Home>Levelset Community>Legal Help>Once a claim is made on a lien bond, how much time does the principal have to pay back the bond company the claim amount? If the bond company is not paid back within the bond terms, will the bond company lien the property?

Once a claim is made on a lien bond, how much time does the principal have to pay back the bond company the claim amount? If the bond company is not paid back within the bond terms, will the bond company lien the property?

IdahoBonding Off Lien

I am a supplier to a subcontractor on a commercial construction project in Idaho. There are some punch list items to be corrected, and I have not been paid anything for the material. I placed a lien on the property because of the deadline to do so. Now the lender will not disburse any additional funds on the project. The sub is in the process of obtaining a surety bond to remove the lien. Can I make a partial claim on the bond? If I make a claim on the bond, will the sub have to pay the surety company the amount of the claim immediately? If the sub cannot pay the bond company promptly, will the bond company place a new lien on the property which would put us back to square one?

1 reply

Jan 21, 2019

These are good questions. Before getting too far along, I think this resource might be helpful: Primer on Mechanics Lien Bonds and Bonding a Mechanics Lien. Anyway - it's first worth noting that it's common for a lender to cease funding once a mechanics lien has been filed, and it's also common that someone on the job would post a mechanics lien bond in order to release the property from the lien claim. When such a bond is posted, it doesn't mean the mechanics lien claim goes away, and it doesn't mean that a claimant will only be able to pursue partial recovery from the bond. Instead, it just alters how recovery will take place. When a mechanics lien is filed, there's a period of time between that filing and a second deadline - the deadline to enforce the lien by filing a lawsuit. When a mechanics lien is "bonded off" or "bonded around", the structure remains largely the same. The claimant and their customer will still have the opportunity to resolve the dispute, but if they can't, there's a deadline for when the claimant must file suit on the claim. The main difference being that, rather than enforcing the lien, a claimant would sue their customer and the bond for payment - but effectively, the same action (a lawsuit) is required. Regarding whether the customer must pay the surety after a claim is made on the bond - for a claimant, this part should be irrelevant. When a mechanics lien bond is secured, essentially, the mechanics lien claimant's customer is bringing in someone else (the surety) to guarantee the claim will be paid. By executing that bond, the surety is agreeing to pay the debt of that party - so the claimant's recovery will not be based on the surety's ability to recover payment from the customer who executed the bond with the surety. Further, it would seem unlikely that the surety would at any point be entitled to file a lien on the project property. Mechanics liens attach to project property because the property is actually being improved by the work being bestowed upon it - a lien doesn't attach to property solely because of a customer's relationship with the property owner or contractor. Thus, because a surety has performed no work on the property, that surety will not be entitled to file a mechanics lien. Now, in order to secure a bond for the release of a filed mechanics lien, the party securing that bond may have to pledge some assets. But again - where someone other than the property owner is the one securing the mechanics lien bond, the agreement to provide a payment bond to release a filed lien shouldn't result to that surety having any rights in the underlying project property. Even if it did, that shouldn't affect the claimant's ability to recover moneys from the surety provider. Lastly, when a mechanics lien is filed then bonded off, it might a good idea to reach out to a local construction attorney. Taking further action against the bond would very likely require an attorney anyway, and they'll be able to provide advice on how best to proceed under your specific situation.

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