Mechanics Liens: Part 4

Recovery on the payment bond

Suppose O hires K to build a residence for $100,000.  K builds the residence, O pays the $100,000 and K becomes bankrupt then unpaid subs and materials suppliers record mechanic’s liens against O’s property.  O finds that, in order to preserve is property it has to pay an additional $30,000 worth of mechanic’s liens claims.  How is O protected from paying the additional $30,000 and how are subs and material suppliers protected so that they are paid their $30,000?

  1. The owner may require the contractor and sometimes the subs to produce a payment bond guaranteeing payment for work and materials.  If there are mechanic’s lien claims, the owner looks to the bonding company to pay off the subs and material suppliers
  2. A proper preliminary notice must be prepared and served by the subcontractors and material suppliers and sub-subs if there are any.
  3. Where you didn’t name the bonding company in the original 20 day notice, you can still collect under the payment bond as a sub, sub­-sub and material supplier if you send a specific form of notice to the bonding company and general and I usually send it to the owner certified return receipt within 75 days of completion if there is no notice of completion or within 15 days if there is a recorded notice of completion-like the preliminary notice-this notice is sent certified return receipt requested.
  4. How do I find out if there is bonding company?  Ask the general.  He is required to give you this information.  Sometimes these bonds are recorded.  Check the title.
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