1.4 Lien Law, Bond Claims, and Dispute Resolution
Key Takeaways
- A mechanic's lien secures payment against improved private property; deadlines run from the date labor or materials were last furnished.
- Lien waivers are conditional or unconditional and progress or final — never sign an unconditional waiver before payment clears.
- A surety bond involves principal, obligee, and surety; the Miller Act requires payment and performance bonds on federal jobs over $100,000.
- Public property cannot be liened, so unpaid subs pursue the payment bond instead, typically within 90 days of last furnishing.
- Dispute resolution escalates negotiation to mediation (non-binding) to arbitration (usually binding) to litigation.
Mechanic's Liens
A mechanic's lien (also called a construction or materialman's lien) is a security interest a contractor, subcontractor, or supplier records against the improved property to secure payment. Because state deadlines differ, the exam tests the process, not one state's calendar: many states require a preliminary notice early in the job, a recorded claim of lien within a fixed period after last furnishing labor/materials, and a suit to foreclose within a later deadline or the lien expires.
Lien Process and Typical Deadlines
| Step | Purpose | Typical Window (varies by state) |
|---|---|---|
| Preliminary / Pre-lien Notice | Preserve lien rights | ~20 days after first furnishing |
| Notice of Intent to Lien | Demand before recording | Before filing |
| Record Claim of Lien | Create the lien | 60-90 days after last work |
| Suit to Foreclose | Enforce the lien | 6-12 months after recording |
| Release / Satisfaction of Lien | Clear title after payment | On payment |
The exam point: deadlines run from the date labor or materials were last furnished, and missing the window forfeits lien rights even though the debt remains.
Lien Waivers — A High-Frequency Trap
Lien waivers exchanged at payment come in four forms. Confusing them is a top exam error.
| Waiver Type | When Used | Risk |
|---|---|---|
| Conditional Progress | With a progress payment | Effective only when check clears |
| Unconditional Progress | After payment confirmed | Waives rights immediately |
| Conditional Final | With final payment | Effective when final check clears |
| Unconditional Final | Final payment confirmed | Waives all rights now |
Never sign an unconditional waiver before the money is in hand — it surrenders lien rights even if the check bounces.
Surety Bonds and Public Projects
A surety bond is a three-party agreement among the principal (contractor), the obligee (owner), and the surety. On federal public works, the Miller Act requires a payment bond and a performance bond on contracts over $100,000. Many states copy it as a Little Miller Act. Because you cannot lien public property, an unpaid sub on a public job pursues the payment bond instead of a mechanic's lien — a frequent exam distinction.
Bond Types and Claim Scenario
- Bid bond: guarantees the bidder will sign the contract and furnish bonds (commonly 5-10% of bid).
- Performance bond: guarantees completion to contract terms (often 100% of contract value).
- Payment bond: guarantees payment of subs and suppliers.
Scenario: A second-tier subcontractor on a $2,000,000 federal courthouse is unpaid $48,000. It cannot lien the courthouse, so it gives notice and files a Miller Act payment-bond claim, typically within 90 days of last furnishing and suit within one year.
Dispute Resolution Ladder
Disputes escalate from cheapest to most costly. Know the order and that mediation is non-binding while arbitration is usually binding.
| Method | Binding? | Decider | Cost/Speed |
|---|---|---|---|
| Negotiation | No | The parties | Lowest |
| Mediation | No | Neutral facilitator | Low |
| Arbitration | Usually yes | Arbitrator(s) | Moderate |
| Litigation | Yes | Judge/jury | Highest |
Many construction contracts mandate mediation then binding arbitration before litigation. An arbitration award is enforceable in court and offers limited appeal rights, which the exam contrasts with a mediator who has no power to impose a decision.
An unpaid second-tier subcontractor on a federal public building project seeks payment. What is the correct remedy?
A contractor receives a progress check and is asked to sign a waiver, but the check has not yet cleared. Which waiver protects the contractor best?
Preliminary Notices and Filing Deadlines
Mechanic's lien rights hinge on notice and timing, and the deadlines are favorite exam numbers. Many states require a preliminary (pre-lien) notice within ~20 days of first furnishing labor or materials to preserve lien rights, especially for subs and suppliers with no direct owner contract. The lien must be recorded within a state window (commonly 60–90 days after last work or project completion) and foreclosed within a longer period (often one year). Miss the recording deadline and the lien is lost — the contractor becomes an unsecured creditor.
Bonds vs. Liens on Public vs. Private Work
You cannot lien public property. Instead, federal public work uses the Miller Act, requiring a payment bond and performance bond on contracts over $100,000; states use Little Miller Acts. Unpaid subs/suppliers make a bond claim against the payment bond instead of a lien. Distinguish the three surety bonds: a bid bond guarantees the bidder will sign; a performance bond guarantees completion; a payment bond guarantees subs and suppliers are paid.
Common Exam Traps
- Trap: You can place a lien on a city school. No — public property is lien-exempt; pursue the payment bond.
- Trap: A lien lasts indefinitely once recorded. It expires unless foreclosed within the statutory period.
- Trap: Arbitration and litigation are the same. Arbitration is private, binding, and usually faster/cheaper; mediation is non-binding facilitation; litigation is public court.
- Trap: A lien waiver signed at partial payment waives all future rights. Read the type — conditional vs. unconditional, progress vs. final.
A subcontractor on a $2 million federal courthouse project is unpaid. What is the correct recovery mechanism?
Lien Waivers — Match the Four Types
Lien waivers come in four flavors and the exam tests the matrix: conditional vs. unconditional crossed with progress vs. final. A conditional progress waiver waives rights only up to the stated amount and only once payment clears — the safest for a sub to sign. An unconditional final waiver releases all remaining lien rights immediately and should be signed only after the final check has cleared. Signing an unconditional waiver before funds arrive is the classic costly error.