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Complaint Against Cooperative in Action to Foreclose Mechanic’s Lien Is Dismissed as Cooperative Bonded the Lien

A contractor entered into a contract with a tenant-shareholder of a Cooperative to perform work on the shareholder’s unit. The tenant-shareholder allegedly did not pay for the work, so the contractor filed a mechanic’s lien and filed an action against the Cooperative seeking to foreclose on the lien.  The Cooperative filed a bond discharging the lien, under which a surety ensured that any amounts due to the contractor would be paid.  The Cooperative then moved to dismiss the action, arguing that it was no longer a necessary party to the litigation because, after the lien was bonded, any amount ultimately due to the contractor would be paid by the surety, not the Cooperative.  The contractor opposed dismissal and relied on prior court decisions holding that the property owner remains a necessary party in litigation on a mechanic’s lien, even after the lien has been bonded.

The court, observing that a split of authority exists on this issue, agreed with the Cooperative’s position. “Since the owner of the building ceases to have a stake in an action by a contractor against a tenant following the posting of a bond, wherein any subsequent action deals with the surety and not the real property, from a public policy point of view, there is no purpose in keeping the owner in the caption.  Indeed, to keep the owner of the building in the action would only serve to needlessly increase the costs associated with the ownership and management of real property in this State.”  Based upon the most recent decisions and the court’s view of public policy, the court “follow[ed] the rule that upon the filing of a bond discharging a mechanic’s lien, Lien Law § 37(7) supplants Lien Law § 44 in prescribing the necessary parties to the action, and causes the owner to no longer be a necessary party.  The case is Doma Inc. v. 885 Park Ave. Corp., 2018 NYLJ LEXIS 960 (Sup. Ct. N.Y. Co. Mar. 13, 2018).

This case is also a reminder for cooperatives to ensure that their alteration agreements make clear that the shareholder will be responsible for all expenses incurred in bonding and defending against any lien.