Bonding Off Liens: Claimants May Face Extra Requirements

The power of a mechanics lien lies in the ability to force the sale of property. However, in many states homeowners may “bond off” a lien. This means that a bond is substituted in place of the mechanics lien, so foreclosure would result in a claimant receiving bond funds rather than the proceeds of a property sale. Normally, a contractor or homeowner bonding off liens should not make claimants nervous. However, when a lien is bonded off, it’s incredibly important that a claimant remains vigilant in protecting their right to payment.

Bonding Off Liens

First, let’s dispel a common myth in the construction industry: bonding off a lien does not make a claim disappear. To quote a prior blog post on the subject (which you can read here):

“When a contractor or developer threatens to “bond off” your mechanics lien claim, consider that to be awesome news.”

The underlying difference between lien and bond claims helps explain this sentiment. With a mechanics lien, a claimant will be paid through the eventual sale of the property and claims are subject to priority rules (which can really make a mess of things). With bond claims, once a claim is proven valid, payment is guaranteed by the surety. By avoiding priority rules and bringing a surety into the mix, bonding off liens will often take a lot of the risk out of the claim.

Extra Requirements

That being said, when a lien is bonded off, it is not time to relax. An owner or contractor bonding off liens can be beneficial to a lien claimant, but only as long as their claim is still viable. Often, a claimant must take extra steps once a lien is bonded off. In Florida, when a lien is bonded off, notice is sent to the lien claimant. A claimant must then commence a new proceeding against the bond within one year. This is true even where a proceeding to enforce the lien has already begun. A recent case shows the pitfalls of failing to see a Florida claim through once it is bonded off.

The Case

Here’s the full text of Albert and Tamara Rabil v. Seaside Builders.

The Rabils (the property owners) hired Seaside (the contractor) to build a single family home. Disputes arose during the project which led to Seaside filing a mechanics lien on the property. In response, Rabils bonded off the lien.

Ordinarily Seaside would’ve had 1 year to enforce its claim against the bond. However, the Rabils also filed a Notice of Contest of Lien when they bonded off the lien. In Florida, when a Notice of Contest is filed, the deadline to enforce is shortened from 1 year to 60 days. So Seaside was now required to file another claim since the lien was bonded off, and because a Notice of Contest was also filed, this new claim had to be made within 60 days.

As you probably guessed, Seaside failed to respond within 60 days. When they finally came into court, Seaside argued that they did not receive notice of the bond in time to take action against it. Notice was sent to their secretary, but Seaside argued it should have been sent to their counsel under due process laws. The court disagreed, citing that lien laws are to be strictly construed (as we’ve mentioned before, Florida courts aren’t always lien-ient). Seaside’s claim was dismissed.

Florida lien requirements can be tricky. Here are 5 things you should know to make life easier.

Takeaway

Mechanics liens have some of the toughest form and deadline requirements out there. When a lien is bonded off, the requirements may change and the stakes are raised higher. When a contractor or an owner says they’re bonding off your lien, it’s no time to panic. In any ways, bond claims are cleaner than lien claims. However, it could not be more important to reassess and track the required filings and deadlines.

Head over to our Florida Resources page for more on the Sunshine State’s lien laws. Not in Florida? Select your state.

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Bonding Off Liens: Claimants May Face Extra Requirements
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Bonding Off Liens: Claimants May Face Extra Requirements
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A contractor or owner bonding off a lien may be good news, but claimants must reassess their situation when a lien is bonded off.
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Lien Law News
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