If A Construction Lien is Bonded…Does that Circumvent Payment to an Claimant?
Typically, a construction lien is filed to have a number of desired effects: (1) To prevent the sale or transfer of the property; (2) To hold multiple parties without contractual privity liable for the debt; and (3) To provide contractors with a faster and more direct remedy against parties in litigation.
But if a homeowner (or other interested party) files a bond in response to the lien, does that defeat the purposes of the lien itself?
Quite simply, no.
What is a lien bond?
Most mechanic liens statutes give property owners and other interested parties in a construction project the ability to file a bond in response to a party’s filing of a mechanic’s lien. Most states require the amount of the bond to equal more than 100% the lien claim.
In Louisiana, for example, a lien bond must be 125% the amount of a claim. In Washington, the bond must be 150% the claim amount.
The bond itself is deposited with the recorder or clerk’s office and theoretically “takes the place” of the lien. A filed bond, therefore, usually has the effect of eliminating any barriers to the sale or transfer of property and nullifying any rights to sue parties without contractual privity.
So, if a lien can be bonded and all of the lien’s benefits nullified…what’s the point of the lien?
The Bond’s Benefits
While the lien bond acts to nullify some positive aspects of a party’s claim of lien, it does not defeat the purpose of the lien statutes. The claimant loses some benefits of the lien itself, but it gains the benefits of the bond.
Here are some benefits of the bond:
- The entire amount in dispute (plus an additional amount – 25%, 50%, etc.) is filed with the court, and is securely awaiting determination of ownership. This means that upon a court award, you won’t have to spend any money “collecting” the judgment. The money is there.
- The lawsuit to foreclose or enforce your lien becomes a lot less complicated. Sometimes, a subcontractor’s lien claim can include a handful of parties (owners, GCs, suppliers, etc.). The more parties in litigation, the more expense and procedural hurdles. When a lien is bonded, it reduces the litigation to a one-on-one dispute and narrows the scope (and expense) of the action.
In short, while a bonded lien does not prevent the sale or transfer of property and may reduce the number of parties a claimant can sue….the bond also eliminates the need for those remedies. It places the entire amount in dispute (plus sum) into the reach of the claimant, and the claimant can move forward in a clean and uncomplicated procedural action to recover the funds.
If your lien is bonded, it has already succeeded to some degree (it has produced the cash). Now, it’s only a matter of proving that the cash is yours.
What Are the Chances of Getting Paid After Filing A Lien?
In today’s economic climate, payment problems are plaguing construction projects.
Just recently, a prospective customer called us and asked: what are the chances of getting paid after filing a lien?
Unfortunately, it’s impossible to provide a success percentage because each situation is different.
However, mechanics liens are far and away one of the most effective ways to secure payment for your company.
To put it simply then, we can only point out the obvious in response to this question. The obvious answer is that filing a mechanics lien is a first, and oftentimes necessary, step to get paid on a problem project.
Without a recorded lien, your company is simply a bystander to the project’s payment obligations, and is pinning its company’s rights to payment on good fortune.
Filing a construction lien isn’t extraordinarily expensive, and it’s a step in the right direction for your organization. Get to know the lien deadlines and laws for the state where you performed work, and then make a move to protect your company by securing your lien.
File a lien today and get payment to come your way! Lien SMARTER…..to get paid.
Real Estate Agent Claims: Mechanic’s Liens Can Mess Up A Real Estate Closing
Although situated in Texas, the “We Did It Again Group” sells and lists property and property insurance in all 50 states, and even internationally. Last week, they posted an article on their blog titled “Mechanic’s Liens Can Mess Up A Real Estate Closing!”
The author is speaking to property owners who are interested in selling their property, wherein he discusses how a lien works and what effects it may have on someone interested in selling property.
Because of the way lien laws work in most states, the We Did It Again Group warns that a “homeowner may actually end up paying twice for the same work.”
