Some clients get all concerned when their customer or customer’s customer threatens to bond around their mechanics lien. Not quite sure what all the fuss is about. When someone choses to replace the Title of the Real Property being named in a Mechanics Lien with a Surety Bond, they in essence have made the collection process a little easier and more secured.

The truth is that the bond is similar in ways to an insurance policy. It secures the value of the claim of lien by the cash value that is supported by a Bond.

Look at this way:

Option #1 You have helped to improve a building and are owed $100,000.00 for the improvements you made. You filed a Mechanics Lien and now you need to file a foreclosure lawsuit in order to be awarded a judgment that will force the building to be sold and you will be paid upon the close of escrow. This works, and is done all of the time. However, you must first be successful prefecting your Mechanics Lien to be awarded a judgment from the courts. And once you have the judgment. The building still has to be sold and escrow closed before you get any money.

Option #2 You have helped to improve a building and are owed $100,000.00 for the improvements you made. You filed a Mechanics Lien and now the title holder of the building wants to substitute the title of the building with a payment bond that has a cash value equal to the amount being claimed in the lien. You still need to file an action to commence a suit on the bond. However, once you are successful in substantiating your claim, the judgment you will receive is for immediate payment from the surety or bonding company. You will not have to wait until the building is sold and escrow is closed.

The reality is that the bond becomes more liquid than the real estate and your chances of receiving the cash have been improved. In addition, you are no worse off than when you just had a mechanics lien. The key concern should be: “Can I be successful in court presenting my claim against this bond?” You will still need to have an attorney argue your case in order to be awarded a judgment for the full amount of your claim. The good news is that the bond used to substitute the mechanics lien must be in the amount of the mechanics lien claim you filed. Even if the judge elects to make adjustments that lower the value of your award.

So you should not have any concerns when someone opts to “Bond around your Mechanics Lien”. Your biggest challenge will always be to be in complete compliance with the statute. Never miss a deadline. And have an attorney who knows their way around the mechanics lien perfection process.

For more, please read the lien related articles found in the CRM Blog.