What is a Lien Bond?
Part of any business is dealing with resolving disputes. As many contractors know, the successful completion of any project is dependent on timely payment and schedule management. However, sometimes it just isn’t that easy and for whatever reason a dispute arises between parties on a construction project. If this isn’t resolved it can lead to the placing of a mechanics lien against the property where the building is occurring. This can result in a cascade of issues as the project owner is unable to make payments until the mechanics lien is removed.
Removing a lien can be a costly process and requires the prime contractor to post cash with court equivalent to the value of the mechanics lien plus an additional 25% for court costs. A lien bond is an alternative solution that replaces the requirement for cash in court. Rather than placing cash into court, a contractor would file a lien bond with the court for the value of the mechanics lien plus 25%. This eases the cash burden on the prime contractor and allows project funds to continue to flow while the dispute between the two parties is resolved.
Lien bonds are not frequently issued in the marketplace so having a construction and surety specialist broker that understands the mechanics lien process and how construction disputes work is critical in ensuring that you receive the right terms for issue of your lien bond.