The author of the blog post has a great explanation of what types of situations a homeowner may encounter if their property is liened and they want to move forward with a sale or refinance:
The theory is that the value of the property upon which the labor or materials have been bestowed has been increased by virtue of these efforts and the homeowner who has reaped this benefit is required in return to act as the ultimate guarantor of full payment to the persons responsible for this increase in value. In practice, a homeowner faced with a valid mechanics’ lien may be compelled to pay the lien claimant and then pursue conventional legal remedies against the contractor or subcontractor who initially failed to pay the lien claimant but who himself was paid by the homeowner. Another justification for this result relates to the relative financial strengths of the parties to a work of improvement. The law views the property owner as being in a better situation to absorb the financial setback occasioned by having to pay the amount of a valid mechanics’ lien, as opposed to a laborer or material man who is viewed as being less able to absorb the financial burdens occasioned by not being paid for services or materials provided in connection with a work of improvement.
Get more information by reading the blog post here.
What does this mean for contractors? As we’ve said before, when used properly, a construction or mechanics lien can be a very powerful collections tool. Learn more about how you can lien smarter with Express Lien.
Virginia – Strongest Liens of them All?
In the past, we’ve posted about the strength and effectiveness of construction liens. Across the nation, construction or mechanics liens can be used as a powerful collections tool by contractors, suppliers and others working on construction projects.
The state of Virginia, however, has perhaps the most powerful mechanics liens in the nation.
In most circumstances, a mechanics lien will get resolved without the property being foreclosed or the property owner filing bankruptcy. However, there are occasions (and in this economy, increasingly so) when a project falls apart, and those working on the jobsite find themselves waiting for proceeds to trickle down from foreclosure or bankruptcy proceedings.
In most states, a filed mechanics lien takes priority below the construction loan bank’s mortgage. Further, the filing of bankruptcy usually defeats any lien rights.
In Virginia, however, the opposite is true. A properly filed mechanics lien in Virginia will not get defeated in bankruptcy, and it will have priority over the construction loan bank. Earlier filed mechanics liens have priority over later filed instruments.
We’ve posted in the past on why its important for contractors to lien unpaid construction projects. This review of the powerful lien laws in Virginia stands as a reminder of how effective a mechanics lien can be, and why its important to make your claim timely & properly.
Virginia Mechanic’s Lien Primer by Chris Hill
Chris Hill of Durrette Bradshaw is a construction attorney in Virginia who also publishes the “Construction Law Musings” blog providing frequent updates on the construction landscape in Virginia. His blog is linked here, and is also part of the Construction Lien Blog’s blogroll.
Earlier this month, Chris posted with an overview – or “primer” – on the mechanic’s lien laws in Virginia.
The post, “Quick Primer on Virginia Mechanic’s Lien Law,” is a great place for contractors, subs and suppliers to start when trying to understand the lien laws in Virginia. And Chris’ blog is a great resource for contractors interested in the evolution of construction law in Virginia.
To follow blog posts about lien law in Virginia at the Construction Lien Blog, monitor our “Virginia” tag here.
Will the 2009 Economy Create More Mechanic Lien Filings?
At the Construction Lien Blog, we’ve written about the current state of the economy in America, and how this has affected the construction industry from coast-to-coast.
However, there is recent conversation in the media and out in the blog-o-sphere that the economy’s impact on construction has increased the amount of mechanic’s liens filed by contractors.
The Pacific Business News source in St. Louis, for example, has a story on a construction attorney in Missouri who says that he filed twice as many liens in 2008 as he did in 2007.
A similar article appears in the Virginia Lawyers Weekly, which reports that construction litigation in general is increasing in the current economy, with increased claims for construction delays, defects and problems with collections.
It seems that the business journals are full of stories about construction projects being slammed with liens, like the story here and here.
As the new year approaches, what will we see in the construction industry that is predicted to remain pretty stagnet?
One thing is for sure, regardless of whether lien filings increase, decrease or stay the same, with the current credit crunch and economic woes, it’s more important than ever to file liens on claims you do have, and to do it timely and properly.
Be Careful When Using Free Legal Forms
Gerard Simington with “FindAnAttorneyForMe.com” published an informative article that warns businesses about using free legal forms found on the internet.
