It is important that anyone who provides services, such as construction labor, has steps that protect them from lack of payment. Even well-known and nationally-recognized companies risk clients not paying them once the work is complete. Fortunately, there are measures in place that can be used to protect all parties involved in a construction project so that the work can be completed and your organization gets paid for the work completed.

What Is a Lien?

A occurs when you use an asset as collateral for financing. The lien gives the lender rights to your asset in the event you do not repay the financing on the agreed-upon terms. Quite often, a lien on an asset, such as a piece of equipment, means that you can’t use that equipment as collateral in other transactions and you can’t get rid of the asset, such as selling the equipment for cash. Once you have repaid the financing, the lien on the asset is lifted and the lender no longer has any rights to it. If you do not repay the financing, the lender can take possession of the asset used as collateral as a way to get paid.

What Does Bonding Around a Lien Mean?

Also called 'bonding off a lien' or a 'mechanic’s lien,' is a way to ensure payment for products and services provided in the construction field. A lien provides rights to the property that labor was provided on. Essentially, this acts as collateral for the money owed as a result of the construction work done. It prevents someone from selling the property that was worked on before payment is made for the labor. If the client does not pay for the labor, the lien can force the sale of the property. The money earned in the sale is then used to satisfy the debt. When the property has alien on it, clients find it impossible to finance, transfer, or sell the property without first paying off the lien.

When a lien is bonded off, a payment bond is available to pay off the lien. This provides a guarantee for payment to the construction firm and allows the property owner to be able to sell, finance or transfer the property without fear of a lien on the title.

The Benefits of Bonding Around a Lien

The primary benefit of bond around a construction lien is that it helps ensure that construction firms get paid for the work they complete. And, if they do not get paid by the client, the sale of the property provides compensation that the client did not provide. Any organization that provides services, such as construction, runs the risk that they may not receive payment for the work completed. Bonding around a lien is a protection for your organization so that you can get payment. Bond around a construction lien is also beneficial to the client because it provides the opportunity to remove the lien on the property so that the property title is free and clear again.

It is important that a construction firm take whatever steps are needed to ensure payment by clients once work is completed. A lien on the property can do that, and bonding around a lien provides the opportunity for the client to pay off the lien so that the property used as collateral can have a free title. Understanding bonding around a lien can help prepare your firm for different situations that may arise when completing projects. It is yet another method that all parties involved in a project are protected so that you can run your organization smoothly.

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