Month: February 2016

Secrets of Bonding #119: Lien On Me

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Secrets of Bonding is brought to you by Bonding Pros

Need a bond?  Talk to the Pros!  856-304-7348  www.BondingPros.com

Brokers protected.  Contractors welcomed.

“It’s what you don’t know that gets you into trouble.  It’s what you know for sure that just ain’t so.”  A famous quote by…?

Let’s go over what you need to know about construction liens.  They can have a big impact on construction contracts and companies.            Click for mood music!

A Mechanic’s Lien is filed when a subcontractor or supplier on a construction project fails to be paid. The lien is a form of claim filed against the project itself. For example, the unpaid mason (subcontractor) files a claim against the building owner. “My bricks and labor are in that façade. I can’t take them back now, but assert that the general contractor has failed to pay me!”

Liens are used on non-governmental projects. Typically, claimants are prohibited from liening a public building – which is where Payment Bonds come in. Issued by surety companies, the payment bond is a resource to protect suppliers of labor and material from non-payment.

So far that’s all pretty straight forward. On private contracts unpaid subs and suppliers can file a lien. On government jobs they make a claim on the payment bond instead.

Here are some implications worth knowing.

Release of Lien

The lien can be released, or “bonded off,” by the filing of a (you guessed it) Release of Lien Bond. This removes the lien from the property in question, which is beneficial for the project owner, while still providing financial protection for the plaintiff (unpaid sub or supplier.) The dispute is still unresolved, but the plaintiffs security shifts from the physical project to the surety bond.

A release of lien bond is not easy to obtain. But if a payment bond was issued, that surety has motivation to prevent a payment bond claim, and issuing the lien release bond could do so.

When the lien release bond is filed, it takes some pressure off the defendant (general contractor). You can assume the unpaid mason hopes the lien will cause the owner (who is the recipient of the lien) to force the GC to respond. When the lien is bonded off, that effect disappears from the project owner – but not the surety.

Stop Notices

California, Mississippi, Arizona, Alaska and Washington use a slightly different procedure. On governmental projects a Stop Notice is filed which freezes a portion of the project funds to protect the claimant. This forces action on the part of the GC, or they can file a Release of Stop Notice bond to keep the project funds flowing while dealing with the dispute.

Understand the Difference

Mechanic’s Liens are filed against the project owner.  The claim attaches to the real property and is recorded against the property title – which therefore restricts the owner’s ability to dispose of the property.  

With a lien, the claimant may be paid regardless of whether the owner paid the GC.  In fact, the owner may have to pay twice: First to the GC then again to the sub / vendor claimant, to remove the lien and clear the property title.

Stop Notices “trap” contract funds, assuming there are funds to trap.

If the claimant files a Stop Notice after the funds have been disbursed, it is useless. 

Other basic differences:

  • Unlike a lien, the stop notice does not give the debt any security.
  • The stop notice is sent to the relevant parties, but it is not legally recorded such as a lien filed against the property title.  The claim is inherently less official and is sometimes even ignored because of it’s less formal appearance.
  • Unlike a Mechanics Lien, the Stop Notice can affect the entire project because it freezes a portion of the contract funds – which the GC may need in order to continue working.

NOTICE: The author is not an attorney and is not giving legal advice.  This article is for entertainment only.  Gimme a break!

mark-twain

The experts at Bonding Pros can help Insurance Agents and Contractors when tough bonding situations arise. We have the markets and the know-how to succeed even when others have failed.

Give us a call today!  856-304-7348

Not available in all states including Idaho.

Secrets of Bonding #118: Bonding Company = Girlfriend

Brought to you by…

Secrets of Bonding is brought to you by Bonding Pros

Need a bond?  Talk to the Pros!  856-304-7348  www.BondingPros.com

Brokers protected.  Contractors welcomed.

I’ve been in the surety business for a long time.  As a student of the industry, I have observed the dynamics that occur between bonding companies and their clients.  My conclusion: Bonding Companies are like Girlfriends!

(My comments are written from a male point of view, but I’m sure you can flip this to be applicable if the reader is “non-male.”)

Think about relationships you’ve been in.  Don’t they always have a “love / hate” aspect? Jokes about relationships often capitalize on this reality:

Marriage is a three-ring circus. First the engagement ring, then the wedding ring, then the suffering.
– Milton Berle

My wife is a light eater … as soon as it’s light, she starts to eat. 
– Henny Youngman

“I am” is reportedly the shortest sentence in the English language. Could it be that “I do” is the longest sentence?
– George Carlin

And for the ladies:

What’s the difference between a boyfriend and a husband?
About 30 pounds.
– Cindy Garner

As very sophisticated types, we know how to deal with the technicalities of these relationships.  It isn’t always easy, but it’s worth it.   Bonding is pretty much the same!