The Internet has placed legal information and legal forms at our fingertips – and its easy to forget sometimes that the law is a very complicated subject, and legal forms are no exception. While a legal form may seem simple on its face, the blanks can carry significant legal consequences.
It’s always great to hire an attorney to draft legal documents from scratch, or to “tweak” legal forms to fit your particular need. The costs associated with legal counsel, however, are simply sometimes out of your business’ reach.
Legal Document preparation services like Express Lien are perfect for these situations. Our staffs of professionals are familiar with the forms that relate to your construction project, and we can help you draft & file your forms properly and avoid costly mistakes.
7 Habits of Contractors Who Lose Money…and How to Break Them
The Construction Commando’s “Contractor’s Secret Weapon” published an article with this title that described seven instances when contractors lose money on a project. While the article was drafted to an audience of California contractors, the habits apply nationwide.
It will be to any contractors’ benefit to review this article online, access which habits apply to you, and make an effort to avoid the costly mistakes. Any progress will help increase your bottom line.
The seven habits highlighted are:
1) The “Gentlemen’s Agreement” – A Handshake and Your Word. Bottom line: Get it in writing.
2) Using Contracts that Fall Short of the Legal Requirements.
3) Not Getting Every Change Order in Writing.
4) Failing to invoice immediately.
5) Failing to serve a preliminary 20-day notice (pre-lien construction notices)
6) Don’t Worry – They Will “Take Care of You” on the Next Job
7) It isn’t good “customer service” to record a Mechanic’s Lien
Express Lien Just Got Smarter – Introducing the Lien Wizard
SEATTLE, WA (December 23, 2008) — Express Lien, Inc. is excited to introduce its proprietary Lien Wizard, proclaiming that its innovative lien filing and management service has just gotten smarter.
The new Lien Wizard makes it easier than ever for contractors, suppliers and others to build and order construction notices, mechanics liens, lien releases, cancellations and more.
The Lien Wizard collects information about the contractor and the particular project, and determines what types of documents may be filed.
“It’s really a spectacular new feature,” says founder Scott Wolfe, Jr. “Lien law can be quite complex. We’re trying to harness web technology to make it easier than ever for contractors to protect and assert their deserved lien rights. The Lien Wizard takes the project information, applies it to the legal standards, and figures out what should be filed. And it’s getting smarter every day.”
Within the next thirty days, Express Lien is adding a web-based lien management service to its suite of lien solutions. The management software will calcualte lien deadlines, offer contractors deadline alerts, and notify users of the lien law that applies specifically to its project.
How much is the new lien management software going to cost? “Nothing,” says Wolfe. “We’re giving it away. People shouldn’t have to pay for public information. We’re giving away the lien law, the lien alerts, the deadline alerts, and the online lien management software. If the contractor wants to use our lien filing service for a fee – great.”
Express Lien, Inc. is a Washington corporation that files construction notices, liens, cancellations and other lien documents for contractors across the United States.
Credit Meltdown Squeezing Contractors – Lien To Protect Your Rights
The Associated General Contractors organization just published an article titled “Credit Meltdown Market Squeezes Contractors,” reporting how the recent economic problems in the U.S. are greatly effecting those in the construction industry.
The article discusses the upheaval on Wall Street, and how its stopping construction projects all over the country. You can read the article at the AGC website at this address: http://tinyurl.com/534o4h
Now more than ever contractors should consider the benefits of a construction or mechanics lien.
Lien rights do not last forever, and with the uncertainty of the U.S. economy and credit flow within the construction industry, its important for your construction company to protect your investment into a project.
Construction liens are available in virtually every state, and works to transform the project job site as a sort of “collateral” to the contractor for its payment.
Express Lien, Inc. is now filing liens across the country. Filing a mechanics lien costs only $295.00 – a flat fee that includes the preparation and filing of the lien, storage of the documents on our secure servers, and sending copies of the filings to all interested parties.
Express Lien also files lien cancellations, notices of intent to lien, and preliminary notices.
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