Release of Mechanic's Lien/Stop Notice Tutorial

The inevitability of disputes on construction projects is a major concern of many contractors. These disputes can postpone a project’s completion and have serious legal and financial ramifications for many contractors. When disputes are not settled in a timely manner, a subcontractor or supplier may chose to place a Mechanic’s Lien or Stop Notice on a project.

A Mechanic’s Lien attaches the right of title to the property on which the work is performed. This prevents the property owner from selling or obtaining additional loans on the property. Generally, any person who contributes a real improvement to the property has the right to a Mechanic’s Lien. A Mechanic’s Lien can only be filed on a private construction project.

A Stop Notice is filed with the holder of the construction funds on a project and prevents the funds from being released to the general contractor (or the party with whom the funds are to be paid). A Stop Notice is generally filed at 1.25 times the claim amount. Stop notices are used on both public works and private construction projects.

In order to continue work on a project and ensure that it will be completed in a timely manner, many contractors seek to have the Mechanic’s Lien or Stop Notice released. While a subcontractor or supplier may issue a release for these, often times a project must proceed before a resolution can be met. If a release is not filed, a contractor may look to supply a Release of Mechanic’s Lien or Stop Notice bond. These bonds shift the liability from the project owner to the contractor and surety company, allowing the project to continue.

A Release of Mechanic’s Lien bond is issued at 1.5 times the filed lien amount. This ensures enough coverage for any disputes that may arise under the bond. In order to qualify for a Release of Mechanic’s Lien bond a contractor must provide the following information:

• Current business financial statement and personal financial statement for all owners;
• Detailed written explanation of the dispute and any supporting documentation;
• If the contractor does not have an established bond program, they will need to provide a completed and signed application to indemnify the surety company against any losses that may occur under the bond.

Once the bond is filed, the lien will be released from the property and the settling of the dispute will occur between the claimant, contractor and surety company. Generally, the surety company will only become involved in the dispute if the contractor and claimant are unable to resolve the matter. These bonds can be somewhat difficult to obtain due to the nature of the risk and are generally only written for contractors who have an established surety relationship.

A Release of Stop Notice bond is similar to a release of mechanic’s lien bond, with a few exceptions. A Release of Stop Notice bond is issued at 1.25 times the filed stop notice amount. This is to ensure sufficient coverage for any claims that may arise under these bonds. The qualification for these bonds is identical to that of a release of mechanic’s lien bond and is as follows:

• Current business financial statement and personal financial statement for all owners;
• Detailed written explanation of the dispute and any supporting documentation;
• If the contractor does not have an established bond program, they will need to provide a completed and signed application to indemnify the surety company against any losses that may occur under the bond.

Once the bond is filed, the Stop Notice is considered released from the project and the settling of the dispute will occur between the claimant, contractor and surety company. Generally, the surety company will only become involved in the dispute if the contractor and claimant are unable to resolve the matter. These bonds can be somewhat difficult to obtain due to the nature of the risk and are generally only written for contractors who have an established surety relationship.