Insurance & LiensQuestion 1540 of 1605
The 125% bond required to accompany a stop payment notice served on a construction LENDER exists to:
a.Satisfy the workers' compensation requirement
b.Protect the lender against the risk that the claim is invalid, by guaranteeing the lender's costs if it wrongly withholds
c.Pay the contractor's insurance premium
d.Increase the claimant's recovery
Explanation
The 125% bond (Civil Code §8532) that must accompany a bonded stop payment notice to a lender protects the lender if it withholds funds based on a claim that turns out to be invalid, covering the lender's potential damages and costs. It is a condition of obligating the lender to withhold.
Law Reference: Civ. Code §8506Practice all 1605 questions free — no signup required.
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Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)