Upping the Ante: Getting a Larger Lien Discharge Bond Amount
The New York Lien Law provides that one can “bond off” a mechanics lien by posting an “undertaking” (i.e., bond) in an amount equal to 110% of the amount of the lien. The extra 10% is intended to cover prejudgment interest which will accrue between the filing of the lien and resolution of the foreclosure action.
But what if (as if often the case) the litigation drags along for years and the bond’s amount is now well short of the lien and accumulated interest (which, in New York state courts is 9% per annum)? One can apply for a court order requiring the amount of the bond to be increased.
In a recent case, the lienor, Waterworks Operating Company, filed a lien in February 2020 for plumbing fixtures it delivered to a construction project. The owner immediately bonded off the lien. Waterworks then commenced a lien foreclosure action. After typical litigation delays, and realizing that the bond amount no longer covered two years of accrued interest, the lienor’s counsel sought to have the amount of the bond increased by an additional $252,393 (approximately 3 years’ interest!). The court granted the motion.
The court reasoned that section 2508 of the Civil Practice Law and Rules (not the Lien Law) provides that: “upon motion…the court may order a new or additional undertaking.” Since a lien foreclosure action is equitable in nature, a court may award pre-judgment interest between the time the obligation became due and the time the judgment is entered.
Thus, the court ordered the owner to post additional security of $252,393 within 30 days of the service of its order.
Smart move by the lienor -- particularly in an era of endless litigation delays. While the presence of a surety reduces concerns about a judgment-proof adversary, it is always nice to have a bond in hand in an amount sufficient to cover both the amount of the lien and multiple years’ interest.