A stop notice is one of the most misunderstood documents used in the construction industry. It is the name that is confusing. A logical assumption is that a contractor is stopping work for non payment. Not even close. A stop notice stops the flow of the construction funds.
When a subcontractor or material supplier has not been paid and serves a stop notice on the property owner, a lien is created on the money owed to the prime contractor by the owner. Thus, the owner must pay off the stop notice or file a stop notice release bond before paying the prime contractor.
A prime contractor, subcontractor or material supplier can serve a stop notice on the construction lender. This places a lien on the construction loan funds. A bonded stop notice is required when a stop notice is filed on a construction lender. The stop notice claimant has to post a bond for 125% of the amount of the stop notice.