What is a release of lien bond?
First off, let’s cover what a lien is. A lien is a legal claim or right against assets used to satisfy a debt.
In the construction world, a mechanics lien may be placed on someone’s property if they fail to pay their contractor or supplier as promised. In other words, a lien allows project partners to claim a legal right to a property.
Release of Lien Bond Definition
A release of lien bond is relevant to the construction industry and is often called a mechanics lien bond or lien discharge bond. It comes into play when a property owner or general contractor wants the lien to be released from their property (to “bond off” the mechanics lien). The courts may require a lien release bond before removing a mechanics lien from a project. This typically occurs if a property owner cannot release the lien through normal means.
A release of lien bond (or lien release bond) can replace a mechanics lien on a property. When the surety bond is filed, the claim is removed from the property and attached to the bond. Property owners may wish to obtain a lien release bond if they want to sell or refinance their property. However, they will still be responsible for settling the debt – regardless of whether they have a lien on the property or a lien release bond.
Here’s an example:
Let’s say a developer (who owns a property) fails to pay the contractor working on the development project. The contractor may file a mechanics lien on the property to satisfy the debt in case the developer never follows through and pays.
Get Your Release of Lien Bond:
- A release of lien bond can replace a mechanics lien on a property.
- This bond is a three-party agreement between a property owner, a lienholder, and a surety company.
- Property owners may wish to obtain a lien release bond if they want to sell or refinance their property.
- You will pay a small percentage of the bond amount required by the court to obtain this bond, which may be up to 200% of the lien’s value.
How does bonding off a mechanics lien work?
A mechanics lien bond is a three-party agreement between a property owner, a lienholder, and a surety company.
- Property Owner: The principal in the bond agreement must purchase the bond to release the lien on their property.
- Lienholder: The obligee is the party that can file claims against the surety bond if they believe the property owner still owes them money.
- Surety Company: The surety issues the bond and backs it financially upfront in case of claims. The surety will seek full repayment from the principal for all legal expenses in settling the claim.
A judge may require this bond, which removes the lien from the property and attaches it to the bond. If the lien is valid, the lienholder can file a claim on the bond for compensation. The bondholder must then pay to settle the claim.
Who needs a lien release bond?
You may need this bond if a judge orders you – as a property owner or contractor – to remove a lien from a project. A release of lien bond may also be necessary if there’s a project dispute between a contractor and developer. In the latter case, the contractor may have placed a lien on a property, and the developer would need a bond to release the lien.
How much does this surety bond cost?
You will pay a small percentage of the bond amount required by the court, which may be up to 200% of the lien’s value. The premium rate for this bond is typically 1-5% of the bond amount. Generally, the better your financial situation and credit score, the lower your premium will cost. Your surety provider may also require 100% collateral.
Other Frequently Asked Questions
Here’s a rundown of what you’ll need to apply for a release of lien bond successfully:
- Court documents that outline case details
- Court bond application outlining the bond request
- Personal financial information
- Business financial information
- Bank statements
- The original lien filed, including the amount and the individuals involved in the claim
If you have any questions as you gather the above documentation, don’t hesitate to call ZipBonds at 888-435-4191. We’d be happy to walk you through the application process!
We look at each applicant individually and can often get those with less-than-ideal credit scores the bonds they need. Call us directly if you have any questions about your ability to get bonded.
If the obligee files a claim against the principal’s bond, the surety company will investigate to determine if the claim is legitimate. If it is, the surety will settle the claim upfront, but the principal will be responsible for repaying the surety in full.
Release of lien bonds are available to corporations, partnerships, and individual applicants.
Apply for a Mechanics Release of Lien Bond Today
You can start our simple court bond application below. If you have any questions or need help with the application process, don’t hesitate to call us at (888) 435-4191. We want to help you get bonded in a zip!
Founders Ryan Swalve and Zach Mefferd formed the vision for ZipBonds.com when they realized how overly complicated it was to help clients place surety. The frustration of being unable to incorporate the technology they’d used in other insurance-focused projects left them thinking “there has to be a better way.”
Fast forward a couple of years, and that better way is the impetus of everything we do at ZipBonds. We constantly look for innovative ways to improve the bonding process for our clients and agents. Our team comprises individuals who understand all angles of surety – for companies, agencies, and individuals. Incorporating everyone’s point of view to improve the process while simultaneously integrating cutting-edge technology is what sets our business apart.