{"id":19388,"date":"2021-06-09T09:00:05","date_gmt":"2021-06-09T14:00:05","guid":{"rendered":"https:\/\/www.suretybonds.com\/blog\/?p=19388"},"modified":"2026-02-24T08:32:40","modified_gmt":"2026-02-24T14:32:40","slug":"how-liens-and-bonds-work-together-to-protect-contractor-payments","status":"publish","type":"post","link":"https:\/\/www.suretybonds.com\/blog\/how-liens-and-bonds-work-together-to-protect-contractor-payments\/","title":{"rendered":"How Liens and Bonds Protect Contractor Payments"},"content":{"rendered":"\r\n

SuretyBonds.com contributor posts provide external expertise to help small businesses and other professionals succeed. This post features insights from Justin Gitelman, content coordinator at Levelset<\/a>, on how liens and bonds protect contractor payments.\u00a0<\/em><\/p>\r\n\r\n\r\n\r\n

How can construction contractors and material suppliers ensure they get paid by their customers?<\/strong> Mechanics liens are one tool that companies can use to help ensure that they are paid. The right to file a lien is protected in all 50 states and the District of Columbia, as well as in many countries around the world.<\/p>\r\n\r\n\r\n\r\n

According to a survey conducted by Levelset, in partnership with TSheets by Quickbooks, 49% of contractors are not paid on time per their contracts. Contractors and material suppliers need to be aware of their rights and options for collecting payment from their customers.<\/p>\r\n\r\n\r\n\r\n

What Mechanics Liens Can Do<\/h2>\r\n\r\n\r\n\r\n

A mechanics lien<\/a> is a legal instrument that protects contractors and material suppliers from nonpayment by their customers on privately-owned projects. All licensed contractors and suppliers who provide materials, equipment or labor for a construction project generally have the right to use a mechanics lien to enforce their right to payment.<\/p>\r\n\r\n\r\n\r\n

Mechanics lien rights and responsibilities are set by state statute. States have different requirements and rules that regulate the right to payment and the use of liens. Deadlines and documentation requirements differ by state.<\/p>\r\n

Before you begin work in a new state, it\u2019s recommended that you review the mechanics lien laws so you know what to expect. If you don’t follow the law, you could lose your right to file a lien.<\/p>\r\n

How Liens Protect Suppliers and Subcontractors<\/h2>\r\n\r\n\r\n\r\n

If a customer doesn\u2019t pay you for the work or materials provided, you can record a mechanics lien at the county clerk\u2019s office. The lien attaches to the deed for the property and will show up when anyone does title research on the property.<\/p>\r\n\r\n\r\n\r\n

It\u2019s extremely difficult to sell or refinance the property until the lien is released, which only happens after payment has been received. If the property owner doesn\u2019t pay the debt within the state\u2019s deadline, the contractor can file a lawsuit to foreclose on the lien.<\/p>\r\n\r\n\r\n\r\n

Once the lien has been foreclosed by a judge, the owner is forced to sell the property and use the proceeds to pay the debt.\u00a0<\/p>\r\n\r\n\r\n\r\n

Payment Bonds versus Mechanics Liens\u00a0<\/h2>\r\n\r\n\r\n\r\n

A mechanics lien uses the property itself as security for the payment, but a contractor\u2019s lien rights can also be affected by certain types of bonds.\u00a0<\/p>\r\n\r\n\r\n\r\n

Construction Payment Bonds<\/strong><\/p>\r\n\r\n\r\n\r\n

Liens can\u2019t be filed on public property. That’s where payment surety bonds<\/a> are used to protect contractor and supplier payments on government construction projects (and some private projects). The surety company protects subcontractors and suppliers from nonpayment by the project owner or lead contractor.<\/p>\r\n\r\n\r\n\r\n

The bond ensures that a contractor will pay their lower-tier subcontractors and suppliers. If the lower-tier parties are not paid, they can file a claim with the surety company and receive payment. The contractor who purchased the bond then has to pay the surety company back for the debt it covered.<\/p>\r\n\r\n\r\n\r\n

