In a previous post, I explained that the way Connecticut substitutes bonds for mechanic’s liens needs to be changed. I have now been honored to participate in a group that drafted proposed legislation for this purpose, which has been presented to the Connecticut General Assembly as Raised Bill No, 5428.
On Tuesday, March 10, 2020, there is a public hearing on the Raised Bill. If I were allowed to testify, I would offer the following:
Our mechanic’s lien laws serve the important purpose of allowing those who provide labor, materials, and/or services for the improvement of real property without payment to obtain a security interest in improved property, but it was never the intention of our mechanic’s lien laws to prevent the free transfer of real property. For that reason, Conn. Gen. Stat. § 49-37 allows a person interested in the improved property to substitute a surety bond for the mechanic’s lien. In that situation, the lienor’s alleged debt is still secured, but the property owner may sell or refinance the improved property. The problem is that the process required by Conn. Gen. Stat. § 49-37 is cumbersome and time consuming. First, the party seeking to substitute a bond for a lien must file an application with the court. Second, the court will schedule the matter for a hearing. Third, most Judicial Districts require an initial status conference before scheduling a hearing during which the court attempts to mediate a resolution. Fourth, if the court’s attempt at mediation fails, a hearing is held. Fifth, after the hearing, the Court has up to 120 days to rule on the application. In total, it could take up to 6 months to have a bond substituted for a mechanic’s lien, which is far too long.
This Raised Bill will allow a bond to be substituted for a mechanic’s lien without any court intervention. Instead of taking months, a property owner will be able to substitute a surety bond for a mechanic’s lien within days of its property being attached. Such a process is fair and necessary because a mechanic’s lien is allowed to attach real property without any legal process. Anyone that provides labor, materials and/or services for the improvement of real property valued in excess of $10 and is not paid can file a mechanic’s lien on the land records and the lien is in place. Thus, having a process by which a bond can be substituted for a lien without judicial intervention wound create parity between the lienor and owner and protect everyone’s rights.
The Raised Bill is consistent with the laws of our neighboring states as well. Massachusetts, Rhode Island, and New York all have processes that are similar to the Raised Bill. In fact, most states across the country allow for bonds to be substituted for mechanic’s liens without any judicial intervention.
Finally, the Raised Bill will resolve a split of authority between our Superior Courts and a conflict within our statutes. Some decisions hold that, in a lien foreclosure action, the lienor is only entitled to the attorneys’ fees for the foreclosure aspects of the case, whereas other decisions hold that the lienor is entitled to reasonable attorneys’ fees associated with proving the underlying debt. As a result, it was arguable that no attorneys’ fees were not recoverable when a bond was substituted for a mechanic’s lien, because there was no foreclosure aspect of the case.
This legislature previously attempted to resolve this conflict by amending Conn. Gen. Stat. § 52-249 to state that “the same costs and fees shall be recoverable as part of the judgment in any action upon a bond which has been substituted for a mechanic’s lien.” Thus, it became clear that attorneys’ fees should be recoverable against a bond substituted for a mechanic’s lien, and, by implication, that said attorneys’ fees should include the cost of proving the underlying debt. However, Conn. Gen. Stat. § 49-37 still only stated that the bond amount would be equal to the principal amount of the mechanic’s lien plus interests and costs. Thus, it was often argued that the penal sum of the bond substituted for a mechanic’s lien did not have to include attorneys’ fees, and, if the attorneys’ fees were not in the penal sum of the bond, the attorneys’ fees could not be recovered from the surety. Thus, the Raised Bill solves this problem by making clear that, when a bond is substituted for a mechanic’s lien, the penal sum of the bond must cover the principal amount of the mechanic’s lien, plus interest, attorneys’ fees and costs.
If you should ever have any questions about substituting a bond for a mechanic’s lien, please give me a call at (203) 640-8825.
Scott Orenstein