Utah's lien laws can turn remodeling or building your dream home into a nightmare.
Ask Ann Evans."It was a living hell," she recalls of her lesson on liens.
After her contractor had skipped town, Evans found he had left more than an unfinished addition and a leaking roof. Evans had paid him for subcontract labor and materials, but he didn't use the money to pay those expenses. Soon Evans began receiving lien notices from subcontractors and suppliers threatening to put her home on the auction block if they didn't get paid.
"I had to take out a second mortgage on my $115,000 home, so I wouldn't lose it to a $25,000 remodeling job," she said.
Unfortunately, Evans' experience isn't unusual. It happened to an entire subdivision of new homeowners in Utah County, where the general contractor didn't use the money the homeowners had paid him to cover construction costs.
Despite the numerous horror stories, experts expect little change in state statutes guaranteeing payment to subcontractors even if it means homeowners pay twice - once to the general contractor, then again to the subcontractor to pay off his claim on the property.
"It comes up every year, but it is hard to find a way to make contractors and suppliers happy without causing a problem for homeowners," said Margaret Crane, executive vice president of the Utah Home Builders Association.
Part of the problem stems from the legacy of lien laws. "Because mechanics' lien laws go back several hundred years you can't get rid of them altogether," said Robert F. Babcock, a local attorney and expert on lien law.
He said allowing someone to make a claim on a piece of property to satisfy a debt was originally intended to protect poor laborers from the wealthy landlord.
Over the centuries, however, the roles have changed. Today it's the lone homeowner against a powerful legion of laborers - contractors and suppliers - who understandably defend laws that ensure payment for a day's work.
Babcock said the trend in other states is toward preserving lien rights but requiring contractors to give a property owner advanced notice of their right to be paid. That notice applies in Utah for commercial construction projects.
The Utah Legislature has also attempted to strike a balance between small property owner and laborer rights. It passed a law in 1989 that preserves lien rights but requires contractors to pay their bills within 120 days or face felony theft charges. But some local prosecutors question the law's constitutionality and a legal opinion from the Utah attorney general is pending.
Meanwhile, there are some steps homeowners can take to protect themselves from unexpected liens and ensure payment to subcontractors:
- New homeowners can purchase additional title insurance. Typically title companies insure against liens through closing of the sale. To insure against liens after closing, a homeowner can purchase extended coverage. But don't expect a title insurance company to tell homeowners extensions are available. Crane said such a disclosure is law in other states but not in Utah.
- Homeowners can also purchase what title insurance companies have aptly named a "plain language policy." It has been offered to mortgage lenders for years, but some title companies have recently offered it to Utah homeowners. It insures against liens that are not the homebuyer's fault before or after closing, without the hassle and expense of an extension.
- Demand the general contractor secure a payment bond to cover unpaid bills on your project. Babcock says state law requires such a bond for projects costing more than $2,000. But the law is unknown to homeowners and ignored by contractors because it is difficult to get a bond for specific, small construction jobs, he said.
- Have subcontractors and suppliers sign lien waivers. A waiver signed by the general contractor doesn't apply to the subcontractors or suppliers.
- Pay the general contractor with checks that have to be co-signed by the supplier or subcontractor. Babcock said the bank should insure against any forged signatures.
- Be selective in choosing a contractor. Call the state to see if he is licensed. It's not a guarantee against trouble, but state officials say most lien problems involve unlicensed contractors. Also check with the contractors' suppliers to see if he pays his bills on time. Finally, ask for references from recently completed work to see if former customers have had any problems with liens.