This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.
COUNTY TREASURER -- Powers and Duties (when mechanics' lien deposit may be refunded without a court order); (entitlement to CPLR §8010 fee when mechanics' lien deposit refunded without a court order)
CIVIL PRACTICE LAW AND RULES, §§2607, 8010(1); LIEN LAW, §§19, 20: The chief fiscal officer of a county may refund a deposit made to discharge a mechanic's lien without a court order only when either (1) a certificate of satisfaction or release of a lien has been filed with the county clerk's office, or (2) the lienor has failed to commence an action to foreclose such lien or to secure an order continuing the lien within one year from the time of filing the notice of lien. The question of whether the lienor has failed to commence such an action is a factual question which must be resolved, in the first instance, by the county treasurer. The chief fiscal officer is entitled to the fee in CPLR §8010(1) for money paid out of court when a mechanic's lien deposit is refunded without a court order. A surety bond may be substituted for a mechanic's lien deposit, but a court order is required.
This is in reply to your request for a legal opinion regarding the circumstances under which a county treasurer may properly refund a deposit to discharge a mechanic's lien without a court order. We have also been asked whether a surety bond may be substituted for money previously paid into court discharging a mechanic's lien, and if such substitution is permissible, whether it may be accomplished without a court order.
Pursuant to section 20 of the Lien Law, a mechanic's lien involving a private improvement may be discharged:
after the notice of lien is filed at any time before an action is commenced to foreclose such lien, by depositing with the county clerk, in whose office the notice of lien is filed, a sum of money equal to the amount claimed in such notice, with interest to the time of such deposit . . . . A deposit of money made as prescribed in this section shall be repaid to the party making the deposit, or his successor, upon the discharge of the liens against the property pursuant to law.1
This section, however, also requires that all money so deposited "shall be considered as paid into court and shall be subject to the provisions of law relative to the payment of money into court and the surrender of such money by order of the court." Generally, "[n]o property paid into court, or income from such property, shall be paid out except upon order of the court... " (Civil Practice Law and Rules [CPLR], Rule 2607). The question becomes, therefore, whether there are any exceptions to the general rule that money may be paid out of court only upon court order. Specifically, we must determine what is meant by the provision that money deposited to discharge a lien shall be repaid to the party making the deposit "upon the discharge of the liens against the property pursuant to law" (emphasis added).
The six circumstances under which a lien may be discharged "pursuant to law" are set forth in section 19 of the Lien Law. In summary, they are as follows:
1. By a certificate of the lienor of satisfaction or release which has been filed in the county clerk's office.
2. By the failure to commence an action to foreclose upon the lien within the time prescribed by law (generally, within one year from the filing of the notice of the lien) or to secure an extension.
3. By a court order pursuant to section 59 of the Lien Law, cancelling the lien for failure to prosecute.
4. By court order upon the filing of an undertaking approved by the court.
5. By court order rendering a final judgement on the merits in favor of the owner.
6. By a court order of dismissal based upon the invalidity of the lien.
In Application of Tumac Realty Corp., 203 Misc 649, 123 NYS2d 642, (City Court, City of New York, 1952), the court stated that:
These six subdivisions set forth the circumstances under which a mechanic's lien may become discharged, pursuant to law. These provisions, therefore, must be deemed to be what the Legislature had in contemplation when it provided in Section 20 that the funds shall be returned to the owner 'upon the discharge of the liens against the property pursuant to law'.
To the extent that a mechanic's lien is discharged pursuant to subdivisions (3), (4), (5) or (6) of section 19 of the Lien Law, a court order is expressly required in order for the chief fiscal officer of a county to pay out money which was deposited for the purpose of discharging a mechanic's lien. However, the provisions of subdivisions (1) and (2) of section 19 of the Lien Law appear to be self-executing and, therefore, do not require a court order authorizing a refund of the deposit to the depositor (Martens v O'Neill, 131 App Div 123, 115 NYS 260 [2nd Dept., 1909]; Bretzfelder v Froman, 76 Misc 2d 1063, 352 NYS2d 549 [Westchester Cnty. Ct., 1973]).
The provisions of subdivisions (1) and (2) of section 19 of the Lien Law constitute an implied exception to CPLR, Rule 2607. Therefore, we conclude that the chief fiscal officer of a county may refund a deposit made to discharge a mechanic's lien without a court order only when either (i) a certificate of satisfaction or release of a lien has been filed with the county clerk's office, or (ii) the lienor has failed to commence an action to foreclose such lien or to secure an order continuing the lien within one year from the time of filing the notice of lien.
In order to take advantage of the provisions of these subdivisions, the depositor must submit appropriate documentation to the chief fiscal officer. In the case of a discharge pursuant to subdivision (1), the depositor should submit a certificate "of the lienor, duly acknowledged or proved and filed in the office where the notice of lien is filed, stating that the lien is satisfied or released" (Lien Law, §19).
