Q My husband and I closed on our new home about six months ago. Apparently our builder did not pay all of his subcontractors and we have received invoices from them directly. I thought my builder legally had to have these people paid off at closing. What do I do now? My builder is not returning my phone calls.
A Do not pay the bills yet. Get on the phone now and call the following state agencies for advice and assistance:
Minnesota Department of Labor and Industry's Enforcement Services, 651-284-5069.
Minnesota Attorney General's Office, Consumer Division, 651-296-3353.
Although there's no state law requiring contractors to pay off their subcontractors at closing, they usually do, said Charles Durenberger with the Minnesota Department of Labor and Industry's Enforcement Services in the Construction Codes and Licensing Division. But not always.
Depending on the type of construction financing you had, and the contracts with the builder and title insurance company, it can happen that subs aren't paid at closing and the title insurance company doesn't care.
That itself isn't a violation of the law. But it is felony theft for a contractor to take money from a consumer and not use it to pay off the subcontractors, Durenberger said. It's reason for revocation of a builder's license.
This gets into the complicated matter of mechanics liens and lien waivers. You don't mention if you have in your possession lien notices or waivers. Basically, liens can be placed against your home by subcontractors and material suppliers to cover their costs in the event the builder doesn't pay them. However, they must notify you of that right within 45 days from the time they start work or furnish materials, or they can't come to you later for payment. The lien waiver is a document, made after the subcontractor or supplier has been paid, that releases any claim these holders would have on your house.
So, if you received notices from subs, but didn't get a waiver from the general contractor, it's possible that the subcontractors or suppliers can come to you to get their money, even if you have closed on the house and paid your builder in full.
The situation serves as a good reminder to consumers who are building or remodeling: Protect yourself.
Get a list of everyone who worked on the house or supplied materials. (A sworn construction statement is best.)
Get lien waivers from each, plus the builder, even if you didn't get lien notices.
Make sure your title insurance policy includes mechanics lien coverage. The standard policy has an exclusion for it. Most consumers don't know that they can and should ask for that to be included, Durenberger said.
Order a copy of "A Citizen's Guide to Home Building and Remodeling," from the Attorney General's Consumer Division at 651-296-3353 or toll-free 1-800-657-3787. Or, view it online at www.ag.state.mn.us/consumer. Click on "housing" in the left-side menu.