Avoid a mechanic's lien on your home

November 16, 2009 8:01:41 AM PST
If you are considering buying into a new development or starting a home improvement project, we have a story tonight you will not want to miss. A growing number of consumers are getting liens put on their homes by sub-contractors.By taking just one simple step you could avoid having a mechanic's lien put on your home. And with so many developers, builders, and contractors falling on tough times this is more important now than ever before.

When the Neff's closed on their home they pictured a beautiful, finished development filled with families. But instead only a handful of houses are occupied because the builder, T-H Properties filed for bankruptcy.

"And I look out and I just, sometimes I just shake my head. I still can't believe that we're actually in the situation we're in," said Angela Neff of Royersford.

And now the Neff's have been punched with another problem. Some of the sub-contractors who worked on their property are threatening to put liens on their home. A Masco companies B&F and Synergy Insulation say they're owed thousands of dollars that T-H Properties failed to pay them!

"It's kind of like getting kicked when you're down."

"I really didn't have any idea that the homeowner could be responsible because you think. We paid our bills."

But under Pennsylvania's Mechanic's Lien Law this can happen when you move into new construction or pay a general contractor for a home improvement project. The law's intent is to insure sub-contractors get compensated but homeowners end up getting double-billed!

"Yeah, it makes me really angry that I gotta deal with these mechanics liens now because its extra expense that I can't afford to pay right now," said Stephen Neff.

Mechanic's liens could be put on other homes in the Neff's development. The liens could affect their credit and ability to refinance, plus:

"I can't sell this property until they're cleared up and that puts me as a hostage in my own home," said Sean Simpson.

"They're stuck. There's really nothing they can do."

Real estate attorney Glenn Hing says the law allows contractors to file a mechanic's lien on a home up to six months from the time the work was completed.

So take action before you close or make final payment to a general contractor.

"The best way a person can protect themselves is to ask the builder to produce documents to show they paid all their contractors," said Glenn.

Those documents are called releases of liens. Sub-contractors sign them to indicate they've been paid in full by the builder or general contractor. And if you're moving into new construction, beware; standard title insurance policies do not cover claims for mechanics liens.

"In order to have them covered you would have to purchase an endorsement to that policy."

Also attach a separate indemnification agreement to your sale contract.

"(It's) basically a guarantee by the seller that if a claim comes up from a subcontractor or contractor that seller would stand in front of you and protect you against that claim."

But the best protection is to get those releases of liens. Also if you're remodeling your home pay subs directly.

Meantime, T-H-P's bankruptcy attorney says:
"We are working diligently with vendors to develop an agreement by the mechanics lien holders to release liens against completed homes... We intend to see that all legal action is taken to ensure that no homeowner is unfairly burdened by these liens..."

Synergy and B&F Insulation did not return our calls for comment.

Several legislators are trying to revise the mechanic's lien law so it's more consumer-friendly.

For more information:
http://www.repvereb.com/
http://www.legis.state.pa.us/cfdocs/legis/home/member_information/house_bio.cfm?id=81

You can also contact your representative and voice your opinion on mechanic's liens. To look up your legislators, click here:
http://www.legis.state.pa.us/cfdocs/legis/home/find.cfm

Forum for homeowners affected by TH Properties bankruptcy:
http://www.wheresbuilder.com

Full Statement from TH Properties regarding mechanic's liens:
From Natalie Ramsey, attorney with Montgomery McCracken, who is representing TH Properties in its Chapter 11 proceedings.
"We are working diligently with vendors and lenders to develop a restructuring plan that includes an agreement by the mechanics lien holders to release liens against completed homes. Our discussions have been encouraging, and we intend to see that all legal action is taken to ensure that no homeowner is unfairly burdened by these liens. We continue to specifically address this issue in our discussions. Our goal is to reach the best possible outcome for all parties as soon as possible."

PA Senate Bill 882 would revise Mechanic's lien law so there is a "Subcontractor exception." The language is as follows:
"Notwithstanding any provision of this act, if the contractor has been paid in full a subcontractor may not file a claim against residential property unless the owner provides a written waiver to the subcontractor to file a claim."
http://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2009&sind=0&body=S&type=B&BN=0882
http://www.legis.state.pa.us/cfdocs/legis/PN/Public/btCheck.cfm?txtType=HTM&sessYr=2009&sessInd=0&billBody=S&billTyp=B&billNbr=0882&pn=1052

Senate Bill 882 primary sponsors are:
Senator Andrew Dinniman
Senator John Rafferty


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