| State of Washington | 59th Legislature | 2005 Regular Session |
READ FIRST TIME 03/08/05.
AN ACT Relating to protecting homeowners who hire contractors to remodel or build their homes; amending RCW 60.04.021, 60.04.091, 60.04.250, 18.27.020, 60.04.011, 60.04.031, 18.27.030, and 18.27.040; adding new sections to chapter 60.04 RCW; creating a new section; prescribing penalties; and providing an effective date.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW SECTION. Sec. 1 The legislature finds that the vast majority
of contractors and subcontractors engaged in the business of
constructing or remodeling owner-occupied single-family homes are both
technically proficient in their trade and able to manage their business
dealings in accordance with the highest standards. The legislature
also finds, however, that in those relatively few, but all-too-frequent, instances where prime contractors on such construction or
remodeling projects intentionally or unintentionally mismanage payments
received from homeowners that are intended for subcontractors,
suppliers, and others, existing provisions are inadequate to protect
homeowners. Additionally, the toll on an individual homeowner's
personal economic and emotional condition that such financial
mismanagement by this small fraction of prime contractors is not
adequately balanced against the responsibilities, obligations, and
possible penalties that contractors bear for such mismanagement.
Consequently, the legislature finds that it is necessary to (1) clearly
establish that prime contractors have a duty to properly manage funds
received from or on behalf of homeowners that are intended for
suppliers, subcontractors, and others, and to hold those who fail in
this duty personally responsible for such financial mismanagement; (2)
increase awareness by homeowners to the potential for liens against
their residence if contractors fail to pay suppliers and subcontractors
as promised; (3) clarify the right of homeowners to contract for the
prime contractor to maintain deposits and other similar payments in a
trust account for the homeowner, when the homeowner elects to do so;
and (4) increase opportunities for homeowners to become better educated
about ways to protect themselves from financial mismanagement by those
few contractors who are unable or unwilling to meet the financial
management standards set by the vast majority of residential
contractors in this state.
Recognizing the independence of the federal bankruptcy courts, it
is, nonetheless, the intent of the legislature that liabilities of
contractors and subcontractors arising from mismanagement of funds
received from or for the benefit of homeowners should not be
dischargeable in bankruptcy. If the mismanagement rises to the level
of criminal conduct, nothing in this act is intended to interfere with
criminal prosecution.
NEW SECTION. Sec. 2 A new section is added to chapter 60.04 RCW
to read as follows:
(1) For the purposes of this section, RCW 60.04.021, 60.04.250, and
section 4 of this act:
(a) "Prime residential contractor" means (i) a prime contractor as
defined in RCW 60.04.011, that is engaged in the business of
constructing, repairing, altering, or remodeling a single-family
residence of a homeowner; (ii) the prime contractor's principals,
partners, officers, directors, vice principals, and the employee with
the greatest executive, managerial, supervisory, physical, or actual
control over the accounting or disbursement of funds received by the
prime residential contractor from or on behalf of residential
homeowners; and (iii) if different from those persons identified in
(a)(ii) of this subsection, the three persons who received or are
entitled to receive the most compensation from the prime residential
contractor, regardless of whether the compensation is provided as
salary, wages, profits, or otherwise, during the term of the
contractor's registration;
(b) "Residential subcontractor" means (i) a subcontractor, as
defined in RCW 60.04.011, retained by a prime residential contractor to
assist in the constructing, repairing, altering, or remodeling of a
single-family residence of a homeowner; (ii) the residential
subcontractor's principals, partners, officers, directors, vice
principals, and the employee with the greatest executive, managerial,
supervisory, physical, or actual control over the accounting or
disbursement of funds received by the residential subcontractor from or
on behalf of residential homeowners; and (iii) if different from those
persons identified in (b)(ii) of this subsection, the three persons who
received or are entitled to receive the most compensation from the
residential subcontractor, regardless of whether the compensation is
provided as salary, wages, profits, or otherwise, during the term of
the contractor's registration.
(2)(a)(i) A prime residential contractor has the duty to act in the
best interest of a residential homeowner in the receipt, management,
and disbursement of all amounts paid by or on behalf of the homeowner
to the prime residential contractor for labor, professional services,
materials, or equipment supplied by a potential lien claimant. A prime
residential contractor shall defend the homeowner against all such lien
claims for which the homeowner paid the prime residential contractor.
(ii) Residential subcontractors have the duty to act in the best
interest of residential homeowners in the receipt, management, and
disbursement of all amounts paid to the subcontractor by, on behalf of,
or for the benefit of, the homeowner or the prime residential
contractor for labor, professional services, materials, or equipment
supplied by a potential lien claimant. A residential subcontractor
shall defend the homeowner and the prime residential contractor against
all such liens for which the prime residential contractor paid the
subcontractor.
