What is the difference between a surety bond claim and a mechanics lien?
Even construction projects that are well-planned and run smoothly can become a source of a payment dispute between the GC and the subcontractor or a materials supplier.
Both surety bonds and mechanics liens both allow a claimant, such as a subcontractor or a supplier, to collect delinquent payment for work or supplies they provided on a project. A surety bond is applicable to a subcontractor or supplier to both public projects – whether federal, state, county, or municipal – as well as select private projects. A mechanics, or construction lien, as it is sometimes called, can also help a subcontractor or supplier recoup the money they are owed on either a public or private project.
Surety Bonds are a Surer Thing
Most of the time if you haven’t been paid for your work on a construction project or for the supplies you delivered to the project, a mechanic’s lien can be helpful in getting you your money. That is because filing a lien is like taking a stake in the actual property or project itself. If you are unpaid, you can file a lien against the property itself.
But in some cases, the property owner may need to sell the property to pay what you are owed. Even worse, if the contractor, property owner, or entity goes bankrupt or forecloses and can no longer fulfill their obligations, filing a mechanic’s lien may require more of a battle as to how the value of the property will be split among you and all the other creditors to the project. For example, if a property has $300,000 in equity and more than $1,000,000 in claims – there is a good chance that your small claim will be written off and you will never get paid.
That doesn’t happen with surety bonds. Sureties due their due diligence on the contractors they extend credit to so that the value of the bond does not exceed the value of the contract. In turn, a bond claim is much more secure because it’s nearly guaranteed that the money will be there no matter what.
The Process: Surety Bonds are Complex but We Have Done Our Best to Make It Easier
Filing a bond claim can be an easy, smooth process (see just how easy at www.ConstructionDisputes.com) and does not require you to retain counsel: once you have assembled your claim and supporting documents, including having a copy of the actual bond the bonding company (surety) will review your claim and determine if your claim is valid against the project. Once the surety has validated the claim, the bonding company will first pressure the contractor to pay its outstanding debt to you. If that does not produce the desired result, the surety will pay you directly and then seek repayment directly from the contractor.
The result of this process is that your claim gets an independent decision quickly and easily.
But what if the bonding company refuses to make payment and denies your claim? You still have recourse to see payment by appealing the claim decision with a lawsuit and have the judicial system enforce a judgment.
With a mechanics lien, compliance with applicable statutes, especially as it relates to filing deadlines, is critical. Any delays in your filing a notice that you intend to file a lien or actually filing the lien or subsequent foreclosure actions may preclude you from being able to recoup the money you are owed. Because it is so important to know the statutes governing these steps and may vary by state, subcontractors and suppliers more often than not, do retain legal counsel.
If you have additional questions about the differences between a payment bond and a mechanics lien or would like to know more about how to conveniently file a bond claim, contact us at team(at)constructiondisputes.com.