“It’s what you don’t know that gets you into trouble. Secrets of Bonding what you know for sure that just ain’t so.” A famous quote by? Let’s go over what you neto know about construction liens. They can have a big impact on construction contracts and companies.
A Mechanic’s Lien is filwhen:
A subcontractor or supplier on a construction project fails to be paid. The lien is a form of claim filagainst the project itself. For example, the unpaid mason (subcontractor) files a claim against the building owner. “My bricks and labor are in that façade. I can’t take them back now, but assert that I’m owmoney!”
Liens are uson non-governmental projects. Typically, claimants are prohibitfrom liening a public building – which is where Payment Bonds come in. Issuby surety companies, the payment bond is a resource to protect suppliers of labor and material from non-payment.
So far that’s all pretty straight forward. On private contracts unpaid subs and suppliers can file a lien. On government jobs they make a claim on the payment bond instead.
Here are some permutations worth knowing.
Release of Lien Secrets of Bonding
The lien can be released, or “bondoff,” by the filing of a (you guessit) Release of Lien Bond. This removes the lien from the property in question, which is beneficial for the project owner, while still providing financial protection for the plaintiff (unpaid sub or supplier.) The dispute is still unresolved, but the plaintiffs security shifts from the physical project to the surety bond.
A release of lien bond is not easy to obtain. But if a payment bond was issued, that surety has motivation to prevent a payment bond claim, and issuing the lien release bond could do so.
When the lien release bond is filed, it takes some pressure off the defendant (general contractor). You can assume the unpaid mason hopes the lien will cause the owner (who is the recipient of the lien) to force the GC to respond. When the lien is bondoff, that effect disappears from the project owner – but not the surety.
California, Mississippi, Arizona, Alaska and Washington use a slightly different procedure. On governmental projects a Stop Notice is filwhich freezes a portion of the project funds to protect the claimant. This forces action on the part of the GC, or they can file a Release of Stop Notice bond to keep the project funds flowing while dealing with the dispute.
Understand the Secrets of Bonding
Mechanic’s Liens are filagainst the project owner. The claim attaches to the real property and is recordagainst the property title – which therefore restricts the owner’s ability to dispose of the property.
With a lien, the claimant may be paid regardless of whether the owner paid the GC. In fact, the owner may have to pay twice: First to the GC then again to the sub / vendor claimant, to clear the lien (and property title).
Stop Notices “trap” contract funds, assuming there are funds to trap.
If the claimant files a Stop Notice after the funds have been disbursed, the Stop Notice has no value.
Other basic differences:
Unlike a lien, the stop notice does not give the debt any security.
The stop notice is sent to the relevant parties, but it is not legally recordsuch as a lien filagainst the property title. The claim is inherently less official and is sometimes even ignorbecause of it’s less formal appearance.
Unlike a Mechanics Lien, the Stop Notice can affect the entire project because it freezes a portion of the contract funds – which the GC may nein order to continue working.
We are not attorneys. If you nean attorney call one. This article is for entertainment only. Gimme a break!
Steve Golia is an experiencprovider of bid and performance bonds for contractors. For more than 30 years he has specializin solving bond problems for contractors, and helping them when others failed.
The experts at Bonding Pros have the underwriting talent and market access you need. This is couplwith spectacular service and great accessibility.