For those who are unfamilar with Mechanic's Liens...they take priority over even your first mortgage! The only liens they are junior to are tax liens. The mortgagors of these homeowners are not happy campers right about now. I'm fairly certain the subcontractor in question signed a lien waiver...he just lied by signing it. Otherwise, the 'food chain' would have caught this long before it reached this type of problem. Also, the supplier to the subcontractor must have just filed his Mechanic's Lien under the wire for this to happen...there are time restraints on filing Mechanic's Liens which is supposed to aid in preventing stuff like this. The system failed because the subcontractor signed what was, in all likelihood, a fradulent Lien Release. These Lien Releases usually provide for the subcontractor to certify that he has paid all of his suppliers.

Horton & the City of Denver are having a tough go of it these days, aren't they? Denver I feel sorry for. Horton, I do not.

/T

I'm fairly certain the subcontractor in question signed a lien waiver...he just lied by signing it.

but then, wouldn't the subcontractor be liable? How can the supplier sue the homeowner if a lien waiver is unenforceable? Shouldn't the homeowner and the builder (who hired the subcontractor) simply have to give a copy of the lien waiver to the supplier, and the supplier goes after the person who signed the waiver?

What good is a lien waiver, then?

And how does a homeowner or buyer protect themselves? Do they have to audit the books for the entire project, and get a release from every company that sold a subcontractor a screw?

Yes, Sue. The subcontractor is the primary & first source of the suppliers' payment. But, he's bankrupt. Every supplier does have the right to file a Mechanic's Lien &, in theory, one should get a waiver from every one of them plus all of the subs. It's impractical. So, most just get Lien Waivers from the subcontractors that states the sub has paid his suppliers.

A Lien Waiver is only as good as the person signing it. :(

Every homeowner who hires someone to do work on his/her property should understand Mechanic Lien laws. When you make final payment for the new carpet...get a Lien Waiver. When you make final payment for the new HVAC...get a Lien Waiver. Most states' lien law language says that the person/entity filing the lien must have supplied 'material' labor and/or supplies. So, the homeowner doesn't normally have to worry about every plumber who comes to fix the toliet; but it's a good idea to know how your state's laws read.

DH & I recently had a floating cork floor installed in our kitchen & sunroom. We paid 50% upfront to cover the supplier's cost of materials. After installation, we exchanged our check for the remaining 50% for a Lien Release (Waiver) from the supplier. The installer was a salaried employee of the supplier so we didn't get one from him but had he been independent we would have had him sign a waiver as well.

And, buy homeowner's insurance.

Ultimately, Horton's going to have to pay this supplier. I'm rather surprised they've allowed it to reach this magnitude a problem. I don't imagine they would have in good times but Horton's really hurting & every $291K makes a difference in today's market. They've probably been trying to negotiate 'x' amount on the dollar with the supplier & he got fed up & filed a Mechanic's Lien to protect himself.

/T

The Lien Waivers are signed by DR Horton, for the benefit of the buyer.

berniek,

"The Lien Waivers are signed by DR Horton, for the benefit of the buyer."

Or, at least that's how the 'food chain' is supposed to work. In this case, even that failed.

As I said though, ultimately Horton will have to pay since they are the highest in the chain &, hence, responsible for everything below them. They'll probably settle for some percentage on the dollar.

It's a great learning tool for homeowners...an opportunity to learn about Mechanic's Liens & title insurance without anybody getting hurt (except Horton).

/T

This whole fiasco in Denver is not a problem for homeowners who have a mortgage, because afaik every lender requires title insurance...

Even if you pay cash, the title company probably will push hard for a title insurance. Or does a builder like Horton just take a check and file a new deed without going through a title company ?!?

"Or does a builder like Horton just take a check and file a new deed without going through a title company ?!?"

There are pay-offs (to developer for that part of the subdiv. lot), recordings at County Clerk & Recorder (warranty deed, DOT & promissory note if financed), pro-rations (taxes paid to date of closing), lien waivers (that all subs have been paid) etc. that are performed at the title company.
The title co. provides an owners coverage of inclusion & exclusions as spelled out in their policy.

The lender requires a title policy that protects their interests. The lender does not require that the homeowner purchase coverage although it is strongly recommended.

/T

"The lender does not require that the homeowner purchase coverage although it is strongly recommended."

Excellent point, especially if itÂs a cash purchase, however, I canÂt imagine any lender not wanting it since they donÂt pay for it, they like the additional protection and donÂt want to end up owning the property if there is a problem.

In Calif, there is a form we used when we built our own home. We had most of the sub-contractors give us a copy of the billpaid in full , and requested they sign the form, with a description of the materials and they were paid for. Or,one of our very close friend was a general contractor, we would purchase the materials to get the discount. The form usually can be found in a good stationary store.

mariend,

The form you refer to is known as a Lien Waiver. There is also a stamp you can purchase to use on the back of a personal check so that when a sub or supplier cashes the check (or deposits it) he is also signing a Lien Waiver. The stamp, due to size constraints, is not as thorough as the complete form but sure beats using nothing.

/T

This is one reason I'm glad WA limits mechanics liens to the unpaid blanace on the contract for remodel work. (Mostly)

That and they get 90 days to file, so you know if there's a problem real-quick-like.