000, though the certificate of occupancy (CO) was never procured. A dispute arose over the final balance, which Cramer & Co. claimed to be $152,924.90. This was substantially more than the previously discussed remaining balance of $43,000.

The Rescoes alleged that the mechanic’s lien filed by Cramer & Co. was willfully exaggerated. In doing so, they cited discrepancies such as inflated invoices, missing receipts, and goods that did not constitute permanent improvements. The court noted that some items listed as “gifts” or “free of charge” were later included in the lien claim. The Rescoes also argued Cramer & Co.  failed to perform agreed work including, but not limited to, obtaining the CO. (The Rescoes also claimed that Cramer & Co. took affirmative steps with the village to impede the CO procurement process.)

The court found that Cramer & Co.’s testimony was not credible, and it determined that the lien was willfully exaggerated. The court also found that Cramer & Co. acted in bad faith and breached the contract by failing to complete the work, and by obstructing the CO process. Specifically, the record showed that the lien included items explicitly waived, or never agreed upon by and between the parties.

The court further rejected Cramer & Co.’s breach of contract claims due to its non-compliance with Section 771 of the General Business Law (which provides for certain requirements in home improvement contracts), lack of performance, and absence of agreed pricing or documentation. As a result, the court (i) declared Cramer & Co.’s  mechanic’s lien void due to its willful exaggeration; (ii) awarded the Rescoes  $109,924.77 in statutory damages (the difference between the lien amount and the previously agreed-upon balance), plus costs and prejudgment interest at 9%; and (iii) ordered Cramer & Co. to pay the Rescoes’ attorneys’ fees as the non-prevailing party under the contract.

This case underscores the importance of correctly identifying the amounts to be included in a mechanic’s lien filing, and the grave consequences of failing to do so. Additionally, the case reminds us that it is critical for home improvement contractors and owners to only enter into contracts that are compliant with Section 771 of the General Business Law, as well any local requirements.

If you would like more information regarding this topic please contact Andrew E. Zeyer at azeyer@wbgllp.com or call (914) 607-6485