(b) All residential contractors, including a prime residential
contractor and a residential subcontractor, shall maintain accurate and
complete accounting records and books adequate to identify all moneys
received from or on behalf of a residential homeowner and the use or
application of such moneys for the payment of the contract price for
labor, professional services, materials, or equipment supplied by any
entity having a potential lien claim right against the residential
homeowner. Nothing in this section requires a contractor to create or
maintain a separate account for each homeowner.
(3)(a) Except as provided in (b) of this subsection, all funds paid
to a prime residential contractor by or on behalf of a residential
homeowner for application toward the contract price for labor,
professional services, materials, or equipment supplied by a potential
lien claimant other than the prime residential contractor shall not be
used by the prime residential contractor for any other purpose unless
all amounts owed on the potential lien claimant's contract price have
been paid in full.
(b) All funds paid to a prime residential contractor by or on
behalf of a residential homeowner shall be presumed to be for
application toward the contract price for labor, professional services,
materials, or equipment supplied by potential lien claimants other than
the prime residential contractor unless, before accepting payment from
a residential homeowner, a prime residential contractor provides
written notice to the homeowner identifying:
(i) The potential lien claimants, if any, to which payment is owed,
or to which the prime residential contractor intends to apply part or
all of the homeowner's payment; and
(ii) Which of such potential lien claimants, if any, the prime
residential contractor does not intend to fully pay from the
homeowner's payment, and the reason for less than full payment.
(c) Except as provided in (d) of this subsection, all funds paid to
a residential subcontractor by a prime residential contractor for the
benefit of, or on behalf of, a residential homeowner for application
toward the contract price for labor, professional services, materials,
or equipment supplied by a potential lien claimant other than the
residential subcontractor shall not be used by the residential
subcontractor for any other purpose unless all amounts owed on the
potential lien claimant's contract price have been paid in full.
(d) All funds paid to a residential subcontractor for the benefit
of, or on behalf of, a residential homeowner shall be presumed to be
for application toward the contract price for labor, professional
services, materials, or equipment supplied by potential lien claimants
other than the residential subcontractor unless, before accepting
payment from a prime residential contractor, the residential
subcontractor provides written notice to the prime residential
contractor identifying:
(i) The potential lien claimants, if any, to which payment is owed,
or to which the residential subcontractor intends to apply part or all
of the prime residential contractor's payment; and
(ii) Which of such potential lien claimants, if any, the
residential subcontractor does not intend to fully pay from the prime
residential contractor's payment, and the reason for less than full
payment.
(4) A prime residential contractor shall be personally liable for
the full amount of any lien claim recorded pursuant to RCW 60.04.091
if:
(a) The prime residential contractor fails to show, by clear and
convincing evidence, that funds paid to the prime residential
contractor by or on behalf of a residential homeowner for application
toward the contract price for labor, professional services, materials,
or equipment supplied by a potential lien claimant other than the prime
residential contractor were actually paid to a potential lien claimant;
(b) The prime residential contractor had or should have had
knowledge of such use of funds, unless the prime residential contractor
shows, by a preponderance of the evidence in defending against the
claimed lien, that he or she actually did not know and had no
reasonable opportunity to know of such use of funds; and
(c) A notice of claim of lien is recorded, pursuant to RCW
60.04.091, against the prime residential contractor or the homeowner by
a potential lien claimant to which payment was due when the prime
residential contractor received payment from the homeowner for the
services, materials, or equipment supplied by the lien claimant.
(5) A residential subcontractor shall be personally liable for the
full amount of any lien claim recorded pursuant to RCW 60.04.091 if:
(a) The residential subcontractor fails to show, by clear and
convincing evidence, that funds paid to the residential subcontractor
by a prime residential contractor for application toward the contract
price for labor, professional services, materials, or equipment
supplied by a potential lien claimant other than the residential
subcontractor were actually paid to a potential lien claimant;
(b) The residential subcontractor has or should have had knowledge
of such use of funds, unless the residential subcontractor shows, by a
preponderance of the evidence in defending against the claimed lien,
that he or she actually did not know and had no reasonable opportunity
to know of such use of funds; and
(c) A notice of claim of lien is recorded, pursuant to RCW
60.04.091, against the residential subcontractor or the homeowner by a
potential lien claimant to which payment was due when the residential
subcontractor received payment from the prime residential contractor
for the services, materials, or equipment supplied by the lien
claimant.
