An amendment to the Mechanics Lien Act now provides that an applicant may at any time file a petition to substitute a surety bond for property subject to a mechanic’s lien. The new procedure applies in circumstances whereby a lien claim has been duly served or recorded and may be used to intervene in an enforcement lawsuit already in-progress. [1] Those applicants who may take advantage of this new procedure include:

  1. any person with an interest in the subject property,
  2. any person who may be liable for payment of a lien claim, or
  3. an association representing owners organized under any statute, including the Common Interest Community Association Act. [2]

The key provisions of the new law are the surety bond eligibility requirements. Not only must the surety be authorized by the Department of Insurance and the court, if applicable, but the surety must meet a financial strength test and the bond itself must be of an amount equal to 175% of the amount of the lien claim, survive until lien satisfaction or unenforceability, and be subject to court jurisdiction through the expiration of all appeal periods. [3] If in dispute, a hearing will determine eligibility.

If the court finds the proposed bond is in fact an eligible surety bond, then it will be substituted for the property securing the lien claim and the lien claimant’s right to recover on the bond will substitute for several Mechanics Lien Act causes of action. [4] If the eligible surety bond is approved and a proceeding to enforce the lien is pending, the bond principals and sureties become parties to the proceeding and the court may dismiss all other parties.[5]

It is worth noting, a number of title insurance companies are prepared to rely on a court order substituting a bond for property under the new amendment, thereby waiving title exceptions for any mechanic’s lien claim or foreclosure proceeding identified in the order and on the bond.

Additional notice, procedural requirements, and applicability provisions do apply.