Many times after a mechanic's lien is filed, the owner will "discharge" the lien by filing a bond. What happens if the surety fails?

1. Surety
bonds
are
highly
useful
to
construction
lawyers
and
conveyancers
when
dealing
with
mechanics’
liens.
The
laws
governing
mechanics’
liens
and
the
use
of
bonds
to
protect
against
lien
enforcement
vary
from
state
to
state.
Despite
these
variations,
surety
bonds
are
often
employed
in
most
states
when
mechanics’
liens
have
been
=iled.
As
a
general
rule,
the
lien
is
discharged
from
the
real
estate,
and
transferred
to
the
bond.
The
property
may
then
be
conveyed
free
and
clear
of
the
lien,
and
the
lien
no
longer
will
impede
the
=low
of
payments
for
construction
in
process.
One
question
that
has
been
raised
in
only
the
rarest
of
circumstances
asks
what
consequences
result
when
the
surety
on
the
bond
becomes
insolvent.
Not
long
ago,
such
a
question
would
have
been
dismissed
as
the
outlandish
concerns
of
a
person
wholly
ignorant
of
the
practical
realities.
After
all,
the
sureties
on
most
signi=icant
construction
bonds
are
insurance
companies,
and
state
insurance
commissioners
have
been
especially
solicitous
of
=idelity
and
surety
companies.
The
changed
=inancial
environment
of
2009
makes
the
question
seem
less
outlandish.
Yet
for
all
that
it
appears
to
be
less
outlandish,
there
are
no
recent
reported
decisions.
Indeed,
the
case
law
is
markedly
scarce,
and
only
two
reported
United
States
cases
have
been
located
during
the
past
century.
The
result
will
depend
in
no
small
part
on
the
mechanics’
lien
act
of
the
pertinent
state.
In
a
state
such
as
Illinois,
where
there
is
no
mechanism
short
of
settlement
or
judgment
to
eliminate
a
lien,
the
insolvency
of
a
surety
makes
no
difference,
because
the
securing
of
the
bond
had
no
legal
effect.
In
most
jurisdictions,
however,
the
=iling
of
a
surety
bond
is
held
to
discharge
the
lien.
In
Re
Trustees
of
German
Lutheran
Evangelical
Congregation,
44
MD
457
(1976),
the
court
held
that
the
lien
having
been
discharged
by
=iling
a
bond,
the
subsequent
insolvency
of
the
parties
liable
on
the
bond
was
not
a
basis
for
reinstating
the
lien.
A
contrary
result
obtains
in
New
York.
In
Re
B.
Lindner
&
Bro.,
147
Misc.
51,
262
NYS
821
(Sup.
Ct.
NY
County
1933),
a
mechanic’s
lien
had
been
discharged
by
=iling
a
bond.
When
the
bond
proved
to
be
worthless,
owing
to
the
insolvency
of
the
principal
and
the
surety,
the
lienor
petitioned
the
court
to
reinstate
the
lien
unless
the
owner
furnished
new
or
additional
security
satisfactory
to
the
court.
That
petition
was
granted
n
the
strength
of
§149
of
the
Civil
Practice
Act,
which
read
Ԥ
149.
Additional
security.
Where
a
bond
or
an
undertaking
has
been
or
shall
be
given
in
an
action
or
a
proceeding,
further
or
other
security
may
be
ordered
in
addition
to
such
security.
Upon
cause
shown
an
examination
or
re-­‐examination
of
any
surety
upon
any
such
undertaking
may
be
ordered
and
upon
such
examination
or
re-­‐examination
a
new
surety
or
sureties
may
be
required
to
be
furnished
or
further
or
other
security
to
be
given
in
addition
to
the
security
already
given.
Such
order
may
be
enforced
by
any
disposition
of

2. the
action
or
proceeding
as
may
be
proper.’
New
York
recodi=ied
its
civil
procedure
law
in
1964,
replacing
the
Civil
Practice
Act
with
the
CPLR.
At
that
time,
the
substance
of
CPA
§149
was
carried
forward
into
CPLR
§2508,
but
the
last
sentence
of
§149
was
not
re-­‐enacted.
Instead,
the
Court
was
granted
very
broad
powers
to
re-­‐examine
the
=inances
of
a
surety
on
a
bond,
and
potentially
to
require
the
surety
to
“justify”
anew:
Upon
motion
of
any
interested
person,
upon
notice
to
the
parties
and
surety,
and
to
the
sheriff,
where
he
was
required
to
be
served
with
the
undertaking,
the
court
may
order
a
new
or
additional
undertaking,
a
justi=ication
or
rejusti=ication
of
sureties,
or
new
or
additional
sureties.
Unless
otherwise
provided
by
order
of
court,
a
surety,
on
the
undertaking
shall
remain
liable
until
such
order
is
complied
with,
but
the
original
undertaking
shall
be
otherwise
without
effect.
The
provision
of
CPLR
2508
that
the
original
undertaking
is
without
effect
if
the
court
grants
relief
under
the
statute
is
telling
when
compared
to
the
terms
of
Lien
Law
§19(a):
“ The undertaking is effective [to discharge the lien] when * * *
served and filed.” If the original undertaking becomes “without effect,” then it
can no longer be effective to discharge the lien.
The
very
provision
that
the
Lindner
court
relied
upon
to
permit
it
to
vacate
the
order
discharging
the
liens
is
no
longer
on
New
York’s
statute
books.
Moreover,
under
current
practice,
there
is
no
court
order
issued
in
connection
with
“bonding
off”
a
lien.
Therefore
there
does
not
appear
to
be
a
basis
in
law
to
invoke
CPLR
§2508
to
require
the
owner
or
contractor
to
furnish
a
new
bond,
or
secure
a
new
surety.
There
is
some
authority
that
“a
lien
which
is
discharged
by
bond
is
not
vacated,
and
the
lien
remains,
as
does
the
obligation
of
the
property
owner.”
76A
NY
Jur2d.
Mechanics’
Liens
§139.
However,
the
authorities
cited
in
the
NY
Jur.
article
are
weak
at
best
and
relate
primarily
to
the
form
of
the
lien
foreclosure.
Even
that
argument
has
been
diluted
by
the
enactment
of
Lien
Law
§44-­‐b,
which
provides
that
the
owner
is
not
a
necessary
party
defendant
to
enforcement
proceedings
under
§44.
Even
though
the
lienors
may
be
relegated
to
proceedings
in
the
Liquidation
Bureau,
they
should
not
lose
heart.
As
a
general
rule,
Lien
Bonds
go
the
head
of
the
line
in
these
proceedings,
and
it
is
the
holders
of
performance
bonds
who
will
bear
most
of
the
pain.
The
lienor
still
has
his
full
set
of
remedies
against
the
principal
on
the
bond,
who
presumably
had
enough
assets
to
induce
a
surety
to
underwrite
the
bond.
More
importantly,
the
lienor’s
ability
to
resort
to
the
trust
fund
provisions
of
the
Lien
Law
is
not
impaired
by
the
=iling
of
a
bond,
and
represents
a
powerful
set
of
tools
to
obtain
the
payment
that
is
due.