Lien Laws and Payment Procedures Flashcards

A 'lien release bond' (also called a 'lien discharge bond') allows a property owner to:

Answer: Remove a mechanic's lien from the property by substituting a surety bond in its place

A lien release bond substitutes a surety bond for the property as the lien security, allowing the owner to sell or refinance the property while the lien dispute is resolved.

Under the Prompt Payment Act applicable to federal construction projects, owners must pay contractors within how many days of receiving a proper invoice?

Answer: 30 days

The federal Prompt Payment Act requires federal agencies to pay contractors within 30 days of receiving a proper invoice, with interest penalties for late payments.

Which of the following is required for a mechanic's lien to be valid in most states?

Answer: The lien must be recorded within a statutory timeframe and served on the property owner

A valid mechanic's lien typically requires timely recording in the county records within the statutory deadline and serving notice on the property owner within a specified period.

What is 'joint check agreement' in construction payment practices?

Answer: An agreement where checks are made payable to both the general contractor and subcontractor jointly, ensuring the subcontractor receives payment

A joint check agreement requires the owner or general contractor to issue checks payable to both the GC and the subcontractor (or sub and supplier) jointly, ensuring funds reach the intended party.

In a 'pay-when-paid' clause, what condition must be met before a general contractor must pay its subcontractors?

Answer: The general contractor must first receive payment from the owner for the corresponding work

A pay-when-paid clause conditions the general contractor's obligation to pay subcontractors on first receiving corresponding payment from the owner, shifting owner payment risk to subcontractors.

What is the primary difference between a 'pay-when-paid' and a 'pay-if-paid' clause?

Answer: Pay-when-paid sets a timing condition; pay-if-paid (if enforceable) eliminates the obligation to pay if the owner never pays

Pay-when-paid creates a timing condition (pay after receiving payment); pay-if-paid, if enforceable, extinguishes the GC's payment obligation entirely if the owner never pays — many states ban pay-if-paid clauses.