Mechanic’s liens are issues in favor of builders, contractors, subcontractors, or supplies who have furnished labor or materials for construction or improvement of a property.
If builders, contractors, and suppliers have not been paid, they can file a mechanic’s lien on the property as a method to ensure they get paid for their services and materials.
A mechanic’s lien attaches to the land and building. When a mechanic’s lien is issued, the property owner cannot do anything with the land or property.
A Discharge of Mechanic’s Lien Bond is a type of surety bond that validates non-payment for work, labor, and supplies involved with a piece of property.
General contractors and property owners can get a Discharge of Mechanic’s Lien Bond to discharge a lien from a property and continue with their project as if the lien were not present.
The term discharge can be misleading, though. Please read the next section for information on how this bond actually works.
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Please note that we explain the below process as a property owner getting the bond. General contractors can also get these bonds, but for our purposes we will continue the example using a property owner as the bond purchaser.
The word discharge can cause some confusion. A Discharge of Mechanic’s Lien Bond does not extinguish the mechanic’s lien entirely. It “discharges” the lien from the property and “attaches” it to the bond. Another way to think about the bond is that it replaces or wraps around the lien. You can learn more here.
By getting a bond, the property owner can do with their property as they wish, as if the lien were not present. This includes selling the property, making further progress on the project, etc. But, by having the bond, the property owner promises they will pay the contractor all amounts owed upon final determination by the court.
If they fail to do so, the contractor can make a claim against the Discharge of Mechanic’s Lien Bond. If the property owner does not fulfill the claim, the surety company might step in to fulfill the claim for them. If this happens, the property owner must repay the surety company.
You can learn more about the surety bond claim process here.
Once you file a Discharge of Mechanic’s Lien Bond, the lien is attached to the bond. When this happens, the lien will have to be discharged from the bond before it goes away entirely.
To discharge the lien from the bond, you have a few options.
One option is to wait it out. The lien will expire from the bond in the same manner as it would if it were on the property.
Generally, liens expire one year from filing. If this happens, the surety bond company who issued your bond will return the collateral to you that was required to issue your bond, if the collateral was required.
Before a mechanic’s lien expires, though, two things can happen.
With either of these options, you risk a lot. Small errors can cost you everything, which is why Discharge of Mechanic’s Lien Bonds are extremely risky to issue.
Then there is also the case of exonerating the bond once it is no longer needed. If you do not exonerate the bond, then the surety company will assume the bond is still needed and they will continue to charge you a premium for the bond.
A Discharge of Mechanic’s Lien Bond amount will always be at least 110% of the lien face value.
For example, if the lien is for $50,000, then the Mechanic’s Lien Bond amount will usually have to be at least $55,000. This is not how much you have to pay for the bond, though.
The price of the bond (called the bond premium) will be a percentage of the total bond amount. Usually, the percentage rate you’ll have to pay will be between 1-15% and will be based on your credit score and other financials.
Full collateral is often required for this bond.
To see what you’d pay for this bond, get a free quote below:
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The best way to get a Discharge of Mechanic’s Lien Bond is to contact a surety bond company that can issue you the bond.
Not all surety bond companies will issue these bonds, though. They are risky and often require full collateral.
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Not sure you need a Discharge of Mechanic’s Lien Bond? Contact Surety Solutions. Call us toll-free at 866.722.9239.
Related Links:
5 Types of Court Bonds and What They Do
Who Is Protected By A Contractor License Bond?
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