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Release of Lien Surety Bond

Lien release bond

Data collected by the Internal Revenue Service shows that the number of federal tax liens has been steadily declining, from over 1,000,000 in 2011 to less than half that by 2017. Despite that drop, there are still hundreds of thousands of liens filed each year. If you find yourself involved with one, you may need a release of lien bond at some point. Viking Bond Service is here to answer all your questions about this kind of surety bond.

What is a Lien Release Bond?

Let's start with the basics – a lien or mechanic's lien is placed on a property due to non-payment to a supplier or contractor on a property. A mechanic's lien release bond is a mechanism for removing the mechanic lien. It is a type of surety bond that takes the place of a mechanic lien on a property. You likely have also heard these bonds referred to as:

  • Lien discharge bond
  • Mechanics lien bond
  • Release of lien bond

The property owner is typically the principal on the bond, the party ultimately responsible for satisfying the lien. The responsibility is not shifted when the bond is put in place. The bonded property owner is still financially liable to the surety in instances where the surety has to pay a claim on the bond.

How to Put a Lien on a Bond?

Also called bonding around a lien or bonding off a lien, this is a way to ensure payment for services or products provided in the construction field. A lien provides certain rights to the property that labor was provided on. This acts as collateral for the money owed as a result of the construction labor.

How Does a Release of Lien Bond Work?

Say there's a lien on a property, and the owner believes that the lien shouldn't be there. They will first go through the normal process to get that lien removed. If that process doesn't work, for instance, if the lien holder is no longer in business, then the property owner has the option of securing a lien release bond.

The lien release bond may be required to remove existing liens from a property. This should only be considered an option if it is believed by the property owner that the lien either has already been satisfied or should not be on the property. For the mechanic's lien to be released (or removed) from the property prior to satisfying the lien holder's claim, a judge may require a lien release bond be put in place.

As noted, it's the surety bond that allows for the lien to be removed from the property and instead attached to the surety bond. If the lien holder comes forward and can show that the lien is valid, a claim can be made on the bond to compensate the lien holder. The surety will investigate the claim and if found to be valid, will pay the claim. The surety will then seek to collect the amount used to settle the claim from the property owner.

Why Do You Need a Release of Lien Bond?

Release of lien bonds creates a financial guarantee for lien holders with valid liens and makes courts more comfortable with removing a lien from a property. It's a sign of accountability for property owners who need to prove that they're trustworthy.

Since the surety bond holds the principal financially accountable, the bondholder appears to the court like someone willing to take responsibility for their actions. At the same time, release of lien bonds create a financial incentive to follow the court's orders because the bondholder will have to pay otherwise. Courts often rely on surety bond requirements like these because they have proven to be an effective regulatory mechanism. Finally, surety bonds create a financial guarantee for the obligee (the lien holder), ensuring they can get the justice they deserve in the form of compensation.

Who Should Get a Release of Lien Bond?

If the courts order you to get one of these bonds, seek out a qualified surety agency immediately. Your lien can't be released until you have a bond to release it onto, so there's no reason to delay. Make sure the bond company you partner with can issue bonds in your state that meet all the conditions required by the court. Contact Viking Bond Service for help understanding the details of any surety bond requirement.

What Parties Are Involved in a Release of Lien Surety Bond?

This is a classic surety bond agreement, meaning there are three parties involved:

  • Principal – The property owner who wants to get the lien released. This party must obtain the bond, keep it renewed as long as necessary, and pay either the obligee or the surety if any claims are filed against it.
  • Obligee – The partner that holds the original lien. This party can file claims against the lien bond seeking compensation for legal or ethical lapses on the part of the principal. If the claim is valid, the obligee is guaranteed to be paid by the surety, if not the principal.
  • Surety – The company that issues the bond to the principal and guarantees payment to the obligee. This party steps up to pay for valid claims up to the total value of the bond, but they have the right to collect that same amount from the principal, plus interest and fees.

Who Needs a Lien Bond?

Anyone who needs to remove a mechanic's lien from a project needs a lien bond. Most often lien bonds are used when a general contractor and a trade contractor have a dispute, and the trade contractor files a mechanics lien against the property to protect themselves against failure to pay. The lien bond provides protection to the trade contractor if the dispute is not settled.

Beyond that, Lien bonds are often issued when a dispute arises between the developer and a contractor on development projects. In this case, the lien bond would be issued on behalf of the developer, as the contractor would be placing the lien against the developer's property.

How Does a Bond Company Process a Lien Bond?

