It’s not what you don’t know that can get you in trouble. It’s the things you know for sure that it isn’t true. A famous quote by…?
Let’s take a look at what construction liens are all about. Construction liens can have a significant impact on companies and construction contracts.
A mechanic’s lien is filed when a subcontractor on a construction project is not paid. A lien is a claim against the project. The lien can be filed against the property owner by the unpaid mason (subcontractor). “All my bricks and labor are on that facade. They are mine now. I cannot take them back, but I will claim that I owe money!”
Liens can be used for non-governmental projects. Payment Bonds are used to protecting public buildings from claimants. The payment bond, which is issued by surety firms, protects suppliers of labor and materials from non-payment.
This is all so far pretty straightforward. Unpaid suppliers and sub-contractors can file a lien on private contracts. They can file a claim instead of on the payment bond for government jobs.
These are just a few of the many combinations that are worth your attention.
Release of Lien
You can release the lien or “bond off” it by filing a Release of Lien Bond. This releases the lien from the property, which is suitable for the project owner. However, it also provides financial protection to the plaintiff (unpaid sub- or supplier). However, the dispute remains unresolved—the plaintiff’s security shifts from a physical project to a surety bond.
It is difficult to get a release of the lien bond. However, if a payment bond was issued, the surety may have the motivation to stop a claim for a payment bond. In this case, issuing the lien release bond might be possible.
The lien release bond relieves the defendant (general contractor) from some of the pressure when it is filed. The lien release bond can be assumed that the owner, who is the beneficiary of the lien, will have to pay the mason hopes. The lien becomes bonded, and the effect is lost from the owner of the project but not from the surety.
The procedure used in Washington, California, Arizona, Alaska, and Mississippi is slightly different. A Stop Notice is filed for governmental projects. This freezes part of the project funds to protect the claimant. The GC can either take immediate action or file a Release Of Stop Notice bond to continue the flow of funds while they deal with the dispute.
Learn the Difference
Mechanic’s Liens are filed against the project owner. The claim attaches to the real property and is recorded on the title. This restricts the owner’s ability to dispose of the property.
A lien can be used to pay the claimant regardless of whether the owner has paid the GC. To clear the lien (and title), the owner might have to pay twice.
Stop Notices “trap” contract funds, assuming that there are sufficient funds.
The Stop Notice is void if it is filed by the claimant after funds have been paid.
There are other fundamental differences.
The stop notice is not alien and does not grant security to the debt.
Although the stop notice is sent out to the parties concerned, it is not recorded as legal such as a lien against the property. Because it is less formal, the claim is often ignored or not recorded.
The Stop Notice, which is different from a Mechanics Lien, can have an impact on the entire project. It freezes a portion of the contract funds – which may be needed by the GC to continue working.
We are not lawyers. Call an attorney if you have a legal problem. This article is intended for entertainment purposes only. Give me a break!
Steve Golia has extensive experience providing bid and performance bonds to contractors. He has been solving bond problems for contractors for over 30 years and helping them succeed when others have failed.
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