(6) For the purposes of RCW 60.04.021, 60.04.250, and section 4 of
this act, "department" means the department of labor and industries.
Sec. 3 RCW 60.04.021 and 1991 c 281 s 2 are each amended to read
as follows:
(1) Except as provided in subsections (2) and (3) of this section
and RCW 60.04.031, any person furnishing labor, professional services,
materials, or equipment for the improvement of real property shall have
a lien upon the improvement for the contract price of labor,
professional services, materials, or equipment furnished at the
instance of the owner, or the agent or construction agent of the owner.
(2)(a) With respect to labor, professional services, materials, or
equipment for the improvement of an owner-occupied single-family
residence where the aggregate lien claims relating to transactions
constituting violations of section 2 of this act exceed the amount of
the prime residential contractor's or residential subcontractor's bond
that is not available to a homeowner, any person furnishing labor,
professional services, materials, or equipment for the improvement of
an owner-occupied single-family residence shall have a lien:
(i) In the amount of the contract price of labor, professional
services, materials, or equipment furnished at the instance of the
owner, or the agent or construction agent of the owner, upon any real
property owned by the prime residential contractor; and
(ii) Upon the improvement for no more than one-half of such
contract price.
(b) No judgment foreclosing a lien against improvement to an owner-occupied single-family residence pursuant to this subsection shall be
entered unless: The court hearing a foreclosure or other collection
action involving the prime residential contractor or residential
subcontractor finds that the lien claimant seeking the judgment
foreclosure has made reasonable efforts to recover its claim from the
prime contractor or subcontractor, including the three persons who
received or are entitled to receive the most compensation from the
contractor, regardless of whether the compensation is provided as
salary, wages, profits, or otherwise, during the term of the
contractor's registration, and any other parties liable therefor,
personally or otherwise.
(c) A lien claimant shall provide to the department a certified
copy of any judgment entered in an action commenced under this section
if the judgment is entered against any party that was a registered or
licensed contractor or subcontractor. The department shall establish
by rule and charge a reasonable fee to cover the costs of the
processing of documents submitted to the department under this section,
which the court shall include in the award of costs to a prevailing
party.
(3) If a potential lien claimant knew or should have known that a
prime residential contractor had been the prime residential contractor
or construction agent on a single-family residential improvement
project with respect to which:
(a) A residential homeowner paid the prime residential contractor
for goods or services supplied by the potential lien claimant;
(b) The prime residential contractor failed to pay the potential
lien claimant's contract price for such goods or services; and
(c) The potential lien claimant recorded or otherwise pursued a
collection action or claim of lien against the homeowner in the
previous three years;
the potential lien claimant shall have no lien right upon the
improvement for labor, professional services, materials, or equipment
furnished on behalf of the homeowner at the instance of the prime
residential contractor or construction agent employed by a prime
residential contractor unless, before supplying any service, materials,
or equipment that may be subject to a lien under this chapter, the
potential lien claimant has provided written notice to the homeowner of
all circumstances surrounding the filing, pursuit, and resolution of
such claim, and the homeowner, in writing, affirmatively instructs the
potential lien claimant to supply the requested service, materials, or
equipment.
NEW SECTION. Sec. 4 A new section is added to chapter 60.04 RCW
to read as follows:
(1) Any potential lien claimant may give notice as provided in
subsections (2) and (3) of this section if the potential lien claimant
has not received a payment from a prime residential contractor: (a)
Within thirty days after the date required by their contract, invoice,
or purchase order; or (b) if no due date is specified in the contract,
invoice, or purchase order, within sixty days after the goods or
services specified in the contract, invoice, or purchase order have
been provided or delivered.
(2) The notice shall be signed by the potential lien claimant or
some person authorized to act on his or her behalf.
(3) The notice shall be in writing and shall be mailed or delivered
to the residential homeowner with a copy mailed or given to the prime
residential contractor within fourteen days after the date provided for
in subsection (1) of this section. The notice shall be given by:
(a) Mailing the notice to the residential homeowner and prime
residential contractor using any mail service by which a record of the
date of mailing is authenticated by the United States post office; or
(b) Delivering or serving the notice personally and obtaining
evidence of delivery in the form of a receipt or other acknowledgment
signed by the residential homeowner and prime residential contractor or
an affidavit of service.
(4) The notice shall state in substance and effect as follows:
(a) The person, firm, trustee, or corporation filing the notice has
furnished labor, professional services, materials, or equipment for
which a lien is given by this chapter;
(b) The name of the prime residential contractor ordering the same;
(c) A common or street address of the real property being improved
or the legal description of the real property;
(d) The name, business address, and telephone number of the lien
claimant; and
(e) The sums due and to become due, for which a potential lien
claimant may claim a lien under this chapter.
