Discharging or Vacating a Mechanic’s Lien by Surety Bond
Discharging or Vacating a Mechanic’s Lien by Surety Bond
Are you a property owner or general contractor? Was a Mechanic’s Lien or Construction Lien Claim filed against your project or property. Is the lien claim false? Amounts wrong or over exaggerated? Is the lien now impeding your project and causing you negative consequences? Instead of settling the lien, fight the claim and bond the lien off by filing a surety bond. By filing a surety bond, you are discharging the mechanic’s lien from the title of the property. What is a mechanic’s lien? Let’s jump in.
A mechanic’s lien is a legal claim against a property’s title for unpaid work or materials used in construction or improvement of the property. Filing a mechanics lien (also known as a construction lien claim) is a way for a contractor, subcontractor, or material supplier to secure payment for services and materials provided to a construction project. If the owner of the property or the general contractor fails to pay, the lien provides a means to recover the amount owed through a court action or the sale of the property. The lien attaches the amount owed to the title of the property in question.
The filing of a mechanic’s lien can become a hardship for the property owner as it may block financing, construction draws or disbursements, a lien can put pressure from a lender requiring the lien to be satisfied or discharged.
New York Lien Law provides a few avenues to discharge a mechanic’s lien. New York Lien Law § 19(4) allows a lien to be discharged by filing a surety bond. Filing of a surety bond (also known as filing a bond discharge) is a mechanism for temporarily removing a mechanic’s lien from the title of the property. The property owner or contractor can “Bond off” the Mechanic’s Lien.
Another method of discharging a lien in New York is: Discharge of Mechanic’s Lien by Deposit with the clerk. New York Lien Law § 20 allows a mechanic’s lien to be discharged by payment of money into court. A mechanic’s lien may be discharged by depositing with the county clerk a payment equal to the amount claimed in the lien, with interest to the time of the deposit.
A surety bond deposits 110% of the value of the mechanic’s lien with the courts. The bond guarantees the lienor any payment that is due to them with interest should they win the case in a court of law.
There are many benefits to filing a Surety Bond against a Mechanic’s Lien, including:
- Contractually Obligated: If you are the general contractor, a sub-contractor, a tenant or another party with a vested interest – you may be contractually obligated to keep the property lien free.
- Release of the lien: By filing a surety bond, it removes the mechanic’s lien from the property. The bond attaches to the mechanic’s lien until the lien is satisfied. This gives you the ability to sell or refinance.
- Preservation of the property: Filing a surety bond can help preserve the property owner’s ownership rights and prevent the property from being sold to satisfy the debt. This can be particularly important for commercial or residential properties that are important assets for the property owner.
- Protection of credit score: If a mechanic’s lien is filed against a property owner, it can negatively impact their credit score and ability to obtain financing in the future. Filing a surety bond can help protect the property owner’s credit score and financial reputation by ensuring that the debt is satisfied.
- Cost-effective alternative: Filing a surety bond can be a cost-effective alternative to paying the debt in full or engaging in lengthy legal proceedings. The property owner can often obtain the release of the lien by paying a percentage of the total amount owed, which is typically less than the full amount of the debt.
How much does it cost to file a bond discharge? The bond will be filed in the amount of 110% of the value of the lien. Does that mean I have to come out of pocket the full value? Not entirely; if you get approved for a collateral surety bond you can pay a premium, similar to paying a premium for an insurance policy. The premium will vary depending on the value of the lien and the credit rating, or “risk,” of the bond holder.
Who issues the surety bond? Does New York Bond Filing Agent issue the bond? A surety company, licensed by the state, issues the bond. New York Bond Filing Agent handles the filing of the bond discharge with the appropriate court or clerk. The surety will request a copy of the mechanic’s lien and to complete a bond application.
Once a mechanic’s lien has been bonded, what happens? You can simply wait it out and see how the other party reacts to the lien being bonded. Hopefully the lienor decides to not pursue their lien or a bond claim. If a lien is not extended, the lien would expire and become void. If a lien is not extended, the lienor loses the right to foreclose on their lien. Another option is to proceed to challenge the
When a mechanic’s lien is discharged by bond, the surety bond attaches to the lien. Once the lien has been bonded, the lienor can alternatively name the surety as a defendant to a lawsuit, opposed to the property owner.
If you have any questions on the process of filing a surety bond to discharge a mechanic’s lien, please call New York Bond Filing Agent. Visit us on the web at www.NewYorkBondFiling.com to submit your bond request.
Jennifer Spinning, Principal
New York Bond Filing Agent
212-500-1229 x 1001 (office)
NY Bond Filing. 50 East 42nd Street, New York, NY 10017.
