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.

_____
This information is provided for general informational purposes only and should not be construed as legal advice. Readers should consult with qualified legal counsel regarding their specific circumstances before taking any action based on the information presented.

The post Mechanic’s Lien: Dream Home Turned Legal Nightmare appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

Back in 2015, a survey by the Western Reserve Land Conservancy found that roughly 8% of the city’s buildings were sitting empty. Another 18% were just empty lots with nothing on them. That’s a lot of unused space. However, in the last 10 years, local, state, and federal leaders have worked harder to bring these places back to life.

Today, more tools are available to help transform abandoned buildings into homes, businesses, and community spaces. For cities like Cleveland and related communities, these programs create significant opportunities for revitalization.

What Are Opportunity Zones?

In 2017, the federal government created something called Opportunity Zones. These are designated areas where investors can get tax breaks if they help improve the neighborhood. The program’s goal is to attract private sector investments to revitalize economically challenged areas, including Cleveland, by transforming abandoned properties into homes, businesses, and community spaces.

If someone sells a stock or property and makes money from it (called a capital gain), they can choose to invest that money into something called a Qualified Opportunity Fund (QOF). This fund must be used to build or fix up property or businesses in an Opportunity Zone. If the investor keeps their money in the fund for 10 years, they don’t have to pay taxes on the extra money they earn from the investment.

A person or group can even start their own QOF by filling out a form with the IRS. To qualify, at least 90% of the funds must be used in an Opportunity Zone. Investors can use the fund to build new structures, fix up old ones, or support local businesses in these zones.

What’s Next for Opportunity Zones?

The Opportunity Zone program was set to end in 2026, but it was extended into perpetuity under the “One Big Beautiful Bill Act!” This means that the program will keep going and bring even more benefits to places that really need help, like underserved neighborhoods in cities and rural areas. It will support not only buildings but also local businesses.

Ohio has its own special tax credit to encourage people to invest in its Opportunity Zones. The Ohio Opportunity Zone Tax Credit gives a 10% tax credit to investors who put money into a fund that helps improve Ohio properties in these zones. Right now, there are 320 Opportunity Zones across the state in big cities, small towns, and rural counties.  These zones can be found online at the Ohio Department of Development’s website.

Ohio also offers other helpful programs, some of which can be especially valuable for cities like Cleveland, including:

Transformational Mixed-Use Development Program

The Transformational Mixed-Use Development Program gives tax credits to large projects that combine homes, stores, and offices.

Historic Preservation Tax Credit

A Historic Preservation Tax Credit helps cover the cost of restoring historic buildings, with up to 25% back on eligible renovation expenses.

Building Demolition & Site Revitalization Program

The Building Demolition & Site Revitalization Program provides grants to demolish unsafe, vacant buildings, clearing the way for new development.

City of Cleveland Resources for Development

The City of Cleveland also has funding to support new projects. One program is the Community Development Block Grant, which gives money for building homes, helping small businesses, improving streets and parks, and more. Another program, the Citywide Development Assistance Program, helps nonprofits fix up homes and business areas.

Legal Guidance for Real Estate Projects

Even with these programs in place, most large projects still require funding from multiple sources to get off the ground, and that’s where lawyers add value. Experienced real estate attorneys can help by:

• Forming business entities
• Resolving ownership issues (called ‘title issues’)
• Applying for and securing grants or loans
• Obtaining zoning and building permits
• Drafting fair community agreements

Working with a lawyer who has a background in real estate and real estate development can help you put the pieces together to make a project work.

Old buildings may be empty, but they’re full of potential. With the right tools and support, they can become homes, shops, and spaces that bring people together. Federal, state, and local incentives, like the Opportunity Zone program, give cities such as Cleveland real opportunities for growth and revitalization.

For more information or to seek counsel from our Real Estate & Construction group, please reach out to request a consultation or call us at 216-696-1422. McCarthy Lebit would like to thank law clerk Ayishat M. Szalacha for her effort in assisting with the preparation of this legal blog post for The More Report.

_____
This information is provided for general informational purposes only and should not be construed as legal advice. Readers should consult with qualified legal counsel regarding their specific circumstances before taking any action based on the information presented.

The post Bringing New Life to Old Buildings in Cleveland appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.