Bonding off a Private Mechanic’s Lien In Kentucky

In my previous post, I discussed the basics of filing a private mechanic’s lien in Kentucky. Today, the subject will turn to the release of a private mechanic’s lien by execution of a bond. Execution of a bond for release of lien (the “Bond”) provides the owner of property against which a mechanic’s lien has been asserted, or the contractor who contracted with the owner for the provision of labor and/or materials for improvement of the property, an avenue of relief whereby the owner or contractor can have a mechanic’s lien filed against the property released. Utilization of a Bond is particularly helpful when a dispute arises regarding the validity of an asserted mechanic’s lien.

The assertion of a mechanic’s lien against a parcel of property has multiple negative consequences. For example, the lien creates an encumbrance against the property which must be removed or addressed before the property can be sold or refinanced. Furthermore, often times, the filing of a mechanic’s lien against the property constitutes a breach of the contractor’s contract with the property owner. An owner who discovers a lien against the property may, among other things, terminate the contractor’s contract and/or seek damages for the contractor’s breach. Moreover, due to the fact that a lien claimant has up to twelve (12) months from the date of filing of the mechanic’s lien to bring an action enforcing said mechanic’s lien, assertion of a mechanic’s lien can tie up the property for up to one (1) year without any action being taken to resolve the issues related to the subject lien.[1]

New home constructionFortunately, KRS 376.100 provides the owner and/or contractor with the ability to have any mechanic’s lien “bonded off” and the encumbrance removed. Specifically, at any time before a judgment is rendered enforcing the subject mechanic’s lien, the owner or contract (or other person in privity with the contractor) may execute before the county clerk in the county where the mechanic’s lien was filed a Bond for double the amount of the mechanic’s lien claimed with good sureties to be approved by the clerk.[2] The Bond shall require its obligors to satisfy any judgment that may be rendered in favor of the lien claimant.[3] Upon execution of the Bond, the mechanic’s lien is released.[4] Furthermore, in any action instituted by the lien claimant to enforce its mechanic’s lien, the lien claimant may make the obligors under the Bond parties to the action and, in so doing, any judgment recovered can be enforced against any or all of the Bond obligors.[5]

It is also important to note that the Bond is merely a substitute for the liened property.[6] The Bond transfers the mechanic’s lien from the property to the Bond.[7] The obligation of the bond does not extend beyond the obligation of the lien for which it was substituted.[8] In other words, the lien claimant has no greater rights under the Bond than it would have had against the property.[9] Moreover, in order for a Bond to be effective and enforceable by the lien claimant against the Bond obligors, the subject mechanic’s lien must be valid (i.e. properly perfected).[10] Otherwise, the lien claimant may not recover under the Bond.[11]

Bonds can be an extraordinarily helpful tool. They provide the owner and/or contractor the ability to keep the property unencumbered and, in the case of the contractor, the ability to cure a potential breach of contract with the owner (as many contracts require a contractor to keep the property free and clear of any encumbrances related to labor and/or materials being provided). Bonds further allow for the owner and/or contractor to keep the subject property from being tied up in lengthy litigation where the owner and/or contractor dispute the amount and/or validity of the mechanic’s lien. Bonds are an important means by which owners and contractors can protect their respective rights and interests in the property being improved.

For more information on the operation of mechanic’s liens or bonds on those liens, contact the attorneys at McBrayer, McGinnis, Leslie & Kirkland, PLLC.

BYatesBrendan Yates joined the Lexington office of the firm as an associate in 2002. Brendan is a member of the firm’s Litigation Department, where he focuses his practice on construction and real estate litigation, workers’ compensation defense litigation, insurance defense and commercial litigation. He has successfully defended his clients in state and federal courts, the Kentucky Court of Appeals, the Kentucky Supreme Court, and in administrative agency proceedings in Kentucky. He can be reached at byates@mmlk.com or (859) 231-8780, ext. 208.

This article is intended as a summary of state and federal law and does not constitute legal advice.

[1] See KRS 376.090.

[2] See KRS 376.100.

[3] Id.

[4] Id.

[5] Id.

[6] Gil Ruehl Mechanical, Inc. v. Hartford Fire Insurance Company, Ky.App., 164 S.W.3d 512, 514 (2004).

[7] Id.

[8] Jungbert v. Marret et al., Ky., 231 S.W.2d 84, 85 (1950).

[9] Id.

[10] Id.

[11] Gil Ruehl Mechanical, Inc., 164 S.W.3d at 514.

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Development in Areas Prone to Flooding

Development in flood prone areas is regulated by a combination of federal, state and local regulations to reduce the possibility of loss of life and property, and to reduce the cost associated with development and rebuilding in these areas. The Federal Emergency Management Agency (“FEMA”) publishes flood maps that identify the regulatory floodplain. Congress has enacted various changes to existing legislation to discourage development in special hazard areas and to facilitate the purchase of flood insurance in by property owners in flood prone areas. Under current laws, communities that want to make national flood insurance available to its residents must participate in the National Flood Insurance Program. This required communities to adopt certain minimum standards that regulate development in areas that are prone to flooding, including standards that prohibit new development in special hazard areas.

Regulating flood plains is based on FEMA’s maps, but the maps are not always accurate. If a development is contemplated in the regulatory floodplain as shown on a FEMA map, an engineer can perform a study for submission to FEMA and obtain a letter of map revision (LOMR) or a letter of map amendment (LOMA) that redefines the regulatory floodplain and will allow development based on the revised map. Communities that participate in the national Flood Insurance Program have adopted procedures for this procedure, which has the effect of revising the national flood insurance program maps.

New development in floodplains or special hazard areas can involve the use of fill, which is also strictly regulated by local, state and federal authorities to ensure that a plan to use fill demonstrates that the fill will not cause additional flooding problems. Many historic structures are present in floodplains since waterways were traditionally the first “highways,” and our first industries and commercial centers first occurred next to rivers. Federal, state and local regulations provide for floodplain variances to allow the redevelopment or adaptive re-use of historic structures. Without a waiver for historic structures, it would be nearly impossible to redevelop these buildings for twenty first century uses. Granting a waiver typically requires a hearing by a specially appointed local board. Flood-proofing measures, such as special barriers that can be employed during a flood, are typically incorporated into the design.

When a developer encounters a property with floodplain, rather than rejecting it immediately, further investigation may show that the property is worth the time and effort if the floodplain issues can be satisfactorily resolved.

For assistance with development of real property in flood –prone areas, contact the attorneys of McBrayer, McGinnis, Leslie & Kirkland, PLLC.

CWestoverChristine Neal Westover is an attorney in the Lexington office of McBrayer. Ms. Westover has extensive experience practicing law in both the public and the private sector. The focus of Ms. Westover’s experience and area of practice is land use law since her assignment in 1991 as legal advisor to the boards, commissions and divisions of government within Lexington Fayette County on all matters related to planning, zoning and land use law. Ms. Westover has an extremely deep and broad expertise of the laws governing land use in Kentucky and the procedural and substantive complexities that underpin planning and zoning matters. She also has significant experience dealing with governmental divisions such as Building Inspection, Code Enforcement and other administrative bodies due to their regulatory authority in land use matters. Ms. Westover can be reached at cwestover@mmlk.com or (859) 231-8780, ext. 137.