Having not been paid by your client, you filed a mechanics’ lien, liening underlying property to protect your right to payment. However, the mechanics’ lien you filed was bonded. What does that mean for you as far as collecting a debt in New York goes? What next steps should you take?
To remove the lien from the underlying property, the general contractor, owner or another purchased a surety bond to “bond off the lien.” The bonding of a mechanics lien transfers the lien from the property to the cash bond. The mechanics’ lien remains in effect, it’s what the lien attaches to that changes.
There are times when you will be paid part or all of the sum owed merely by filing out the mechanics’ lien. But, generally, you will probably not get paid without additional work to extend or enforce the lien.
Getting Paid With a Bonded Mechanics’ Lien
The posting of a bond does not relieve you of the duties or responsibilities related to the mechanics’ lien. If you want to continue to maintain a valid lien you must make sure to continue to extend the mechanics lien or foreclose on it before the lien expires. You need to undertake the same steps you would have before bonding the lien.
The posting of a bond does not result in any relief for you. You must still extend the lien as allowed by law. Alternatively, you can foreclose on the lien. When a bond is posted, the insurance company is named as a party as a surety in the lien foreclosure case.
You will lose the lien if you fail to extend or foreclose on it. Lien law is clear: If you fail to extend the mechanics lien within the one-year lien period as mandated by law, the lien will expire and the bond canceled. The party who bonded the lien may request that the premium paid to post the bond be returned to them.
This is exactly what happened to one of our clients before they hired us.
Our client was not paid for work completed in a NYC co-op building. They were brought in by the general contractor on the job, but they weren’t sure at the time if they wanted to pursue the general contractor for payment. They knew if they wanted to protect any immediate lien rights they might have against the property, they needed to file a mechanics’ lien. They filed the lien within the timeframe allowed by NY lien law. The lien was served and filed properly.
Within two months of filing, a bond was posted and the lien discharged against the property. The creditor, unfortunately, mistakenly believed they only needed to have the lien bonded. The creditor failed to file an action to foreclose the lien or to secure an order continuing the lien within a year as required by NY lien law, section 17.
Since the client failed to take action, the Iien lapsed and was discharged. The funds paid were returned to the general contractor. Although the client’s bonded mechanics’ lien was discharged, they were not out of luck. We could not pursue foreclosure of the mechanics’ lien against the property, however, we were able to file a civil debt collection action against the general contractor.
Filing a mechanics’ lien is not the only step you can take to get paid. However, it is a good step to take to protect your rights as they relate to the improvement of a property. To learn more about the debt collection options available, contact Frank, Frank, Goldstein and Nager for a consultation.