The notice may contain additional information but shall be in
substantially the following form:
The amount owing to the undersigned according to contract or purchase order for labor, supplies, or equipment (as abovementioned) is the sum of. . . . . . Dollars ($. . . . . . ). Said sums became due and owing as of
. . . . . . . . . . . .(State Date)
. . . . . . . . . . . . . . . , . . . . . . . . . . . . . . .
You are hereby notified that said amount owing is currently past due by not less than fourteen days.
Sec. 5 RCW 60.04.091 and 1992 c 126 s 7 are each amended to read
as follows:
Except as provided under subsection (3) of this section, every
person claiming a lien under RCW 60.04.021 shall file for recording, in
the county where the subject property is located, a notice of claim of
lien not later than ninety days after the person has ceased to furnish
labor, professional services, materials, or equipment or the last date
on which employee benefit contributions were due. ((The notice of
claim of lien:))
(1) The notice of claim of lien shall state in substance and
effect:
(a) The name, ((phone)) telephone number, and address of the
claimant;
(b) The first ((and)) date on which the claimant began to perform
labor, provide professional services, or supply material or equipment
or the first date on which employee benefits became due;
(c) The last date on which the labor, professional services,
materials, or equipment was furnished or employee benefit contributions
were due;
(((c))) (d) The name of the person indebted to the claimant;
(((d))) (e) The street address, legal description, or other
description reasonably calculated to identify, for a person familiar
with the area, the location of the real property to be charged with the
lien;
(((e))) (f) The name of the owner or reputed owner of the property,
if known, and, if not known, that fact shall be stated; ((and)) (g) The principal amount for which the lien is claimed,
excluding any interest, late fees, costs, attorneys' fees, or similar
charges; and
(f)
(h) Whether the claimant is the assignee of the claim.
(2) The notice of claim of lien shall be signed by the claimant or
some person authorized to act on his or her behalf who shall
affirmatively state they have read or heard and understand the notice
of claim of lien ((and)), believe the ((notice of claim of lien))
contents to be true and correct, and the lien is not frivolous and is
not clearly excessive, under penalty of perjury, and shall be
acknowledged as set forth in the form below, or pursuant to chapter
64.08 RCW. If the lien has been assigned, the name of the assignee
shall be stated. Where an action to foreclose the lien has been
commenced such notice of claim of lien may be amended as pleadings may
be by order of the court insofar as the interests of third parties are
not adversely affected by such amendment. A claim of lien
substantially in the following form shall be sufficient:
. . . . . ., claimant, vs . . . . . ., name of person indebted to claimant:
Notice is hereby given that the person named below claims a lien pursuant to chapter ((64.04)) 60.04 RCW. In support of this lien the following information is submitted:
1. NAME OF LIEN CLAIMANT: . . . . . . . . . . . .
TELEPHONE NUMBER: . . . . . . . . . . . .
ADDRESS: . . . . . . . . . . . .
2. DATE ON WHICH THE CLAIMANT BEGAN TO PERFORM LABOR, PROVIDE PROFESSIONAL SERVICES, SUPPLY MATERIAL OR EQUIPMENT OR THE DATE ON WHICH EMPLOYEE BENEFIT CONTRIBUTIONS BECAME DUE: . . . . . . . . . . . .
3. NAME OF PERSON INDEBTED TO THE CLAIMANT:
. . . . . . . . . . . .
4. DESCRIPTION OF THE PROPERTY AGAINST WHICH A LIEN IS CLAIMED (Street address, legal description or other information that will reasonably describe the property): . . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
5. NAME OF THE OWNER OR REPUTED OWNER (If not known state "unknown"): . . . . . . . . . . . .
6. THE LAST DATE ON WHICH LABOR WAS PERFORMED; PROFESSIONAL SERVICES WERE FURNISHED; CONTRIBUTIONS TO AN EMPLOYEE BENEFIT PLAN WERE DUE; OR MATERIAL, OR EQUIPMENT WAS FURNISHED: . . . . . . . . . . . .
. . . . . . . . . . . .
7. PRINCIPAL AMOUNT FOR WHICH THE LIEN IS CLAIMED IS: . . . . . . . . . . . .
8. IF THE CLAIMANT IS THE ASSIGNEE OF THIS CLAIM SO STATE HERE: . . . . . . . . . . . .
. . . . . . . . . . . .
