Mechanic’s Lien Discharge Bonds

Liens against property or public funds may be removed by a discharge of the lien. One method to discharge a ny mechanic’s lien is by discharging through a bond or deposit. N.Y. Lien Law §19. To discharge a mechanic’s lien in this manner, an owner or contractor may file a bond with the public entity or clerk of the county in which the mechanic’s lien was filed. The amount of the bond must be 110% of the lien amount, and also include a certificate of qualification issued by the superintendent of insurance. N.Y. Lien Law §§19(4), 20, 21(5).  In addition to the amount of the bond, the party posting the bond will also have to pay a premium to the surety that issued the mechanic’s lien discharge bond.  The amount of the premium can vary depending on the amount of the bond.  Liens may also be discharged by a comptroller who withholds at least one and one-half times the amount of the lien. N.Y. Lien Law §21(6).

However, mechanics’ liens may not be partially bonded. Sieburg v. Paddel, 134 N.Y.S. 403 (Sup 1912). For example, where a lien covers two parcels of property, a bond to discharge the lien on only one of the parcels is not possible.  Therefore, liens may be partially satisfied and discharged, but not partially bonded.

A bond may also be filed preemptively through § 37 of the N.Y. Lien Law to prevent any liens from being filed against the property, but may not be issued on public improvement projects. In this instance, the amount of the bond will be set by the court and may not be less than the amount unpaid on the contract. N.Y. Lien Law §37(1).

A discharge of a lien by bond or deposit is not an admission of guilt and the lienor is not automatically entitled to payment. Rather, the mechanic’s lien must be judicially established for the lienor to recover from the fund. Cooper v. Emmanuele, 25 A.D.2d 809 (4th Dep’t 1966). Establishing a lien against a bond is done in the same manner as if the lien was still attached to the property itself – through a lien foreclosure proceeding.

A mechanic’s lien discharge bond will cover only those liens that were specifically intended to be discharged. If an owner discharges a general contractor’s lien by a bond, a subcontractor who filed a lien after the general contractor’s lien was discharged cannot claim against the bond fund and the subcontractor’s lien will remain of record even though the general contractor’s lien has been discharged by the bond. Application of 101 Park Ave. Associates, 99 A.D.2d 428 (1st Dep’t 1984).

You can also read about mechanic’s lien discharge bonds here.  For more information about what happens after the bond is filed check out this article.

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