What are the Types of Surety bonds?

The three most common types of surety bonds are: Bid Bonds Performance Bonds Payment Bonds

Are Surety Bonds paid monthly?

No. You don't pay month-to-month for sureties. When you are quoted a price for a surety bond, you make a one-time payment.

How do I apply for a surety bond?

Applying for a surety bond, no matter the sort of bond, is to contact a surety agency. For instance, you can reach CSBA here to get started on obtaining your surety bond.

What is a payment bond?

A payment bond ensures that all of a contractor’s laborers, subcontractors, and suppliers are paid on a particular project.

Who requires payment bonds?

Payment bonds are required on almost all public projects. General contractors sometimes require them of their subcontractors, and occasionally private owners will require them.

Who pays for a payment bond?

The contractor, or principal, purchases the bond and pays for it.

Do Payment bonds expire?

Payment bonds expire after the project is completed and statutory timeframe have lapsed.

What is the difference between a surety bond and a payment bond?

A payment bond is a type of surety bond. The only real difference is the qualifying term, in this case, it's "payment" and only notes what sort of surety bond it is.

What does a performance bond cover?

The performance bond covers the owner of the project against losses if the contractor fails to deliver on the project within the contractual provisions.

How long does a performance bond last?

Since performance bonds guarantee the completion of the contract, they last until the project is finished along with any required warranty period included in the agreement.

When can you release a performance bond?

Usually, a performance bond is released when the project is completed, though some public projects stipulate that a contractor gives a warranty following completion that the performance bond covers.

What is the difference between a performance and a payment bond?

We have a detailed article that explains the differences here , but the short answer is that the performance bond secures the contractor's promise to complete a job within the terms and conditions outlined at the agreed price while the payment bond protects subcontractors, vendors, and laborers against nonpayment.

What is the difference between a bid bond and a performance bond?

Bid bonds are required when contractors bid a project and guarantees if they are low bidder, they will enter into the contract and provide any required performance and payment bonds. Performance bonds guarantee the actual performance of the work to be completed by the contractor according to the terms of the agreement. What happens to a bid bond after a contract is signed? The bid bond is replaced by a performance bond if the bid is accepted and the contractor enters into a contract with the owner or general contractor.

Release of Mechanic's Lien Bonds for California Contractors, Property Owners, and Developers

What is a Release of Mechanic's Lien Bond?

A release of a lien bond, also known as a mechanic’s lien or discharge of a lien bond, is a type of surety bond that allows general contractors and property owners to remove liens from the property, transferring the liability to the bond. When a contractor or supplier files a mechanic’s lien against real property, most states have laws that allow the debtor or owner to file a release of the mechanic’s lien bond with the county recorder’s office. By filing a discharge of lien bond, the county recorder’s office can release the property from the claim and clear its title. The mechanic’s lien release bond will replace the mechanics’ lien on the property.

Generally, contractors and suppliers who claim nonpayment for their work or materials can file liens against the property where the project is located, preventing the sale or refinancing of the property until the lien is resolved.

How Much Do Release of Lien Bonds Need to be for?

Every state has their own laws governing whether release of lien bonds are allowed and the amount that the bond is required to be for. In California for example, Civil Code §8424 requires that the bond “be in an amount equal to 125 percent of the amount of the claim or lien…” Further, “The bond shall be executed by an admitted surety insurer.”

How to Apply for a Release of Lien Bond

A discharge of a lien bond is considered high risk and is underwritten very conservatively by surety companies. This is because California Civil Code §8424 requires that the claimant commence an action on the bond within six months after notice is given, meaning that the surety will almost always automatically have a claim filed against the bond. If the case is lost and a judgment is rendered that the amount is owed under the lien and the bond, the surety will be liable to pay the judgment if the bond applicant does not.

As a result, the applicant must have considerable financial resources relative to the required bond amount to demonstrate to the surety that they can easily satisfy any judgment that may result from the foreclosure on the lien.

Otherwise, surety companies will require collateral as a condition for approval. There are four types of collateral that can be accepted:

Cash

Marketable securities, like publicly traded stocks, bonds held in non-retirement accounts.

Bank letters of credit

Real estate, which only two surety companies will accept.

The steps to apply for a mechanic lien release bond include:

1. Contact a surety agent to help obtain a bond from a surety provider.
2. Upon approval of the bond, file the original bond and any necessary paperwork with the county recorder in the county where the lien was filed.
3. Once you have recorded the bond, notify the relevant parties, including the claimant.

Requirements for a Mechanic's Lien Bond Release

To obtain a release of lien bond requires the following information from the applicant:

An Application

Copy of Recorded Mechanic's Lien

Explanation of the Circumstances

Financial Statement from Applicant

If collateral is required as part of the surety’s approval, get the collateral in place.

Where can California Contractors and Developers Acquire Release of Mechanic's Lien Bonds?

When faced with a lien, there are two places where contractors and developers can go for their surety needs:

An Insurance Agent

An insurance agent may be able to issue lien release bonds. However, they often lack the professional experience and industry connections with surety providers to offer all of the options available and make the process as smooth as possible.

A Surety Specialist

A surety agent has dedicated their professional life to surety bonds and helping California contractors and developers get the bonds they need. Due to this focus, they've been able to form relationships with numerous surety companies, they have access to special programs, and they are well versed in the complexities of getting a release of lien bond in place. CSBA is a company of surety specialists and experts, having dedicated ourselves to surety bonds since 1984. With our team of over 225 years of combined surety experience, we are well-equipped to guide you through the bonding process.

FAQs

Why would I need a mechanic's lien bond?

You may need a mechanic’s lien bond to clear a mechanic’s lien from your property title. The bond can be necessary if you are selling or refinancing your property or disputing the lien’s validity.

How much does the mechanic's lien bond need to be for?

Each state has their own requirements for the amount of the bond. Generally, it is somewhere between 100% to 150% of the claim or lien amount.

How much does a mechanic's lien bond cost?

A premium, which is a percentage of the bond amount, usually ranges from 1-5%, depending on your creditworthiness and the collateral required. Premium rates are charged annually. The first year’s premium is fully earned once the bond is issued, and any renewals are prorated if the bond is exonerated mid-term.

What happens if the claimant wins the case?

If the claimant wins the case, the surety bond will pay the claimant up to the bond amount if you do not satisfy the judgment on your own. You are responsible for reimbursing the surety company for any amounts paid out, including potential additional costs or fees.

Are there any alternatives to a mechanic's lien bond?

Alternatives to a mechanic’s lien bond may include negotiating directly with the claimant to settle the dispute.

Get a release of a lien bond quote now

We specialize in providing release of mechanic’s lien bonds for developers, property owners, and contractors.

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