Sec. 6 RCW 60.04.250 and 1990 c 81 s 1 are each amended to read
as follows:
The department of labor and industries shall prepare master
documents that provide informational material about:
(1) Construction lien laws and available safeguards against real
property lien claims. The material shall include methods of protection
against lien claims, including obtaining lien release documents,
performance bonds, joint payee checks, the opportunity to require
contractor disclosure of all potential lien claimants as a condition of
payment, and lender supervision under RCW 60.04.200 and 60.04.210. The
material shall also include sources of further information, including
the department of labor and industries and the office of the attorney
general.
(2) The basics of lien law relating to owner-occupied residential
improvements and new construction projects, including a list of
available safeguards against real property lien claims, which the
homeowner must consider, reject, or select. Before any building permit
may be issued for the construction of a new owner-occupied
single-family residence or for the improvement to an owner-occupied
single-family residence for an amount in excess of one thousand
dollars, if the construction will involve the services of a prime
contractor, the permit issuing agency shall not issue any permit until
the homeowner has personally, and not through an agent, acknowledged
receipt of the document. When the homeowner completes the document by
making selections, as indicated in the document, and submits it to the
agency, the permit issuing agency shall maintain a copy of the
completed document in the file of the permit issuing agency relating to
the homeowner's permit application. The document shall be in
substantially the following form and shall also include information
describing the scope and limits of state contractor bonding
requirements, the provisions of this act, and the availability of
further information, including the department of labor and industries
and the office of the attorney general.
Dear Homeowner:
You must complete the items below and select from the options below
what protection, if any, you want against potential lien claims on your
property as a result of the construction work for which you are
contracting. If your contractor fails to pay subcontractors,
suppliers, or laborers or neglects to make other legally required
payments, those who are owed money can file a lien against your
property for payment, even if you have paid your contractor in full.
Anyone filing a valid lien claim may force the sale of your property to
recover the unpaid amount. This is true if you have hired a contractor
to build a new home or are buying a newly built home. It is also true
when you remodel or improve your property.
People who supply materials or labor ordered by your contractor are
permitted by law to file a lien only if they do so within ninety days
of cessation of performance or delivery of materials. The time frame
is spelled out in RCW 60.04.091.
If you enter into a contract to buy a newly built home, you may not
receive a notice of a lien based on a claim by a contractor or material
supplier. You should inquire of your lender and title insurer about
title insurance coverage for liens that may arise from the construction
of your home, but that are not recorded until after you take possession
of your home. Be aware that a lien may be claimed even though you have
not received a notice. Before making final payment on the project,
obtain a completed lien release form from each contractor and material
supplier. A sample of this release of lien form is available from the
department of labor and industries, contractor registration section.
You have final responsibility for seeing that all bills are paid
even if you have paid your contractor in full.
If you are dealing with a lending institution, ask your loan
officer what precautions the lending institution takes to verify that
subcontractors and material suppliers are being paid when mortgage
money is paid to your contractor. You may want to request lender
supervision if your lending institution is providing interim or
construction financing.
If you receive a notice to enforce a lien, take the notice
seriously. Let your contractor know you have received the notice.
Find out what arrangements are being made to pay the sender of the
notice.
When in doubt, or if you need more details, consult your attorney.
When and how to pay your contractor is a decision that requires serious
consideration. Washington law, RCW 18.27.114, requires contractors to
give you this disclosure statement if your contract exceeds one
thousand dollars.
Complete the following information, select below how you want to
protect yourself from possible lien claims on your property, and inform
your contractor of your selections or discuss your selections with your
contractor.
I, (owner's name) . . . . . . . . . . . . . . . . ,
am agreeing to have (contractor's name)
perform the following construction work (basic description)
at (location of your property using an address, legal description
or approximate address)
in the amount of $ . . . . . . . . including all federal, state,
and local taxes, and this amount may be adjusted only if authorized by
me in writing.
To protect myself against possible lien claims in the future for
this work, I (select one):
. . . . . . . . will only issue checks made payable jointly,
naming the contractor and the subcontractor or supplier as payees.
. . . . . . . . will only issue checks to the contractor and
subcontractors in the amounts equal to the amounts for which lien
releases that release all lien rights to those amounts, as provided by
RCW 60.04.071, have been provided to me by each lien claimant
requesting payment.
. . . . . . . . want the contractor to post a bond to assure both
performance of this construction work and payment to all subcontractors
and suppliers in the amount of (select one) . . . the total contract
amount . . . in the amount of $. . . . . . . . (Note: Your contractor
may add the cost of this bond to your contract price.)
. . . . . . . . will be using . . . . . . . . as an escrow agent
to disburse construction funds and to protect my interests. (NOTE:
Before making this selection, find out whether the escrow agent you
plan to use will protect you against liens when disbursing payments.
