You Must Renew a Bonded Lien, Or Else
Of the many traps lurking in the New York Lien Law, perhaps the one that trips up the most contractors is the requirement that a mechanic’s lien still must be renewed after it is bonded. But in a recent case, even though a contractor fell into that trap yet again, the judge gave it a second chance, for an unusual reason.
The New York Lien Law is fairly esoteric, baffling laypeople and judges alike. It is filled with traps for the unwary because it is not always logical or intuitive.
As one example, the Lien Law provides in section 17 that a mechanic’s lien expires after one year unless (a) it has been extended or (b) an action to foreclose the lien has been commenced. Not infrequently, the lien is bonded by the owner or contractor, thus removing it as an encumbrance upon the real property and substituting the bond for the property. But once the lien is no longer a lien on the property, does it still have to be extended or foreclosed before the year is up? Yes, and failing to do so results in the automatic expiration of the lien.
This was the trap that befell the contractor in EZ Runner Construction Corp. v. Blue Nirvana, LLC. The contractor had filed a lien, which was bonded by Blue Nirvana and its surety company. The contractor then let more than a year go by before starting a lawsuit for breach of contract, unjust enrichment, and lien foreclosure. The court held that a foreclosure action must be commenced within one year of the filing of the lien (or the lien extended) even though it was bonded off the property.
Section 17 of the Lien Law provides that even after a lien is bonded it is still a lien—albeit attaching to the bond rather than the property—and still must be renewed. Because the contractor did not foreclose within one year, the lien lapsed automatically and the foreclosure cause of action was dismissed.
However, the contractor had one last gasp. Because it had “privity of contract” with the owner (i.e., it was a direct contractor, not a subcontractor) it could pursue either a breach of contract action directly or one for the “unjust enrichment” by the owner of the value of the contractor’s services. Often, in these situations, the unjust enrichment claim is thrown out as duplicative of the breach of contract claim. But here, the owner denied the existence of a contract so the contractor was allowed to pursue the unjust enrichment claim in the alternative.
In essence, the court threw it a lifeline after holding that it had fallen into one of the most common traps in the Lien Law. Remember to extend your liens even after they are bonded.
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Further information on mechanic's liens can be found here:
- What Can You Lien For? And What Not?
- Filing a Mechanic's Lient. Again. And Again.
- Willful Exaggeration of a Mechanic's Lien - Only Established at Trial
- A Willfully Exaggerated Lien - It's Not Just the Amount