In the case of a discharge pursuant to subdivision (2), the situation is less clear. There are no statutes or regulations specifying what action a depositor must take in order to obtain a refund after the lien period has expired.2 Moreover, there appears to be no pertinent case law. However, we believe that it is incumbent upon the depositor to submit appropriate proof to the county treasurer that the lien has lapsed by operation of law. Whether the lienor has failed to commence an action to foreclose a mechanic's lien within the required period is a question of fact. However, a practical problem exists in determining whether an action has been commenced because establishing this fact requires proof of a negative. At the very least, the records in the county clerk's office of the county in which the real property is located and of any county in which any party resides should be checked to determine if a copy of a summons in an action to foreclose upon the lien or to extend the duration of the lien has been timely filed - although even such a review would not conclusively establish that no action had been commenced.3
The statutes do not provide any standard by which a county treasurer may determine absolutely that the lienor has failed to commence an action within the required time. Therefore, a question exists whether a county treasurer will be protected against liability to the lienor if the county treasurer makes a refund of the deposit based upon a good faith determination that the lien has expired by operation of law when, in fact, such determination was incorrect. It is possible under these circumstances that the county treasurer would be held liable to the lienor for the amount of money returned to the depositor. Therefore, it appears that regardless of the proof which the depositor submits to a county treasurer in support of his contention that the lienor has failed to commence an action to foreclose the lien within the required time period, the county treasurer would incur some legal risk in returning the deposit to the depositor without a court order. In order to reduce this risk, we believe that a county treasurer should consult with the county attorney for advice on the degree of proof which would be acceptable. Whatever proof which is received and determined to be acceptable should, as a matter of prudence, be filed with the county clerk as part of the lien docket and a copy certified by the county clerk should be provided to the county treasurer. In summary, no payments should be made without a court order unless either the provisions of subdivision (1) of section 19 have been strictly adhered to, or the party seeking return of a deposit submits proof to the satisfaction of the county treasurer that no action to enforce the lien has been timely commenced so that a discharge may be granted pursuant to subdivision (2). In all other cases, the refund of such deposits may be made only upon court order.
Having concluded that a court order is not required for a county treasurer to return a deposit in discharge of a mechanic's lien in the circumstances described in subdivisions (1) and (2) of section 19 of the Lien Law provided that appropriate documentation is provided, we address the question whether a county treasurer is still entitled to collect a fee pursuant to CPLR, §8010. A county treasurer is entitled to a fee of "two percent upon a sum of money paid out of court by him" (CPLR, §8010). We have previously opined that the fee provisions of CPLR, §8010 are applicable to a deposit of funds made pursuant to section 20 of the Lien Law because such deposit is considered as money paid into court (1982 Opns St Comp No. 82-11, P 13). However, because Opn No. 82-11, supra, was in response to a question relating to a court order directing a commissioner of finance to make payment to the mechanic's lienor, it did not address the applicability of the two percent fee to money paid out without a court order.
In this particular situation, we believe that the conclusion should be the same. We note that subdivision (1) of section 8010 is not limited to a sum of money paid out of court pursuant to court order. Rather, the fee applies "upon a sum of money paid out of court". As we have discussed above, a deposit to discharge a mechanic's lien may be paid out of court either pursuant to a court order, in the circumstances described in subdivisions (3), (4), (5), and (6) of section 19 of the Lien Law, or without a court order, in the circumstances described in subdivisions (1) and (2) of section 19 of the Lien Law. Because the duties and responsibilities of a county treasurer are the same whether a sum of money is paid out of court pursuant to court order or paid out pursuant to operation of law, we see no justification in denying a county treasurer his two percent fee in those circumstances where a sum of money is paid out of court pursuant to operation of law.
Finally, we turn to the question of whether a surety bond may be substituted for money previously paid into court discharging a mechanic's lien and, if such substitution is possible, whether it may be accomplished without a court order. For the reasons set forth below, we conclude that a surety bond may be substituted for a mechanic's lien deposit, but that a court order is required.
An owner or contractor who is subject to a mechanic's lien may execute an undertaking with two or more sufficient sureties or he may submit a bond or undertaking executed by a fidelity or surety company and "upon the approval of the undertaking by the court, judge or justice an order shall be made by such court, judge or justice discharging such lien" (Lien Law, §19). The statute provides that a copy of the undertaking and notice of the application for an order to discharge the lien must be served upon the lienor or his attorney not less than two days before such application for such order is made. It is clear, from the provisions of subdivision (4), that a court order is required in order to discharge a mechanic's lien by means of an execution of a surety bond. This is so even if the surety bond is not in substitution for money previously paid into court to discharge the mechanic's lien. All that remains of the question, therefore, is whether a surety bond may be substituted for a mechanic's lien deposit. While a substitution is not expressly authorized by the provisions of subdivision (4) of section 19, the courts have held that such substitution is permissible (see, Tumac Realty Corp., supra). In any event, a court is responsible ultimately for determining whether or not to permit such a substitution.
April 16, 1992
Cornelius F. Healy
Deputy State Comptroller
1 While section 20 of the Lien Law refers to the "discharge" of a lien upon a deposit with the county clerk, pursuant to case law it has been held that the lien is not discharged but rather is simply shifted from the real property in question to the funds so deposited with the county treasurer (Hafker v Henry, 5 AD 258, 39 NYS 134 ).
2 We note the absence of any clear procedures in this regard was recognized by the court in Bretzfelder v Froman, supra, where the court, noting that no court proceeding was necessary, ruled that an owner in such a situation is "entitled to a summary order cancelling such lien of record so as to remove any possible cloud on his title".
3 See CPLR, §306-a. Presently, a copy of the summons with proof of service must be filed within 30 days after service is complete. Effective July 1, 1992, a copy of the summons must be filed prior to its service (section 394 of chapter 55 of the Laws of 1992). Because an action involving a mechanic's lien which has been discharged by a cash deposit or an undertaking and surety bond need not be brought in the county wherein the real property is located, theoretically the records of each county clerk in the State would have to be checked (Appl. of Stephen Manor Homes, 201 Misc 721, 108 NYS2d 469 ; Axinn & Sons Lumber Co., Inc. v Northwood Projects, Inc., 86 Misc 2d 890, 385 NYS2d 487 ).