If you are interested in using this alternative, consult your
attorney.)
. . . . . . . . want this contractor to set up a trust account for
all funds I pay to this contractor, and the trust funds must be
disbursed in accordance with our construction agreement to
subcontractors and suppliers.
. . . . . . . . DO NOT want any of the above protections from
potential lien claims against my property as a result of this
construction work.
In addition to the above selection, I choose ONE of the following:
. . . WANT . . . DO NOT WANT the prime residential contractor to
disclose all potential lien claimants as a condition of payment.
(NOTE: A lien claimant must, under RCW 60.04.091, mail by certified or
registered mail or by personal service a copy of the claim of lien to
the owner within fourteen days of the time the lien is recorded. While
an action is ongoing, the law, RCW 60.04.151, allows an owner to
withhold from this prime residential contractor the amount of money for
which a claim is recorded by a subcontractor, supplier, or laborer.)
More information about contractors is available by visiting the
department of labor and industries on the Internet at
www.LNI.wa.gov/
Signed by (property owner): . . . . . . . . . . . . . . . .
Date signed: . . . . . . . .
Sec. 7 RCW 18.27.020 and 1997 c 314 s 3 are each amended to read
as follows:
(1) Every contractor shall register with the department.
(2) It is a gross misdemeanor for any contractor to:
(a) Advertise, offer to do work, submit a bid, or perform any work
as a contractor without being registered as required by this chapter;
(b) Advertise, offer to do work, submit a bid, or perform any work
as a contractor when the contractor's registration is suspended or
revoked;
(c) Use a false or expired registration number in purchasing or
offering to purchase an advertisement for which a contractor
registration number is required; or
(d) Transfer a valid registration to an unregistered contractor or
allow an unregistered contractor to work under a registration issued to
another contractor.
(3) It is not unlawful for a general contractor to employ an
unregistered contractor who was registered at the time he or she
entered into a contract with the general contractor, unless the general
contractor or his or her representative has been notified in writing by
the department of labor and industries that the contractor has become
unregistered.
(4) All ((misdemeanor)) actions under this chapter shall be
prosecuted in the county where the infraction occurs.
(5) A person is guilty of a separate gross misdemeanor for each day
worked if, after the person receives a citation from the department,
the person works while unregistered, or while his or her registration
is suspended or revoked, or works under a registration issued to
another contractor. A person is guilty of a separate gross misdemeanor
for each worksite on which he or she violates subsection (2) of this
section. Nothing in this subsection applies to a registered
contractor.
(6) The director by rule shall establish a two-year audit and
monitoring program for a contractor not registered under this chapter
who becomes registered after receiving an infraction or conviction
under this chapter as an unregistered contractor. The director shall
notify the departments of revenue and employment security of the
infractions or convictions and shall cooperate with these departments
to determine whether any taxes or registration, license, or other fees
or penalties are owed the state.
Sec. 8 RCW 60.04.011 and 1992 c 126 s 1 are each amended to read
as follows:
Unless the context requires otherwise, the definitions in this
section apply throughout this chapter.
(1) "Construction agent" means any registered or licensed
contractor, registered or licensed subcontractor, architect, engineer,
or other person having charge of any improvement to real property, who
shall be deemed the agent of the owner for the limited purpose of
establishing the lien created by this chapter.
(2) "Contract price" means the amount, including overhead and
profit, agreed upon by the contracting parties, or if no amount is
agreed upon, then the customary and reasonable charge therefor, but in
no case shall "contract price" include any amount payable under the
contract, or otherwise, in the event of nonpayment or late payment.
(3) "Draws" means periodic disbursements of interim or construction
financing by a lender.
(4) "Furnishing labor, professional services, materials, or
equipment" means the performance of any labor or professional services,
the contribution owed to any employee benefit plan on account of any
labor, the provision of any supplies or materials, and the renting,
leasing, or otherwise supplying of equipment for the improvement of
real property.
(5) "Improvement" means: (a) Constructing, altering, repairing,
remodeling, demolishing, clearing, grading, or filling in, of, to, or
upon any real property or street or road in front of or adjoining the
same; (b) planting of trees, vines, shrubs, plants, hedges, or lawns,
or providing other landscaping materials on any real property; and (c)
providing professional services upon real property or in preparation
for or in conjunction with the intended activities in (a) or (b) of
this subsection.
