We have filed a lien on a project and the General Contractor bonded over our lien. Is our only option at this point to file the lawsuit? Can the owner of the property turn his construction loan into an end loan if the lien is bonded over?
Sep 17, 2018
Since mechanics liens are so powerful, many things generally begin to happen after a mechanic’s lien is recorded. In many situations, a GCs will have a provision in his/her contract with the owner that requires the GC to deal with and remove any liens on the project that are recorded against the property. Mechanics liens can stop the flow of money on the project, and cause other headaches. Accordingly, the interested parties want the lien removed as soon as possible. In some cases, this can be done through a process known as “bonding off” the lien, which can happen either before or after a lawsuit is brought to enforce the lien.
Despite the fact that the lien can be removed, bonding off a lien is not all bad and, in fact, is often beneficial to the lien claimant. A bond provides security just as the lien against the property did, and the funds can be more readily accessible and available in the even the claimant prevails on his claim. If there is already a posted bond, it is quicker and easier to recover from what amounts to a pile of money, than it is to get paid through the foreclosure and sale process that is required to recover from real estate.
Once a lien has been bonded off, there are generally notice requirements that must be provided to the claimant, which outline necessary steps to move forward with the bond claim. Generally, information should be provided to the surety similar to what would happen if the claim was made against a bond in the first place (provided the enforcement lawsuit has not already been initiated). A lawsuit to recover may still be required, but it would not be a foreclosure action. Once the lien has been bonded off, the property is removed from the lien's encumbrance, which means anything that could have happened without the lien to begin with can occur (i.e. sale of the property; refinance of the property; further draws against a construction loan, etc.).