Your Mechanic Lien Was Bonded…Now What?

Payment Problems and Contract Clauses in Construction IndustryAfter 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   However, the property has been replaced by the surety’s bond.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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