Potential law could protect home buyers from mechanic's liens

Tuesday, June 8, 2010 | 5:32 p.m. CDT; updated 6:23 p.m. CDT, Tuesday, June 8, 2010

JEFFERSON CITY — Legislation pending before Gov. Jay Nixon would create new rules for resolving payment disputes among home construction contractors in an effort to relieve home buyers of unexpected hassles and headaches.

The legislation addresses payment claims — called mechanic's liens — that currently can be filed even after houses have been sold. Those liens can be filed within six months of the last day of work on a project, and a lawsuit can be filed up to six months after that.

"The problem is homeowners get caught in the middle," said Sen. Eric Schmitt, R-Glendale, one of the backers of the lien legislation passed last month.

If signed into law by governor, the legislation would require homebuilders to disclose the planned closing date for the house at least 45 days beforehand, and contractors to file their lien at least five days before the closing.

Nixon spokesman Scott Holste said Tuesday that the legislation is undergoing a comprehensive review.

The lien issue has broad implications because it can affect the entire housing industry, touching the building contractors and subcontractors, the banks that offer mortgages and then sell loans on secondary markets, and the title insurance companies that cover claims against the property titles.

Title insurers contend Missouri's existing deadlines mean that mechanic's liens can unexpectedly pop up after homes are bought. That creates more risk for insurers and has caused some to stop or curtail business in Missouri.

David Townsend, the president and CEO of Agents National Title Insurance Company in Columbia, said that by requiring notice of possible liens before properties are sold, the legislation would help ensure everyone gets paid for his or her work and reduce the risk of unexpected claims.

"We never want to go into a closing where the subcontractor is not paid, and unless we know about them, we can't guarantee they get paid," he said.

Some in the construction industry say the legislation's changes are essential because of the title insurers' concerns. Without that insurance, it is difficult for people to get mortgages.

"If we don't get the bill signed or approved, we're going to have major, major problems," said Sean Flower, the president of the Home Builders Association of St. Louis and Eastern Missouri. The organization has several hundred members of which more than three-quarters are subcontractors, he said.

Flower, who also is the president of a home building company, said that without changing the deadlines for filing mechanic's liens, Missouri risks a near shutdown of new home construction.

But another organization that also represents construction subcontractors said the legislation is poorly written and could sharply restrict the only ability for subcontractors to force payment for their work. Tim Thomas, the president of American Steel Fabrication and an official with the American Subcontractors Association-Midwest Council, said the bill imposes a limit on a "God-given right."

"Lien law goes back to the founding fathers, who determined it was the only way to guarantee the people who built our country got paid for the work they did," Thomas said.

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