Navigating Mechanic’s Liens: A Guide to ‘Bonding off a Lien’

Mechanic’s liens are a powerful tool for contractors, subcontractors, and suppliers to secure payment for their services on a construction project. Once a mechanic’s lien is filed, the lien claim creates a cloud on the property’s title, making it challenging for property owners to sell or refinance the property until the claim is resolved.

In Alabama, and in many other states, one effective strategy for addressing mechanic’s liens is bonding. Bonding off a lien allows property owners to regain control of their property and proceed with construction activities or real estate transactions without the threat of foreclosure or the lien clouding the title. Bonding off a mechanic’s lien involves obtaining a lien release (or transfer) bond to secure payment for the lien on the property. After the mechanic’s lien is transferred to the bond, the claimant has a bond claim against the lien release bond instead of a lien claim against the property.  In other words, any proceeds recovered from the claim will come from the bond rather than the sale or foreclosure of the property.

Bonding off a lien can be advantageous for all parties on the project. For the property owner, the benefits are obvious—removing the mechanic’s lien maintains project continuity, protects property ownership, satifies any lender for the project, and can avoid lengthy and costly legal battles. Because of these benefits, in many instances contractors and subcontractors are contractually obligated to keep the property free and clear of liens. For example, the upstream party in a prime contract or subcontract may require the downstream party to ensure that the property remains free and clear of liens and encumbrances. Similar terms can be found in landlord-tenant lease agreements, where the landlord requires the tenant to keep the property free and clear of liens if the tenant performs buildout work.

For the claimant, bonding off a lien is not a threat to the claim for non-payment. Instead of navigating the lien foreclosure process, which can be lengthy and expensive, a successful bond claim will simply result in asserting the claim for payment from the surety rather than from the owner.

However, bonding off a mechanic’s lien can be a difficult and expensive process. In many states, the party bonding off the lien will be required to pay a premium to obtain the bond, and the surety will usually bill annually for the premium. For example, in Alabama, the statutory amount required to bond off the lien is (i) the amount of the lien, plus (ii) interest at 8 percent for 3 years, plus (iii) $100 for court costs that may be taxed in any proceeding to enforce the lien.

The Key Takeaway: Bonding off mechanic’s liens offers a practical and efficient solution to the challenges posed by payment disputes in the construction industry. Owners, contractors, and subcontractors should be aware of this process in a particular jurisdiction in order to comply with contractual obligations and protect their rights.