Discharge of Mechanic’s Lien Bond

by Joshua Malone

What is a discharge of mechanic’s lien bond? Simply put, it is a bond to validate the delay of payment for work performed on a piece of property.

Contractors, subcontractors, and suppliers file liens against property they have worked on if they have not received due payment. The contractor files the lien with the county clerk of the property’s county. A property owner, for various reasons, may decide not to pay the contractor. When a contractor files a lien, it usually means a dispute has arisen between the owner and the contractor. Nevertheless, the lien prevents the owner from selling the disputed property.

Because these bonds usually indicate a dispute has arisen, surety companies carefully underwrite them. In many cases, the surety requires partial or full collateral in the amount of the bond. In New York, the bond amount differs from the lien amount. New York Lien Law explicitly states the bond amount must equal 110% of the lien amount. The law requires a higher bond to ensure the property owner can pay the lienor in the event the court officially determines the lineor is entitled to the judgment amount plus interest and costs. To read the full New York Lien Law provision on discharging a mechanic’s lien, click here.

Thus, a discharge of mechanic’s lien bond allows the property owner to go ahead with a sale or additional construction pending further litigation. It acts as an extension of credit – the surety bond tells the county government the owner has the money to pay the lienor if he inevitably has to.

Besides property owners, subcontractors and suppliers can file liens against the contractor they worked for if they remain unpaid for work. However, this only applies to private projects. Contractors, subcontractors, and suppliers cannot file liens against work done on property for a public project on behalf of the Federal government. Congress uses the Miller Act to remedy unpaid subcontractors and suppliers who cannot place liens on the work they have furnished for public projects. The Miller Act requires a contractor to furnish both a performance and a payment bond. The payment bond guarantees the contractor will pay his subcontractors and suppliers for their work. In essence, a supply bond prevents liens from subcontractors and suppliers. Many states have adopted “Little Miller Acts” for their public projects as well.

To cancel a discharge of mechanic’s lien bond, the principal must provide the surety with a court approved “Satisfaction of Lien” or a simple court order ending the litigation proceedings.

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Discharge of Mechanic's Lien Bond

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