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?
- 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
- A proper preliminary notice must be prepared and served by the subcontractors and material suppliers and sub-subs if there are any.
- 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.
- 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.
