As a California contractor, you know that a mechanic’s lien is your most effective tool for securing payment for your labor and materials. But a common scenario often sends contractors into a panic: you record your lien, and shortly after, the property owner records a “Lien Release Bond.”
Often referred to as “bonding around” a lien, this maneuver clears the mechanic’s lien from the property’s title. Many contractors mistakenly believe this means their claim has been destroyed and they have lost their leverage.
Fortunately, that is not the case. Here is everything you need to know about lien release bonds in California and how to keep your claim for payment alive.
What Does it Mean to “Bond Around” a Lien?
Under California Civil Code § 8424, an owner of real property who disputes the validity or correctness of your mechanic’s lien can record a lien release bond. To do this, the owner must obtain a bond executed by an admitted surety insurer in an amount equal to 125 percent of your lien claim.
Once this bond is recorded, the real property is officially released from the claim of lien and from any action to enforce it. For property owners, this is highly beneficial because it clears their title, allowing them to sell, refinance, or continue developing the property without the encumbrance of your lien.
Does a Lien Release Bond Destroy My Claim?
Absolutely not. Recording a release bond does not extinguish your claim.
When a property owner bonds around your lien, the law simply substitutes the surety bond for the land as the object to which your lien attaches. Instead of your right to payment being secured by the real estate, it is now secured by a surety bond worth 125% of your original claim.
Recovering against a liquid surety bond issued by a major insurance company can often be easier and faster than forcing the foreclosure sale of a piece of real estate.
What If I Have Already Filed a Foreclosure Lawsuit?
If the property owner records this bond after you have already filed a lawsuit to foreclose on the property, you do not have to start your lawsuit over from scratch.
In the landmark California Supreme Court case Hutnick v. U.S. Fidelity & Guaranty Co. (1988) 47 Cal.3d 456, the Court ruled that seeking recovery against a newly recorded release bond does not introduce a new cause of action.
“Similarly, when a mechanic’s lien foreclosure action is commenced and a release bond is thereafter recorded, the lien claimant may obtain recovery against the bond’s surety in the pending action without having to plead a new cause of action or comply with an additional limitations period.”
47 Cal.3d 456, 467
This means:
- Your original lawsuit is still perfectly valid.
- You are not subject to a new statute of limitations.
- You are not required to file a completely separate lawsuit against the surety company.
Your Next Steps: Amending the Complaint
Under the Hutnick precedent, if a release bond is recorded while your foreclosure action is pending, you can simply amend or supplement your pending lawsuit. You will need to file an amended complaint that:
- Adds the surety company as a new defendant.
- Substitutes the bond for the property as the source of your recovery.
Protect Your Right to Payment
Bonding around a mechanic’s lien is a routine procedural hurdle, but it requires swift and precise legal action to ensure your pleadings remain compliant. If a property owner has recorded a lien release bond against your claim, our experienced construction attorneys can help you navigate the transition from a property lien to a bond claim.