You do your research and find a builder that you feel comfortable with. You meet with them, develop plans and specifications for your future home, enter into a home construction contract, and the home construction process begins. This is an incredibly exciting time and, in many cases, an incredibly stressful one as well as you navigate all the headaches that come with building a new house. As the construction process progresses, you see your home take shape. You coordinate payments from the bank to your builder, and everything is going according to schedule. Or so you thought.
Subcontractor Recourse: Mechanic’s Lien
Then you start hearing from your builder’s subcontractors that they are not getting paid. When you ask your builder what’s going on, they assure you everything is under control, but in reality, that isn’t the case. In actuality, your builder has run out of money, diverted your payments to fund other projects, and is on the verge of going out of business. Your builder ultimately walks off the job, leaving subcontractors unpaid. At this point, the subcontractors utilize one of their only recourses – putting a mechanic’s lien on your future home.
A Homeowner’s Defense to a Mechanic’s Lien Under Ohio Law
With the uncertainty and volatility of costs in the current economic environment, this has become an all-too-common issue. But how can it be fair that you paid your builder, yet liens are still being put on your home?
Luckily, the Ohio Revised Code has a carve out for this exact scenario. Under R.C. 1311.011(B)(1), if you pay your builder the full amount under your home construction contract prior to a subcontractor putting a mechanic’s lien on your future home, then the lien is invalid under Ohio law. As long as you simply put the subcontractor on notice via affidavit that you paid the full amount of the home construction contract, then the subcontractor must release the lien.
On the other hand, what if you haven’t paid your builder in full? R.C. 1311.011(B)(2) covers that scenario. If you have paid your builder a portion of the cost of the home construction contract, but due to the builder’s mismanagement, the cost to complete the home will be greater than the contract balance, then the mechanic’s lien is invalid. To give an example, if your home construction contract is $500,000, and you pay your builder $400,000, the balance left on the contract is $100,000. However, after the builder walks off the job, you discover that the builder did not do all of the work you paid for and didn’t pay subcontractors for their work. In fact, you discover that it will actually cost $250,000 to finish the construction, not $100,00. In that instance, because the cost to complete the home is greater than the contract balance, the lien is invalid under Ohio law.
If you put the subcontractor/lienholders on notice in accordance with R.C. 1311.011, then the lienholders are obligated to release the liens. If not, and litigation is necessary to remove the liens, they may be liable for damages, court costs, and attorneys’ fees.
This is a difficult scenario in which no one wins. The homeowner has to pay above and beyond the contract price to finish their home, the subcontractor doesn’t get paid, and it creates a headache for everyone involved. Fortunately, from the homeowner’s perspective, there is recourse to have these mechanics’ liens released.
If you are dealing with a similar situation, consulting with a qualified construction law attorney can help you protect your rights and resolve the issue effectively. Likewise, before starting a major project, it’s important to understand your rights as a homeowner so you can take proactive steps to prevent these issues from arising.
For more information or to seek counsel from our Real Estate & Construction practice group, please reach out to request a consultation or call us at 216-696-1422.
