There are typically two reasons that a mechanic’s lien in New York gets bonded: 1) to remove the mechanic’s lien from the property itself and remove the encumbrance from title; and 2) to prevent the owner from being sued in a foreclosure action. A common mistake by inexperienced lienors is to name the owner in the foreclosure action as a party even though a Lien Law Section 19(4) discharge bond has already been obtained.
Lien Law Section 44-b says that once a mechanic’s lien discharge bond has been obtained pursuant to Lien Law Section 19(4) (or Section 21(5) in the case of a public improvement) the owner is no longer a necessary party to the lien foreclosure action. If the owner is named as a party, the proper procedure is to first send a notice to the attorney for the lienor demanding that the owner be immediately voluntarily removed from the action. Refusal to remove the owner voluntarily can result in sanctions against the lienor’s attorney under Rule 130-1.1 since the action against the owner is frivolous. If the owner is not removed, a motion to dismiss or a motion for summary judgment dismissing the owner should be quickly granted.
In addition to no longer needing the owner as a necessary party, all other lienors against the real property are no longer necessary parties as they normally would have been under Lien Law Section 44. Essentially, there are three necessary parties to the mechanic’s lien foreclosure action after a bond has been obtained: the party that hired the lienor (although even this is debatable), the principal on the bond and the surety that issued the bond. The principal on the discharge bond will be identified in the bond itself and is most easily described as the person that obtained and paid for the bond. Often, but not always, the principal on the bond is the person that hired the lienor to provide its labor or services.
Readers of this blog likely know that I am personally of the opinion that bonding a mechanic’s lien is a favor to the lienor. The lienor then has a nice pool of money to recover from in the event that it is successful in foreclosure and the lienor then does not need to deal with all of the hassles of a foreclosure sale. Also, because there are fewer necessary parties to the foreclosure action, the foreclosure process can be more time and cost effective.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or email@example.com