Bonds are held by the surety company, which is responsible for paying a subcontractor or supplier if there is a payment issue. Recording a lien and filing a court case isn\u2019t required. The process of filing a bond claim is fairly simple, and parties can expect to be paid promptly once the surety investigates the claim.<\/p>\r\n\r\n\r\n\r\n

Mechanics Lien Bonds<\/strong><\/p>\r\n\r\n\r\n\r\n

Understandably, property owners want to avoid mechanics’ liens. They can protect their property against payment claims before a project starts by having the general contractor post a payment bond.<\/p>\r\n

But what happens if a subcontractor has already filed a lien?<\/p>\r\n\r\n\r\n\r\n

In this case, the general contractor can post a lien bond to replace the lien<\/strong>, known as \u201cbonding off\u201d a lien. This essentially removes the lien from the property and requires the unpaid contractor or supplier to file a bond claim instead. The debt is then paid by the surety company, and the property owner repays the surety company.<\/p>\r\n\r\n\r\n\r\n

Construction License Bonds<\/strong><\/p>\r\n\r\n\r\n\r\n

In most states, contractors must hold certain bonds as part of their license requirements<\/a>. If their bond coverage lapses, they can lose their license in the middle of a project<\/strong>. This could cause them to lose their lien rights \u2014 or any right to collect payment at all.<\/p>\r\n\r\n\r\n\r\n

Some states require a contractor’s license to file a lien on a property. This is one reason why contractors need to be licensed in the states where they work. Some states will allow unlicensed contractors to file a lien for work they\u2019ve performed. However, in other states, like Louisiana, unlicensed contractors are only entitled to the \u201cminimum value\u201d of their work.<\/p>\r\n

License Bonds Allow Contractors to File Liens<\/strong><\/p>\r\n\r\n\r\n\r\n

In a few states, a contractor\u2019s license is required to recover payment in any way, including collections or lawsuits. For example, in California and Washington, contractors must be licensed to file a lien or<\/em> a lawsuit for collection. If an unlicensed contractor provided $1 million worth of work and a party refused to pay, that contractor would have no remedy to collect the payment.<\/p>\r\n\r\n\r\n\r\n

Licensing protects customers from unscrupulous contractors who lack the proper protections, like insurance and bonding. Some states require contractors to take classes to improve their chances of business success or assess their knowledge of business topics and trades. It pays to get licensed in every state you perform work in to protect yourself and your customers.<\/p>\r\n\r\n\r\n\r\n

Liens and Bonds\u00a0 Work Together to Protect Contractor Payments<\/h2>\r\n\r\n\r\n\r\n

Mechanics liens provide contractors with a powerful remedy to collect payment for their work. Because construction work can\u2019t be returned or removed due to nonpayment, contractors and suppliers have been given the ability to attach to a property\u2019s deed.<\/p>\r\n\r\n\r\n\r\n

Often, the filing of a lien, or the threat of one, is all it takes to get the owner to make payment. But a contractor\u2019s lien rights can be affected by bonds and bonding requirements. Contractors need to know the laws and requirements so they can protect their own payments on every project.<\/p>\r\n","protected":false},"excerpt":{"rendered":"

SuretyBonds.com contributor posts provide external expertise to help small businesses and other professionals succeed. This post features insights from Justin Gitelman, content coordinator at Levelset, on how liens and bonds protect contractor payments.\u00a0 How can…<\/p>\n","protected":false},"author":57,"featured_media":21819,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[147],"tags":[],"featured_image_src":"https:\/\/www.suretybonds.com\/blog\/wp-content\/uploads\/2021\/06\/How-to-Get-a-Dealer-License-for-Car-Auctions-1.png","author_info":{"display_name":"Justin Gitelman","author_link":"https:\/\/www.suretybonds.com\/blog\/author\/justin_gitelman\/"},"yoast_head":"\nHow Liens and Bonds Protect Contractor Payments | Surety Bond Insider<\/title>\n<meta name=\"description\" content=\"When do you use a payment bond versus a mechanics lien? 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