Texas Lien Release Bonds
A mechanic’s lien can create problems when property needs to be sold, refinanced or otherwise transferred. A Texas lien release bond may allow a qualifying lien to be bonded around so the lien is discharged from the real property while the underlying dispute proceeds against the bond.
Lavon Insurance helps Texas property owners, contractors and other parties explore surety bond options for recorded mechanic’s liens.
What Is a Lien Release Bond?
In Texas law, this type of bond is commonly described as a bond to indemnify against a lien.
When a mechanic’s, contractor’s or materialman’s lien has been recorded against real property, the lien can interfere with a sale, refinance, construction loan or other transaction involving the property.
Texas Property Code Chapter 53 provides a procedure allowing a qualifying party to file a surety bond to indemnify against certain recorded lien claims.
After the statutory requirements for the bond, notice and recording are completed, the mechanic’s lien claim is discharged from the owner’s real property.
This process is sometimes referred to as bonding around the lien, bonding off a lien or obtaining a mechanic’s lien release bond.
Why Would Someone Need a Lien Release Bond?
Selling Property
A recorded mechanic’s lien can create a title issue that may interfere with the sale or closing of real property.
Refinancing
A lender may require a recorded lien to be resolved before completing a refinance or issuing additional financing.
Disputed Lien
A property owner or contractor may dispute the validity or amount of a lien but still need to clear the property while the dispute is being resolved.
Keeping a Project Moving
Bonding around a lien may help prevent a lien dispute from delaying financing, construction or other project activity.
Addressing Title Concerns
Recording a qualifying bond and notice can allow purchasers, lenders and title insurers to rely on the record as provided by Texas law.
Replacing the Property as Security
The bond provides financial security for the lien claimant while allowing the qualifying lien to be discharged from the real property.
How Does a Texas Lien Release Bond Work?
Texas Property Code Chapter 53 establishes the statutory procedure for bonding around certain mechanic’s lien claims.
Identify the Recorded Lien
Determine the lien being bonded around, including the claimant, amount, recording information and affected property.
Obtain the Surety Bond
The bond must meet Texas statutory requirements, including the required bond amount and an eligible corporate surety.
File With the County Clerk
The bond is filed with the county clerk in the county where the property subject to the lien is located.
Notice & Recording
The statutory notice process is completed and the bond, notice and certificate of mailing are recorded in the real-property records.
How Much Does the Lien Release Bond Need to Be?
Texas Property Code §53.172 establishes the required bond amount based on the amount of the lien or liens.
Lien of $20,000
$40,000 BondFor lien amounts of $40,000 or less, the bond is generally required to equal twice the lien amount.
Lien of $50,000
$90,000 BondThe greater amount is $50,000 + $40,000 rather than 150% of the lien.
Lien of $100,000
$150,000 BondThe greater amount is 150% of the lien rather than the lien amount plus $40,000.
Lien Release vs. Lien Release Bond
Traditional Lien Release
A traditional release generally involves the lien claimant voluntarily releasing the lien, often after payment, settlement or resolution of the underlying claim.
The claimant signs the appropriate release document and it is recorded in the real property records when required.
Lien Release Bond
A lien release bond may be used when the lien has not been voluntarily released but a qualifying party needs to discharge the lien from the property.
The dispute may continue, but the bond replaces the property as the financial security for the qualifying claim.
Information You May Need for a Lien Release Bond
Lien release bonds are underwritten individually. Having the lien and property information available can help the process.
- Legal name of the party requesting the bond
- Copy of the recorded mechanic’s lien or lien affidavit
- Amount claimed by the lienholder
- Property address
- Legal description of the property
- County where the lien was recorded
- Lien recording or instrument information
- Name and address of the lien claimant
- Construction contract or related project documents
- Information concerning the reason the lien is disputed
- Financial information requested by the surety
- Any bond form or requirements supplied by an attorney, title company or other party
Is a Lien Release Bond Automatically Approved?
No. A lien release bond is a surety obligation and generally requires underwriting approval.
The surety may consider the lien amount, circumstances of the dispute, financial condition of the applicant, indemnity, supporting documentation and other underwriting factors.
Depending on the circumstances, the surety may require additional documentation, collateral or other financial assurances before agreeing to issue the bond.
Who May Need a Lien Release Bond?
Property Owners
Owners facing a recorded mechanic’s lien that is interfering with a sale, refinance or other property transaction.
General Contractors
Contractors dealing with a disputed subcontractor, labor or supplier lien associated with a construction project.
Developers & Builders
Developers or builders who need to address a recorded lien while keeping a project or property transaction moving.
Related Contractor Bonds
Lien release bonds serve a different purpose from bonds commonly required when a construction contract begins.
Bid Bonds
Used during the bidding process to provide assurance regarding the bidder’s obligations if awarded a project.
Performance Bonds
Provide financial assurance relating to covered performance obligations under a bonded construction contract.
Payment Bonds
Provide protection relating to covered payment obligations involving qualifying subcontractors, laborers and suppliers.
Texas Lien Release Bond FAQs
What is a lien release bond in Texas?
Is a lien release bond the same as releasing the lien?
Does the lien claimant lose the claim when a bond is filed?
How large does the bond need to be?
Where is the lien release bond filed?
Can a lien release bond help when selling a property?
How much does a lien release bond cost?
What happens if the lien is disputed?
Do I need an attorney to obtain a lien release bond?
Request a Texas Lien Release Bond Quote
If a mechanic’s lien is affecting a Texas property transaction or construction project, Lavon Insurance can help you explore available lien release bond options and the information the surety will need to review.
Bond availability, eligibility, premium, collateral and underwriting requirements vary by surety and applicant. Lavon Insurance provides insurance and surety services and does not provide legal advice.