About Kelly M. Davis Esq.

Kelly M. Davis is the owner of Kelly M. Davis & Associates, LLC. She grew up around the construction industry and knew once she opened her practice she would help construction related businesses.

How to Bond Around a Mechanic’s Lien

I received an email the other day asking if there was a standard form for bonding around a mechanic’s lien, so I thought it would be a good topic to write out how you actually go about bonding around a lien.  I think the first step is looking at all the options that are available to you.  This really isn’t in the scope of this article since every situation is different, but if you decide that this is the best way to proceed then the next step would be to find an insurance provider for the bond.

We really recommend going with a provider that does this in their normal course of business.  Yes, you may be able to get one of your current insurance agents to get you a bond, but in my experience, the understanding of the process and the time it takes for them to complete the process isn’t worth the trouble.  We know of a couple of local companies that we usually refer clients to, and I imagine most other construction attorneys have someone that they know is experienced with the bond process.

The next step would be to draft the Bond Affidavit.  The State of Texas does not have a bond form, but only has guidelines as to the amount of the bond and what has to be included in the bond.  Specifically, the Texas Property Code Sec. 53.172, Bond Requirements, states:

The bond must

(1)  describe the property on which the liens are claimed;

(2)  refer to each lien claimed in a manner sufficient to identify it;

(3)  be in an amount that is double the amount of the liens referred to in the bond, unless the total amount claimed in the liens exceeds $40,000, in which case the bond must be in an amount that is the greater of 1-1/2 times the amount of the liens or the sum of $40,000 and the amount of the liens;

(4)  be payable to the parties claiming the liens;

(5)  be executed by:

(A)  the party filing the bond as principal;  and

(B)  a corporate surety authorized and admitted to do business under the law in this state and licensed by this state to execute the bond as surety, subject to Section 1, Chapter 87, Acts of the 56th Legislature, Regular Session, 1959 (Article 7.19-1, Vernon’s Texas Insurance Code);  and

(6)  be conditioned substantially that the principal and sureties will pay to the named obligees or to their assignees the amount that the named obligees would have been entitled to recover if their claims had been proved to be valid and enforceable liens on the property.

After the bond is drafted and sworn to, it is filed in the county where the property in question is located.

While this process is not necessarily difficult, having a construction attorney and bond company that has repeatedly done this process can save you time and headaches, especially if your contracts require you to indemnify a person or entity by bonding around a lien and time becomes of the essence.  

Comments

  1. Kelly – Great article about a what I think is an overlooked and over-hyped element of the mechanics lien laws.

    First, I think the ability to bond out a lien is too often overlooked. Someone files a lien against the project, and the owner, developer, lender or contractor goes nuts! The lien may be a tiny amount – something like $1,000 – $7,000, but nevertheless, it causes a storm (which is why these things are so effective). These parties so frequently overlook the availability of a bond, which is an easy way to get the property clear and forcing the lien claimant’s hand to take action.

    Second, I think the bond is over-hyped. While owners frequently overlook filing these things, potential lien claimants are worried to death about them. They worry that if they file a lien, “the owner will just bond it away.” I always say that having a mechanics lien bonded off is a FANTASTIC event. Now, the money is there, nestled away and virtually guaranteed. It’s not necessarily a bad thing to have it bonded off, it just changes things a bit.

    In either event, your article is useful because it gives readers the nuts and bolts to how lien bonds work.

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