The Pros and Cons of Lien Claims vs. Bond Claims
The lien claims can also be called laborers lien if it is referring to labor supply. There are also lien claims on personal property where the person in question is in the class of artisans. In the construction industry for instance, the liens claims have come to the existence due to the desire for the laborers, contractors and sub contractors to be able to get a greater remedy to their already done duty, other than just being in a position to make law suits in relation to their contracts dissatisfaction. These climes are dependent on the constitution. This is the mechanics lien.
To enter into a lien contract, one has to be sure of the terms of security for any kind of contract they get into before they get embarrassed in whatever may arise out of the activity. If you are building a home or just making some renovation on your already existing home, some contractors will actually require you to get into lien contract with them. In this case, you will either need to be very conversant with the terms of a contract or seek a lawyers assistance before signing the contract. This is because the lien contract may demand you to sell off your already constructed home to pay for any inconveniences you caused during the construction period. That is, if you are not able to pay for your loans in time (Davenport, Hanrahan, 2009). It is also advisable to pick on the already licensed contractors if you are to contract the services in which case therefore, there is a protective measure towards legalities that come along with the lien claims.
The lien claims also offer the requirement for the protection on payment. For example, for lenders who make contractor payments in direct form, one has to take charge to ensure that the money lender settles the payment only after the contractor completes his duty but no payments before. For the contractor to complete the duty, it means that they have done the physical building work fully and have also successively gone through the necessary zoning and building inspections.
The lenders requirements are for them to make the final payment evaluations in which case they should receive a certified copy of signed completion document for the particular duty. Precaution should be taken to ensure that inspection by the building inspectorates department has fully certified the completion of duty on site and therefore one should never sign the completion document until this is done satisfactorily. For one to make any liens claims, they must provide a proven performance contract document. Consultations with the tax department should also be done before construction commences for tax ramifications (Abott, n.d).
Lien rights can be lost at some instances. For example, if the client makes the wrong confirmations may be by giving a different date or events in the assumption that the law statute will provide for the rights of liens claim. Also, in the case where the land owner may lack direct contact with the client in terms of the contract, it may be considered as a breach of law although it can be defended through the law that gives an exemption of the claims but with high cost implications. If the cost of laying the claims is higher than the benefits, then one may opt to loose the lien claim.
There are a numbers of ways in which lien can be lost firstly, if you never registered at all, then you do not deserve to make the claims. Also, the failure to perfect your relationship with contracts or contractors may cause the loss of lien or due to the failure of taking the initiation steps toward the lien claims may result to its loss. Also, loss in lien may occur if one does not lay the claim trails within the stipulated period like the two year time restricted for the commencement of such claims. On the other hand, contractors are allowed to select surety companies from among them that pay different rates on premiums, hence a contractors way of making savings. Some sureties may also be issuing a higher dollar limits than others. Interested contractors may need to find out the experience and financial strength of such surety (Articlesbase.com, 2008). In their selection of a surety, many contractors make considerations on the level with which a surety may accrue any problem in the course of the project.
The surety may be able to take over that contractors duty if there is a fault that needs to be corrected but the problem is that the contractor will be required to corporate with the surety in terms of any loans that may need to be taken towards the projects completion. This however does not give any mandate, but a privilege to the surety for a chance to do complete the project by the use of its principals equipment and plants. Contracts assignment may allow that surety the full rights over the project that includes the principals rights exercised during contract time and the subcontractors as well as the equipment are all covered under the surety bonds.
This assists the contractor have the job completed for the client regardless of his inability to pay for the claims. The surety bond beneficiaries are the subcontractors, the suppliers. When the contractor contacts and makes agreement with the surety, this makes him stand a better chance in wining the trust by both the sub-contracts, the owner of the project and the suppliers. This increases the trust that the implicated is a workable project. This is an advantage to the prime contractor. The surety has a right to examine the financial information of the indemnity and the principal before entering into contract with any (Davenport, Hanrahan, 2009). The financial information may be collected form banks, suppliers, subcontracts, and the principals book, account record, among other reliable sources.
Incase the surety or the contractor finds any difficulties in executing the project to completion, they have a right to hold a meeting to assess on the possibility of the appropriate solution. The surety may or not lend finances to the contractor or indemptors towards the completion of the project and this must be repaid the same on an agreed date. There may be adjustments on the payment terminals. For instance, it may further be stated that future payments be paid through the surety rather than the principal.
The surety may further need to make a decision on the progress of the project depending on its performance towards completion. In case there is any dispute towards the payments of the bond, the surety must be informed through a written notice. In this case, the surety then does a research on the information concerning this contractor. The surety may validate the work with the aim of settling the payments. He may decide to pay for the claim depending on whether the principal needs to deposit collateral that acts as a cover to the payment that the surety is likely to pay (Articlesbase.com, 2008). Generally, the bond claim are worth an investment and better than the lien claims by far. This is so because the contractor in most cases may not lose the claim.
More so, hand bonds have the following investing in bonds can be exciting especially in the case of bankruptcy where the bank has the mandate to pay the creditors under bond security at least some money unlike those investing in liquidity or shareholders. Another advantage of this is that bonds have predictable returns that flow slowly but steadily. If included as part of investment for stockholders, bonds help in the smoothing up of the recession time portions of the stocks fluctuations. The bond can also be used to make a reliable source of income for those who are about to retire from jobs. Also, bonds accrue a higher interest than normal bank interests (Abott, n.d). There is however a disadvantage in bonds especially the fact that their income rate is low and one cannot invest a lager sum of money as they would do with the cash.
However, liens can prompt payments especially if the claims are laid on arsenal. The loss of a lien is not an endpoint but rather the key requirement and a higher degree of perfection for its recovery. Lien claims are good if the trail process is started at the stipulated time. Liens are not so good for an investment as compared to bonds because the bond claims are more successful and rarely do you lose the claims on bonds.
Surety bond have been found to be cost effective since they have a high chances to borrow funds from banks. They are also effective when banks handle claims that are disputed. Moreover, the bonds are more trusted than other types of saving and therefore make them superior to lien claims.
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