Skeldon: If you build it, they will come (and maybe put a lien against your property)Written by Mark Skeldon | | email@example.com
Building a new home is a dream for some people.
Most people who have a new home built hire a general contractor to oversee the construction of their new home. The general contractor usually hires several different subcontractors to complete the various different tasks involved in building a home. These may include painters, plumbers and electricians to name a few.
What starts out as a dream can turn into a nightmare for the homeowner if the general contractor does not pay the subcontractors for their work. A homeowner who has done everything they were supposed to do can suddenly and unexpectedly have liens placed against their property by the unpaid subcontractors.
(A lien can be defined as the legal claim of one person upon the property of another person to secure the payment of a debt or the satisfaction of an obligation.)
An example is helpful in understanding how Ohio law works in this area. Assume the following facts:
1. Mr. and Mrs. Smith take out a loan through XYZ Bank to pay for the construction of their new home, being built by Shady Builders. Shady hires Honest and Decent as two of its subcontractors to perform various tasks in building the home. The cost of the construction and amount of the loan is $200,000.
2. Shady draws off the loan for the entire $200,000, representing to XYZ Bank that all of the work is done and all of the subcontractors have been paid. Mr. and Mrs. Smith start paying on their loan and enjoying their new home.
3. While Shady has represented that it has paid Honest and Decent, it has in fact kept the $200,000 and not paid them for the work they did.
4. When Honest and Decent figure out that they are not being paid by Shady they file a mechanics lien against the Smiths’ property to try to procure payment for their work.
5. The Smiths get notice of the liens and are angry and worried about the status of their property.
Ohio law would allow Honest and Decent to file a lien against the property of Mr. and Mrs. Smith in the situation described above. That does not, however, mean that the lien is valid.
Ohio law protects property owners who have already paid the full purchase price to the general contractor. In our example, the Smiths have already paid the purchase price via the loan from the bank. Ohio law allows them to file an affidavit with the county recorder stating that the purchase price has already been paid in full.
This is judged as of the date that the subcontractor files the lien against the homeowner’s property.
The property owner can also request that the subcontractor have the lien removed or face paying the court costs and attorney’s fees of the property owner if they have to bring a lawsuit to have it removed.
It is important to note that the lien is not invalidated unless the property owner takes the steps necessary to invalidate it. In our example, if the Smiths file the affidavit and give the Honest and Decent notice that the lien is invalid, the lien will likely be removed from their property and, in any event, is not a valid lien. If the Smiths do not take this action the lien is valid and will make it difficult to sell or refinance their property.
Ohio law in this area makes provisions for many other situations that are similar to this one, but with slight differences. For this reason, if you get notice that a subcontractor has placed a lien against your property, you should contact an attorney immediately to protect your property interest.
Mark Skeldon is a solo practitioner attorney and practices of Counsel to the Law Offices of Borgstahl and Zychowicz Ltd. This column does not constitute legal advice. It is Mark’s general legal analysis. Mark can be reached at firstname.lastname@example.org or (419) 654-4752.