The preferred weapon of a subcontractor is the mechanical lien . Once perfected, the mechanical lien is a great tool for influencing successful settlement negotiations. Additionally, filing a mechanical lien is a very affordable option for smaller subcontractors. However, if the general contractor disputes the lien claim or if the general contractor is required to do so by contract, the general contractor may post a bond to indemnify or fund around the subcontractor’s lien. This process relieves the property and owner of the lien claim while the dispute is litigated.
For the bond to be effective against a subcontractor’s lien, the general contractor must file it with the real estate records in the county in which the property is located. Also, the bond must be for an amount that is twice the amount of the lien. However, if the total amount of the lien is greater than $ 40,000, the bond must be of an amount that is greater than 1 ½ times the amount of the lien or $ 40,000 and the amount of the lien.
Once it is established that the general contractor has perfected the bond, the property owner and the property itself are no longer encumbered and a sale can proceed. Of course, with the lien no longer being a threat, the subcontractor is in a much weaker position as the owner is no longer under pressure to simply pay the claim and collect it from the general contractor. However, the subcontractor still has an avenue for the guarantee to pay him. The warranty will be able to use all defenses available to the general contractor and will attempt to invalidate the lien if it can. However, if the subcontractor kept good records and properly perfected the lien claim, with the help of an experienced attorney,
This blog is part of our 2020 series Mastering the Subcontract. Come back each week as we dig deep and break apart everything you need to know about a subcontract.