Understanding Release of Lien Bonds in Arizona by Joe Clarken

When it comes to construction projects, one common issue that often arises is the placing of a lien on a property. A lien is a legal claim placed on a property by a contractor or subcontractor who has not been paid for work performed. In Arizona, there are specific laws and regulations in place to address liens and to protect both property owners and contractors. One option available to property owners is to use a release of lien bond.

A release of lien bond, also known as a lien discharge bond, is a type of surety bond that can be used to release a property from a lien claim. By purchasing a bond, the property owner is essentially providing a guarantee that any valid lien claim against the property will be paid. If a claim is made, the bond will be used to compensate the claimant.  The bond amount is 150% of the underlying lien amount.

In Arizona, the process of releasing a lien through a bond involves several steps. First, the property owner must locate a surety bond agency who can best match the client with the bond company best suited to handle that kind of client given their resources, the underlying situation of the lien dispute, and other factors that drive the terms of the bond’s approval.  Cash or collateral (often in the form of an Irrevocable Letter of Credit from an acceptable bank) are frequently required in, at least, an amount equal to the lien, or even to the full bond amount along with corporate (if a business is involved) and personal guarantees to the bond company in the form of a General Agreement of Indemnity to qualify for the bond.  Once a bond is obtained, it must be filed with the county recorder’s office where the property is located. The bond should include specific information, such as the property owner’s name, the contractor’s name, and the amount of the bond.

After the bond is filed, the property owner must provide notice to the lien claimant within a certain timeframe, typically 30 days. This notice should inform the claimant that a bond has been posted to release the property from the lien and provide instructions on how to make a claim against the bond.  Arizona’s statutes require the claimant to bring suit within two years of a bond being filed or the rights against the bond expire.

If a claim is made, the lien claimant must provide the necessary documentation, such as invoices, contracts, or other evidence of the work performed or materials provided. The claimant must also specify the amount being claimed. The property owner thenhas the opportunity to contest the claim if they believe it to be invalid or excessive.

Once all the necessary documentation has been submitted, the surety bond company will review the claim and determine its validity. If the claim is deemed valid, the bond will be used to compensate the claimant in the amount specified if the bonded principal does not pay it directly. If the claim is determined to be invalid, the bond will remain in place, and the lien on the property will be released.

The use of a release of lien bond can be beneficial for property owners facing lien claims. It allows them to release their property from a lien without having to pay the claim immediately. However, it’s important to note that the property owner is still ultimately responsible for the claim and may need to reimburse the surety bond company for any funds paid out.

It’s also important for property owners to understand that a release of lien bond does not absolve the contractor or subcontractor from their obligations. They may still be liable for the unpaid debt, and the bond only provides temporary relief for the property owner.

In conclusion, the release of lien bond is a valuable tool for property owners in Arizona to protect their property from the encumbrance of a lien. By following the proper procedures and working with an authorized surety bond company, property owners can effectively release their property from a lien claim and ensure that all parties involved are protected.

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