A bond company considers a multitude of aspects before deciding whether or not to issue a lien bond. They include the following:

Nature of the Dispute – A bonding company will want to understand what caused the dispute, hear out each side, and discuss possible solutions. This may include providing the company with copies of correspondence, all documents related to the contract, and accounting – not only regarding the topic of the dispute but the overall project.

Financials – A surety will require financial statements, accounts both receivable and payable, current progress reports and more. The surety is going to determine whether the financial stability of the corporate entity correlates to the size of lien bond required.

Collateral – When the risk on a bond is higher, the surety may require additional collateral to strengthen the issuance of the bond. This could be cash, a collateral mortgage, or a letter of credit. If one of these documents is part of your lien bond request, you should clearly understand why this was requested and the timeline for releasing that collateral.

How Much Does a Lien Surety Bond Cost?

A release of lien bond amount is determined by the court. The required bond amount is based on the amount of the lien. The bond amount set by the judge may exceed the amount of the lien. It's not uncommon to see bond amounts set at 110% of the lien's face value.

The cost of a release of lien bond is very much tied to the credit and financial status of the principal applying for the bond. Expressed as a percentage of the bond amount, the typical price range for the lien release bond is from 1% to 5%. However, quotes for this bond can come in higher than the stated range.

As with most surety bonds, the better the credit and financial standing of the principal, the lower the quotes will be. In some cases, quotes may contain collateral. A surety may provide a quote with a lower rate for a collateralized release of lien bond. In these cases, some form of collateral security, acceptable to the surety, is used to help mitigate the risk and can allow the surety to provide a lower rate.

Can You Get a Mechanic's Bond With Bad Credit?

Some surety agencies deny bonds to people with bad credit, but there are exceptions. Viking Bond Service, for instance, offers a special bad credit surety bond program to help more people secure the lien bonds they require. Approval is not guaranteed. However, we do consider every application fairly and draw on our abundant resources to find applicants more bonding options. If you're worried about credit issues keeping you from getting a bond – especially if you've been denied one elsewhere – work with Viking Bond Service instead.

How Are Claims Handled for Release of Lien Surety Bonds?

If the bond principal (the property owner) has failed to pay the bond obligee (the lien holder) for a valid lien on the property, the obligee can file a claim against the bond. The surety company will then investigate the claim, using professionals, lawyers, and legal proceedings as necessary. The surety rejects invalid claims. Valid claims get sent first to the principal, but if they are unable or unwilling to pay, the surety accepts the obligation. For the obligee, the claim is settled at that point. For the surety, however, it's not settled until the principal pays back however much the surety paid the obligee plus potentially interest, legal fees, and other associated expenses.

How to Apply for a Lien Surety Bond

To submit a release of lien bond request, an individual will need to provide the following information used by the surety to assess the potential risk:

  • Court Bond Application – This application outlines the release of lien bond request and provides information about the principal who is requesting the bond.
  • Court Documentation – Court documents offer details related to the case to the release of lien bond company.
  • Lien – This includes the initial lien filed against a contractor, information about the lien amount and parties that claim a payment is overdue.
  • Business Financial Statements – Balance sheets, income statements and other financial statements are required if a corporation is submitting a release of lien bond request.
  • Personal Financial Statement – If an individual is issuing a lien release bond request, he or she will need to provide a personal financial statement.
  • Current Bank Statements – Current bank statements that verify a principal's assets will need to be provided to a release of lien bond provider.

Why Work With Viking Bond Service?

For anyone trying to get a lien removed from a property, bonding can feel like a small part of the process. That's true, but it's also an important part. The lien can't be removed without proof of a bond, so it's important to satisfy that requirement ASAP. Viking Bond Service makes bonding easy from beginning to end. That's why so many people across the country make us their preferred partner for release of lien bonds and dozens of others.

We have the resources to help people secure the exact bonds they need quickly and easily. We also have the experience to ensure that bonding goes smoothly for everyone we serve. Don't let a bond requirement become an unnecessary commitment of time and money or an overwhelming source of stress. Count on Viking Bond Service instead.

Request a Release of Lien Bond Quote:

Viking Bond Service provides release of lien bonds nationally and has for over a decade. Our agents work to gain the best quotes and terms for our clients. Our agents will let you know exactly what is required for your specific bonding request. Call us to get started today at 1-888-2-SURETY (1-888-278-7389). You can also reach us through the contact form on this page. Or fill out an online application and get your quote back in as little as 48 hours.

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