(6) "Interim or construction financing" means that portion of money
secured by a mortgage, deed of trust, or other encumbrance to finance
improvement of, or to real property, but does not include:
(a) Funds to acquire real property;
(b) Funds to pay interest, insurance premiums, lease deposits,
taxes, assessments, or prior encumbrances;
(c) Funds to pay loan, commitment, title, legal, closing,
recording, or appraisal fees;
(d) Funds to pay other customary fees, which pursuant to agreement
with the owner or borrower are to be paid by the lender from time to
time;
(e) Funds to acquire personal property for which the potential lien
claimant may not claim a lien pursuant to this chapter.
(7) "Labor" means exertion of the powers of body or mind performed
at the site for compensation. "Labor" includes amounts due and owed to
any employee benefit plan on account of such labor performed.
(8) "Mortgagee" means a person who has a valid mortgage of record
or deed of trust of record securing a loan.
(9) "Owner-occupied" means a single-family residence occupied by
the owner as his or her principal residence.
(10) "Payment bond" means a surety bond issued by a surety licensed
to issue surety bonds in the state of Washington that confers upon
potential claimants the rights of third party beneficiaries.
(11) "Potential lien claimant" means any person or entity entitled
to assert lien rights under this chapter who has otherwise complied
with the provisions of this chapter and is registered or licensed if
required to be licensed or registered by the provisions of the laws of
the state of Washington.
(12) "Prime contractor" includes all contractors, general
contractors, and specialty contractors, as defined by chapter 18.27 or
19.28 RCW, or who are otherwise required to be registered or licensed
by law, who contract directly with a property owner or their common law
agent to assume primary responsibility for the creation of an
improvement to real property, and includes property owners or their
common law agents who are contractors, general contractors, or
specialty contractors as defined in chapter 18.27 or 19.28 RCW, or who
are otherwise required to be registered or licensed by law, who offer
to sell their property without occupying or using the structures,
projects, developments, or improvements for more than one year.
(13) "Professional services" means surveying, establishing or
marking the boundaries of, preparing maps, plans, or specifications
for, or inspecting, testing, or otherwise performing any other
architectural or engineering services for the improvement of real
property.
(14) "Real property lender" means a bank, savings bank, savings and
loan association, credit union, mortgage company, or other corporation,
association, partnership, trust, or individual that makes loans secured
by real property located in the state of Washington.
(15) "Residential homeowner" or "homeowner" means an individual
person or persons owning or leasing real property: (a) Upon which one
single-family residence is to be built and in which the owner or lessee
intends to reside when construction is completed; or (b) upon which
there exists one single-family residence to which improvements are to
be made and in which the owner or lessee intends to reside upon
completion of the improvements. Solely for the purposes of section 2
of this act and RCW 60.04.021, "residential homeowner" or "homeowner"
also means an individual person or person who has entered into a
contract with a contractor, builder, or developer to purchase and
occupy a single-family residence at the completion of the new
construction, repair, alteration, or remodel of the single-family
residence or garage appurtenant to the residence.
(16) "Site" means the real property which is or is to be improved.
(((16))) (17) "Subcontractor" means a general contractor or
specialty contractor as defined by chapter 18.27 or 19.28 RCW, or who
is otherwise required to be registered or licensed by law, who
contracts for the improvement of real property with someone other than
the owner of the property or their common law agent.
Sec. 9 RCW 60.04.031 and 1992 c 126 s 2 are each amended to read
as follows:
(1) Except as otherwise provided in this section, every person
furnishing professional services, materials, or equipment for the
improvement of real property shall give the owner or reputed owner
notice in writing of the right to claim a lien. If the prime
contractor is in compliance with the requirements of RCW 19.27.095,
60.04.230, and 60.04.261, this notice shall also be given to the prime
contractor as described in this subsection unless the potential lien
claimant has contracted directly with the prime contractor. The notice
may be given at any time but only protects the right to claim a lien
for professional services, materials, or equipment supplied after the
date which is sixty days before:
(a) Mailing the notice by certified or registered mail to the owner
or reputed owner; or
(b) Delivering or serving the notice personally upon the owner or
reputed owner and obtaining evidence of delivery in the form of a
receipt or other ((acknowledgement)) acknowledgment signed by the owner
or reputed owner or an affidavit of service.
In the case of new construction, repair, alteration, or remodel of
a single-family residence or garage appurtenant to a single-family
residence, the notice of a right to claim a lien may be given at any
time but only protects the right to claim a lien for professional
services, materials, or equipment supplied after a date which is ten
days before the notice is given as described in this subsection.
(2) Notices of a right to claim a lien shall not be required of:
(a) Persons who contract directly with the owner or the owner's
common law agent;
(b) Laborers whose claim of lien is based solely on performing
labor; or
(c) Subcontractors who contract for the improvement of real
property directly with the prime contractor, except as provided in
subsection (3)(b) of this section.
