June 6, 2015
This article is the seventh in a series on new construction. The contents of this series of articles apply to commercial as well as residential projects (this article being the only exception).
The issue of mechanics liens in Ohio is complex and involved in commercial projects. But in the residential world (one and two-family residences), buyers are fully protected against mechanics liens so long as (i) they have paid the full amount due to the builder and (ii) they did not, before such payment, receive notice of the filing of a mechanics lien. This protection applies in all three circumstances of (i) homes purchased from builders at the end of the construction process, (ii) homes built on the lot owned by a buyer, and (iii) existing home improvement contracts.
Further, the attempt to assert the right to a mechanics lien by a builder, subcontractor or materialman when these conditions have been met is the basis for a “slander of title” cause of action agasint such lien claimant.
The circumstances that give rise to liens against residential projects are generally either (i) a dispute between the buyer and the builder or (ii) a dispute between the builder and its subcontractors and materialmen, usually the latter.
The statute that provides this protection is O.R.C. Section 1311.011, which provides:
(1) No original contractor, subcontractor, material supplier, or laborer has a lien to secure payment for labor or work performed or materials furnished by the contractor, subcontractor, material supplier, or laborer, in connection with a home construction contract between the original contractor and the owner, part owner, or lessee or in connection with a dwelling or residential unit of condominium property, that is the subject of a home purchase contract, if the owner, part owner, or lessee paid the original contractor in full or if the purchaser has paid in full for the amount of the home construction or home purchase contract price, and the payment was made prior to the owner’s, part owner’s, or lessee’s receipt of a copy of an affidavit of mechanics’ lien pursuant to section 1311.07 of the Revised Code.
One key question is whether the “owner…has paid the original contractor in full.” This does not necessarily mean the full contract price, but the actual amount owed after all setoffs and change orders. Thus, if the original builder defaulted in the performance of its contract, and as a result the buyer does not owe him funds for the completion of the project, then nothing is owed to his various subcontractors and materialmen.
This statute also does not protect buyers who have actual notice of a lien, and still elect to pay a builder the remaining contract price. Paying the builder without known lien claims resolved is simply foolish.
When a residential construction projects runs seriously “off the rails,” claims against homeowners can emanate from many parties. But, unlike the commercial setting, residential buyers and owners are absolutely protected from these later-arising lien claims.
Our way of addressing this on behalf of homeowners is a simple letter to the lien holder to remove their claim or be exposed to damages claims from the buyer, which could include claims for punitive damages and attorneys fees.
This article is one in a series on the Finney Law Firm blog on new construction. Read more here: