QUICK NOTE: REMEMBER TO TIMELY FORECLOSE LIEN AGAINST LIEN TRANSFER BOND

Posted on May 19, 2019April 24, 2020 by Edward Garber

When a construction lien is transferred to a lien transfer bond pursuant to Florida Statute s. 713.24, instead of foreclosing the lien against the real property, you are foreclosing the lien against the lien transfer bond. This is not a bad deal and, oftentimes, is probably ideal. Remember, however, just because a construction lien was transferred to a lien transfer bond (pre-lawsuit) does not mean you get more time to file your lien foreclosure lawsuit. A lawsuit must still be filed within one year (short of that period being specifically shortened under operation of the law). The only exception is that if the lawsuit is filed and the lien transfer bond is then recorded (post-lawsuit), the lienor has one year to amend its lawsuit to sue the lien transfer bond.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

RECORDING THE NOTICE OF BOND TO TRANSFER THE CONSTRUCTION LIEN TO THE PAYMENT BOND

Posted on November 29, 2014November 29, 2014 by Edward Garber

If a contractor furnishes a payment bond for a private project (per Florida Statute s. 713.23), a copy of that bond should be recorded with the Notice of Commencement recorded in the official records of the county where the project is located. A contractor furnishes a payment bond on a private project in order to exempt the owner’s real property from construction liens.

There are times, though, where a subcontractor or a supplier will still go ahead and record a lien against the owner’s real property even though there is a payment bond that was recorded with the Notice of Commencement. This is a frustrating scenario because the point of paying for the payment bond and furnishing the bond is to prevent this very scenario from occurring. No worries, however, because Florida’s Lien Law efficiently addresses this scenario by allowing the contractor or owner to record in the official records and serve on the lienor a verified Notice of Bond (attaching a copy of the payment bond) that will operate to transfer the lien to the payment bond. Fla. Stat. s. 713.23(2). A copy of the Notice of Bond form is provided below.

Moreover, this Notice of Bond procedure would apply even if the contractor furnished a payment bond, but for whatever reason, that payment bond was not recorded with the Notice of Commencement. When this happens, and it does happen, the subcontractor or supplier may honestly not know that the contractor actually furnished a payment bond and will move forward and record a lien. Again, no worries, because the contractor or owner should implement the same procedure by recording and serving the lienor with a Notice of Bond. Every lien recorded AFTER the execution and delivery of the payment bond will be transferred to the payment bond through the recording of the Notice of Bond (attaching a copy of the payment bond).

Now, if the contractor did NOT furnish a payment bond BEFORE the lien was recorded, the contractor could move to transfer the lien to a lien transfer bond pursuant to Florida Statute s. 713.24. This is different than a payment bond. The lien transfer bond is simply a mechanism where a contractor through a statutory procedure procures and records a lien transfer bond that is designed to transfer a specific lien to the security of the bond. (When a contractor procures a lien transfer bond, the bond must be for the principal amount of the lien, plus the greater of $1,000 or 25% of the principal amount to cover potential attorney’s fees and court costs, plus three years worth of interest on the principal amount at the prevailing statutory rate.)

NOTICE OF BOND

To (Name and Address of Lienor)
You are notified that the claim of lien filed by you on ___, ___, and recorded in Official Records Book ___ at page ___ of the public records of ___ County, Florida, is secured by a bond, a copy being attached.
Signed: (Name of person recording notice)

LIEN TRANSFER BONDS AND VENUE

Posted on August 12, 2013August 12, 2013 by Edward Garber

The Fourth District Court of Appeals in Attaway Electric, Inc. v. Kelsey Construction, Inc., 38 Fla. L. Weekly D1693a (Fla. 4th DCA 2013) recently ruled that an action on a lien transfer bond (posted pursuant to Fla. Stat. s. 713.24 in the county where the project is located and lien recorded) needs to be initiated in the county where the bond is recorded. This means that even if there is a contract between the parties that requires a different venue outside of where the lien transfer bond is posted, that venue provision will not be enforced so that an action as to the lien transfer bond and an action under the contract can both be brought in the same county, i.e., where the lien transfer bond is posted.
In Attaway Electric, a subcontractor recorded liens for alleged nonpayment on Broward County projects with the same general contractor. The liens were transferred to lien transfer bonds by the general contractor. The subcontractor moved to foreclose the liens in Broward County and also sued the general contractor for breach of contract. The general contractor then moved to transfer venue to Orange County pursuant to a forum selection provision in the subcontract. The trial court granted the motion and transferred venue. The Fourth District, however, reversed finding that an action on a lien transfer bond must be brought in the county where it is recorded and “contract claims involving the same matters should be brought in the same place to avoid inconsistent rulings.” Attaway Electric.

This recent decision is important because contractors that want to obtain the benefit of a forum selection provision in a subcontract probably need to have a payment bond and ensure in the subcontract that the forum selection provision covers claims as to the payment bond surety. If there is no payment bond, specifically for a private project, a subcontractor can lien the private project for monies owed. If the general contractor (or even perhaps the owner) then transfers the lien to a lien transfer bond, the subcontractor will be able to foreclose the lien as to the lien transfer bond in the county where the bond is recorded as well as pursue a breach of contract claim against the contractor in the same county, even if the subcontract contains a forum selection provision with a different venue.

TRANSFERRING A LIEN TO A LIEN TRANSFER BOND DURING A LIEN FORECLOSURE LAWSUIT

Posted on May 18, 2012May 18, 2012 by Edward Garber

When a construction lien is recorded, the lien can be transferred to a lien transfer bond (thereby removing the encumbrance or cloud on the property caused by the lien). The procedure to transfer a lien to a lien transfer bond is statutory in nature and governed under Florida Statute §713.24.

A lien does not necessarily have to be transferred to a bond immediately after the lien is recorded. Rather, an owner (or other person with interest in the property) can transfer the lien to a bond after the entity or person that recorded the lien (referred to as the “lienor”) files a lien foreclosure lawsuit. In this circumstance, it is important for the lienor to know that they must amend their lien foreclosure action to assert a claim against the lien transfer bond; otherwise, the lienor will essentially lose its lien rights. The lienor will not be able to foreclose the lien as to the property (because it was transferred to a bond) and the lienor will not be able to pursue its claim against the lien transfer bond.

This is exactly what happened in The Cool Guys, LLC d/b/a Paragon Indoor Air Quality v. Jomar Properties, LLC, 2012 WL 716084 (Fla. 4th DCA 2012). In this case, the lienor recorded a construction lien and filed a lien foreclosure lawsuit. While the lawsuit was pending, the owner transferred the lien to a lien transfer bond. Under Florida Statute §713.24, if a lien is transferred to a bond during the pendency of a lien foreclosure lawsuit, the lienor must commence an action against the lien transfer bond within 1 year after the transfer. The lienor in this case, however, did not amend its lawsuit to assert a claim against the lien transfer bond until two years after it was transferred. The owner moved for summary judgment arguing that the lienor could no longer assert a claim against the bond because it waited more than one year after the lien was transferred to the bond to assert its claim on the bond. The trial court agreed which was affirmed by Florida’s Fourth District Court of Appeal. Thus, the lienor was neither able to foreclose its lien on the property or the bond.

Therefore, as an owner, it is important to know that a construction lien recorded on your property can be transferred to a lien transfer bond immediately or during the course of a lien foreclosure lawsuit. As the lienor moving to forclose the lien, it is important to know that when a lien is transferred to a lien transfer bond, the recourse is against the bond and not the real property.