Our client, a general contractor, faced a challenge when a defunct subcontractor filed an invalid mechanics lien against a project, creating a duty for our client to remove the lien. Complicating matters, the subcontractor’s bankruptcy precluded the standard statutory lien bond process under Section 38.1 of the Illinois Mechanics Lien Act, which requires a lawsuit and a judge to approve the form of the bond – yet no such lawsuit could be filed due to the automatic stay in bankruptcy which insulated the subcontractor from such legal action. We navigated this situation by negotiating a common law bond solution involving a surety and a title company. This required the careful and rapid negotiation of three agreements: an Indemnity and Security Agreement with the title company, a Direct Obligation Indemnity Bond with the surety, and an Indemnity Agreement outlining our client’s obligations to the surety. By these agreements, we enabled our client to bond off the invalid lien and to protect the project owner’s interest.
