This is a threatening statement received from a GC after he learned we had filed a lien on the project. Could you educate me a bit on this liklehood? "You can continue to keep your lien place as long as you want but no future payments will be made until the lien has been removed per our contract. Should this become an with our client we will bond around the lien, passing the cost to you making you final payment less."
Hello,
A GC can provide a mechanic's lien release bond. A mechanic's lien release bond works as insurance in the following manner:
A subcontractor puts a lien on Owner's Property. The lien acts as a cloud on the title and very few title companies will write a policy on it so lenders will rarely loan against a Property that has a lien on it. In short, the Property will not sell until lien is cleared.
Owner tells GC that GC needs to provide the mechanic's lien release bond or bad things will happen. GC tells subcontractor to release the lien or GC will bond around it. Subcontractor does not release the lien. GC then goes to a mechanic's lien release company and pays an amount equal to 2x the lien. Insurance/bond company agrees to pay the value of the mechanic's lien + fees in the event subcontractor is successful in enforcing the lien.
GC now provides this proof of bond to Owner and Owner can sell the property because the title company will now write a title insurance policy because there is an insurance policy (the bond) that will pay out in the event of a successful action by the subcontractor.
That's generally how it works.
E. Aaron Cartwright III
214.789.1354
Aaron@EACLawyer.com
No problem. I almost forgot. If subcontractor sues to enforce the lien, they now have to add the bond company as a party and suing an insurance company is always a blast... said no one ever. The subcontractor can never foreclose on the property even if they are successful.
-Aaron
By way of strategy, it depends on your goal.
The smaller the lien, the easier it is to bond around. My experience is that people start to have real fits and start talking settlement when the lien is ~$15-20K so the lien release bond is around $30-40K plus fees in cash. That price tag tends to be a deterrent for the GC or property owner.
If the numbers are large enough, it makes more sense to pursue it. For example, I am currently handling one that's been going on for 2+ years because the insurance company refuses to just pay and be done. We've got $36K + fees + interest + etc. in this and we have them dead to rights (or so I think). We are not dropping it. The nonpaying house flipper knows they are dead wrong.
It all depends your tolerance for risk and desire for the funds.
-Aaron
Over $40K, the bond requirement is the greater of 1.5x the lien or the value of the lien + $40K per TPC § 53.172.
So, to bond around a $35K lien will cost someone $70K cash. To bond around a $40K lien, will cost someone $60K. $100K lien will cost someone $140K, etc.
-Aaron
If you filed a mechanic's lien, you should consider retaining a construction attorney to evaluate the form and propriety of the lien. The right to be entitled to file a mechanic's lien is set out in Texas Property Code Chapter 53, and you really need to make sure that if you file a lien, you have properly and appropriately done so.
Filing an invalid lien could subject you to liability under the Texas Fraudulent Lien Act, and you could be liable for statutory damages of $10,000, or actual damages, whichever is greater, plus attorney's fees. Facing such a claim would add insult to injury.
The general contractor may be attempting to intimidate you. If the general contractor (known as the original contractor under Chapter 53) does secure a bond to indemnify against lien, your lien will then attach to the bond freeing it from encumbering the real property. Incidentally, the bond typically is issued by a surety company or the agent for a surety company, which may or may not also be an insurance company.
If the original contractor arranges for a bond to indemnity against lien, you will have only a year to file suit against the surety issuing the bond and the original contractor to secure payment.
Good luck.