SENATE BILL REPORT

SB 5726

BYSenators Lee and Warnke

Providing for lien claim indemnification.

Senate Committee on Economic Development & Labor

Senate Hearing Date(s):February 14, 1989

Senate Staff:David Cheal (786-7576)

AS OF FEBRUARY 14, 1989

BACKGROUND:

Residential construction contractors sometimes fail to make full and timely payment to subcontractors, laborers or suppliers that they employ, resulting in the filing of a lien claim against the property of the owner of the construction project.  If a contractor subsequently becomes insolvent, it may be impossible for a lien claimant or property owner to collect amounts due.  In such cases, either the lien claimant is not paid or the owner must pay for the work twice.

In the above described situation, a corporate general contractor could further escape liability either by obtaining discharge of the debt through a proceeding under the bankruptcy laws, or by dissolution of the corporation under state law.

SUMMARY:

Funds received by a general contractor from the owner or a construction lender, or funds received by the owner from the construction lender, are held in trust until proper payment is made to contractors, subcontractors, laborers or suppliers.  The funds are excluded from either the decedent's estate or the bankruptcy estate of the general contractor or owner.

Corporate officers of general contractors are made personally liable for indemnification of owners of a residence if a lien claim is made against the property because the contractor failed to pay the lien claimant.

Indemnification includes reasonable attorney's fees.

The bill only applies to the construction of single family residences and garages.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested