A contractor’s bond (surety bond) is required in many states before a contractor will be issued a license to operate. The bond helps guarantee that a contractor will perform according to the terms of a contract. I suppose it’s not much different in principle from a jail bond, which is an attempt to guarantee a defendant’s appearance in court, but with a more wholesome connotation.
A bond is registered with a governing authority in one of two ways:
- The contractor can establish a special account with a cash deposit equivalent to the amount of the bond.
- A bonding company can be engaged for a fee. The amount of the bond varies from state to state. In Washington, for example, the bonding rates are relatively low. A general contractor only has to post a $6,000 bond, and a specialty contractor or subcontractor (electricians, plumbers, painters, and so on) must post only a $4,000 bond. If you are not satisfied with a contractor’s work, you can put in a claim against the bond, although you’re limited to its dollar amount. This isn’t much consolation if all you can collect is a fraction of the value of the work, and you must pursue additional financial relief through the courts or arbitration.
Any claim against a contractor must be legitimate. You have to prove that the work was not done to the specifications agreed to in your contract. Just as a bond gives you some leverage in the event of faulty work, a lien (sounds like “lean,” appropriately enough) gives a contractor some protection against a customer’s spurious claims. Sometimes called a mechanic’s lien, this handy piece of legal work enables a contractor to file a claim against your home until your debt is paid. This doesn’t mean your contractor is going to take up residence in your spare bedroom if you don’t pay, but the lien must be satisfied before the property can be sold. In some cases, a forced sale of the property can occur.
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