Glossary of Business Credit Terms

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Mechanic’s Lien Bond

What Is Mechanic’s Lien Bond?

To understand what a mechanic’s lien bond is one must first understand what a mechanic’s lien is. A mechanic’s lien is a claim upon a piece of land or property made by a subcontractor, laborer, supplier, Mason, etc. as security in order to receive payment for work done or materials supplied that was instrumental in the erection, construction or repair of that land or property. A mechanic’s lien is issued by contractors, suppliers, etc. that have not been paid. When a mechanic’s lien is attached to a piece of land or property, the property cannot be used by the owner.

A mechanic’s lien discharge bond is, therefore, a bond that removes a mechanic’s lien from a piece of property and attaches it to the bond. It is gotten by the property owners, protects the contractors and is financed by the Surety.

How does Mechanic’s Lien Bond Work?

A mechanic’s lien discharge bond removes the mechanic’s lien from the piece of property and attaches it to the bond, but to do this the value of the bond must be 110% of the value of the mechanic’s lien. The bond is a contract between the Principal, the Obligee and the Surety, the principal being the property owner, the Obligee being the contractor and the Surety being the bond company.

Once the bond has been obtained the Principal is allowed to use the property as they wish, but the bond guarantees that the owner will pay the contractors on at a later date, usually determined by a court. The bond is then filed with the county clerk where the mechanic’s lien was filed and served on the contractor. However, if the agreed upon date passes by and the owner has not yet paid, the contractors can file a claim and the Surety will step in to pay off them off. The owner is then legally obligated to reimburse the Surety.

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