New homeowners will finally be protected from paying contractor's bills as well as a monthly mortgage payment as a result of the Legislature's passage of SB186 and SB190, says one of the bills' sponsors.
Sen. Craig Peterson, R-Orem, said the legislation may be one of the most beneficial laws passed this session."Of the many things we have done in the past session, I really feel this has potential for being one of the better things," he said. "A number of people have had their lives ruined (when they moved into new homes with liens). This bill will make some of these contractors that don't want to live by the rules think twice about what they are doing."
SB186, co-sponsored by Sen. Glade Nielsen (R-Roy), does four things. First, it requires licensed contractors to demonstrate financial responsibility.
"When anybody starts a business, they have to show the ability to pay back their loans," Peterson said. "In contracting that was not the case. Contractors would get the owner to take out a construction loan and would start with little or no personal investment or resources. This requires them to demonstrate financial responsibility in order to complete the project."
The meat of the bill, the second aspect, requires contractors to pay subcontractors and suppliers within 120 days after they have accepted payment from the project financier, whether that be the homeowner or a bank.
If the contractor does not pay, this constitutes evidence of intent to defraud and is punishable as a third-degree felony, Peterson said.
Only civil penalties were applicable in the past and when contractors filed for bankruptcy they were protected from those claims.
SB186 makes the diversion of funds a criminal act. Contractors declaring bankruptcy are not protected from prosecution for criminal acts prior to the declaration.
"We really want them to think twice," he said. "There are certain individuals who have made bankruptcy a part of their business plan. This would make it - in this particular industry - a very risky thing to do. The bank only protects them financially, not criminally."
Thirdly, the bill gives the state Department of Business Regulation the responsibility to levy fines if a contractor is working without a license. The first offense carries a $1,000 penalty and the second offense $2,000. The third offense penalizes unlicensed contractors $2,000 for each day that the offense is committed.
The fourth point of the bill removes the requirement of contractors to purchase business licenses from cities and counties throughout the state. Instead, contractors only need to purchase one business license in the city of their primary location.
SB190 forms a uniform building codes commission to put all city building codes and inspections on the same level. A 1 percent surcharge on building permits will be used to certify inspectors.
SB190 is an important part of the package because the state will not get involved in issues on the quality of construction. It's a local issue, Peterson said.
"Local inspectors in the past have really not had references or training to truly enforce the local responsibility of quality and code compliance. The bill establishes statewide standards for construction performance and codes and at the same time provides revenue for the training."
Peterson said he has worked on the contractors legislation since 1986, when he was first elected to the Senate. He was contacted by neighbors who had problems with contractors and he became aware of how difficult it was to make sure a home was clear of all debt when purchased.
He said he met people who had purchased homes with liens ranging from few hundred dollars to $25,000. None of the new homeowners was aware that contractor bills had gone unpaid.
"We've been working on this for three years and it finally came about. We are really excited," said Kim Fearneyhough, a Provo resident and head of Home Aid.
Fearneyhough has worked with the state in drafting legislation through Home Aid, a non-profit organization she set up several years ago to help consumers with construction problems. "The state is backing it now. We'll see what happens in the years to come."