Step One

How does a construction company gain the support of a surety?  It starts with a flirtation and then “getting to know you.”  The underwriter receives information about a bond that is needed. If there is a spark of interest, an application and financial statements are submitted. 

The construction company wants to look attractive:

  • Here is what we’ve accomplished!
  • This is how much money we’ve made!
  • We can really perform!

Think of this as the dating stage.  It is exhilarating and intense! There are probing questions and well-crafted answers.  Both parties want to achieve success and avoid failure / embarrassment. The same as in romance, the underwriter (girlfriend) will walk away if they find that the contractor (suitor) is dating other underwriters.  This is why bond producers may approach only one market at a time.  No girl wants a playboy who may be disloyal.

Ravishing Wedding Rings Clipart Also Appealing Wedding Rings Clipart Hd Pictures 4 Boostnow Wedd - ~ zxtzdb ~

Step Two

If the relationship blossoms, wedding bells may chime! They tie the knot with a pre-nuptial / general indemnity agreement that says “We’re in this together.  But hurt me and you’ll PAY.” 

Step Three

Eventually they become old married folks.  The contractor gripes that “she is never satisfied.”  More info, more questions, more money spent to keep the surety / wife happy. It NEVER ends.  But the contractor needs the surety and works to keep things on track.

Is the underwriter frustrated?  Yes…  “I have to beat everything out of the contractor.  It’s like pulling teeth!” The contractor may be slow in providing the answers and info the underwriter needs to keep the bond account in healthy condition. “I thought we were in this together!”

There is an element of pain in the relationship, but both parties gain if they keep it together.

Yente  (Click for mood music) cupid

So where does the bond producer fit in?  We are the dating service that brings the parties together.  We succeed when we match the contractor with the right surety.  Our role as cupid continues as we shepherd the relationship forward, keeping the info flowing so bonds are available when needed.

The fact is, bonding involves more than paperwork.  It involves people, their perceptions and preferences.  The seasoned bond producer will make the match and guide the relationship forward for the benefit of all parties.  

Sureties, can’t live with them, can’t live without them.

The experts at Bonding Pros can help Insurance Agents and Contractors when tough bonding situations arise. We have the markets and the know-how to succeed even when others have failed.

Give us a call today!  856-304-7348

Not available in all states including Idaho.

Secrets of Bonding #117: Mating Fun!

Brought to you by…hearts2

Secrets of Bonding is brought to you by Bonding Pros

Need a bond?  Talk to the Pros!  856-304-7348  www.BondingPros.com

Brokers protected.  Contractors welcomed.

Remember these from school?  I always found them slightly annoying. 

OK here we go!  Match up each one with its mate.  

1.      This surety bond has an annual term.  Plumbers and electricians need them.  The bond runs to the contractor’s municipality. Site Bond

 

2.      Surety bond accompanying a project proposal. Bond has no expiry date and usually are never cancelled. Power Of Attorney
3.      Guarantees the construction of “public improvements.” Bonding Pros: 856-304-7348

 

4.      Provides project info such as costs, billings and expected profits. Work In Process Schedule
5.      Provides project info such as performance &/or claim issues, degree of completion, date of acceptance, final contract amount. Overrun
6.      Proves that the person signing the bond on behalf of the surety has the authority to do so. Pierre

 

7.      Performance bond premium charge for increased contract amount. Contract Status Inquiry Form

 

8.      Who you call when a large or difficult bond is needed. Bid Bond

 

9.      Capital of South Dakota License Bond

Hearts

OK let’s see how you did.

  1. This is a license bond. Usually written in low amounts and freely issued.
  2. That’s a bid bond. They guarantee the bidders sincerity and interest in the project.
  3. Site bonds cover water, sewer, sidewalks, roads – not the buildings.
  4. Work In Process Schedule prepared by the construction firm using internal info only they have.
  5. Status Inquiry Form prepared by the project owner indicating the degree of acceptance of the contractors work and indicating the overall health of the project – in their opinion.
  6. Power of Attorney is attached to every surety bond proving its authenticity.
  7. Overruns may be charged when contract increases occur or at the end when the job is completed / accepted.
  8. Bonding Pros has the markets and expertise to solve your bond toughies. And we guarantee a same day response!  

You see, bonds CAN be fun and rewarding.

Give us a call today:  856-304-7348

Not available in all states including Idaho.