Your Mechanic Lien Was Bonded…Now What?

After you file a mechanic lien, a number of things may happen.   The lien may be paid off (and then canceled), or you may be required to file a lawsuit to foreclose on the mechanics lien (Read our previous blog post:  What Happens After You File A Mechanics Lien?)

Something else may happen after a lien is filed – it could be bonded.

A lot of property owners and prime contractors will bond off a construction lien as an intimidation factor.   As the claimant files the lien to make a statement that the debt isn’t going away, so too does the liened party file a bond to take the wind from the claimant’s sails.

But, what is the exact effect of the lien bond?   Does it destroy the claimant’s claim, or render the mechanic lien worthless?

The answer:  absolutely not.

This point was recently discussed by Vincent Pallaci on his New York Mechanics Lien blog, explaining as follows:

The bond does not discharge the mechanic’s lien in the sense of extinguishing it, it discharges the lien in the sense of removing it from the property. But the lien remains live an well. The mechanic’s lien, having been removed from the property, is now attached to the discharge bond.

To explain this in a different way, after your lien is bonded, you can no longer foreclose on the property.   However, the property has been replaced by the surety’s bond.   So, you are allowed to enforce your lien against that bond, and the surety’s funds.   You still have guaranteed money there – and in fact, the surety’s money may be better security than the equity in the property itself.

The lien is still there, and even if it’s bonded, it’s still important.   Without filing the lien, you’ll never get it bonded…which means, you’ll never have the surety’s funds available to enforce your claim.

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Scott Wolfe Jr

About Scott Wolfe Jr

Scott Wolfe Jr. is the CEO of zlien, a company that provides software and services to help building material supply and construction companies reduce their credit risk and default receivables through the management of mechanics lien and bond claim compliance. He is also the founding author of The Lien and Credit Journal, a leading online publication about liens, security instruments and getting paid on every account. Scott is a licensed attorney in six states with extensive experience in corporate credit management and collections law, with a specific emphasis on utilizing mechanic liens, UCC filings and other security instruments to protect and manage receivables. You can connect with him via Twitter, LinkedIn and Google+.