(3) Persons who furnish professional services, materials, or
equipment in connection with the new construction, repair, alteration,
or remodel of ((an existing owner-occupied)) a single-family residence
or appurtenant garage:
(a) Who contract directly with the ((owner-occupier or their))
owner or the owner's common law agent shall not be required to send a
written notice of the right to claim a lien and shall have a lien for
the full amount due under their contract, as provided in RCW 60.04.021;
or
(b) Who do not contract directly with the ((owner-occupier or
their)) owner or the owner's common law agent shall give notice of the
right to claim a lien to the ((owner-occupier)) owner. ((Liens of
persons furnishing professional services, materials, or equipment who
do not contract directly with the owner-occupier or their common law
agent may only be satisfied from amounts not yet paid to the prime
contractor by the owner at the time the notice described in this
section is received, regardless of whether amounts not yet paid to the
prime contractor are due. For the purposes of this subsection
"received" means actual receipt of notice by personal service, or
registered or certified mail, or three days after mailing by registered
or certified mail, excluding Saturdays, Sundays, or legal holidays.))
(4) The notice of right to claim a lien described in subsection (1)
of this section, shall include but not be limited to the following
information and shall substantially be in the following form, using
lower-case and upper-case ten-point type where appropriate.
DUAL PAYCHECKS (Joint Checks): When paying your contractor for services or materials, you may make checks payable jointly to the contractor and the firms furnishing you this notice.
LIEN RELEASES: You may require your contractor to provide lien releases signed by all the suppliers and subcontractors from
whom you have received this notice. If they cannot obtain lien releases because you have not paid them, you may use the dual payee check method to protect yourself.
Sec. 10 RCW 18.27.030 and 2001 c 159 s 2 are each amended to read
as follows:
(1) An applicant for registration as a contractor shall submit an
application under oath upon a form to be prescribed by the director and
which shall include the following information pertaining to the
applicant:
(a) Employer social security number.
(b) Unified business identifier number, if required by the
department of revenue.
(c) Evidence of workers' compensation coverage for the applicant's
employees working in Washington, as follows:
(i) The applicant's industrial insurance account number issued by
the department;
(ii) The applicant's self-insurer number issued by the department;
or
(iii) For applicants domiciled in a state or province of Canada
subject to an agreement entered into under RCW 51.12.120(7), as
permitted by the agreement, filing a certificate of coverage issued by
the agency that administers the workers' compensation law in the
applicant's state or province of domicile certifying that the applicant
has secured the payment of compensation under the other state's or
province's workers' compensation law.
(d) Employment security department number.
(e) State excise tax registration number.
(f) Unified business identifier (UBI) account number may be
substituted for the information required by (c) of this subsection if
the applicant will not employ employees in Washington, and by (d) and
(e) of this subsection.
(g) Type of contracting activity, whether a general or a specialty
contractor and if the latter, the type of specialty, and whether the
contractor engages or intends to engage in the new construction,
repair, alteration, or remodel of the single-family residence or
appurtenant garage of any residential homeowner, as defined in RCW
60.04.011.
(h)(i) The name and address of each partner if the applicant is a
firm or partnership, or the name and address of the owner if the
applicant is an individual proprietorship, or the name and address of
the corporate officers and statutory agent, if any, if the applicant is
a corporation or the name and address of all members of other business
entities.
(ii) The name and address of the three persons who received or are
entitled to receive the most compensation from the prime residential
contractor, regardless of whether the compensation is provided as
salary, wages, profits, or otherwise, during the term of the
contractor's registration; and, if different, each principal, partner,
officer, director, vice principal, and the employee with the greatest
executive, physical, or actual control over the accounting or
disbursement of funds received by the contractor from residential
homeowners if the applicant is a contractor engaging in the new
construction, repair, alteration, or remodel of the single-family
residence or appurtenant garage of any residential homeowner, as
defined in RCW 60.04.011. An applicant shall update information
required under this section no less frequently than once every six
months if there is a change in the persons required to be identified
under this section.
(iii) A business engaging in the new construction, repair,
alteration, or remodel of the single-family residence or appurtenant
garage of any residential homeowner, as defined in RCW 60.04.011, shall
not be required to provide the names and other information specified in
(h)(ii) of this subsection if the business increases the amount of the
surety bond filed with the department pursuant to RCW 18.27.040(1) to
two hundred fifty thousand dollars.
(iv) The information contained in such application is a matter of
public record and open to public inspection.
(2) The department may verify the workers' compensation coverage
information provided by the applicant under subsection (1)(c) of this
section, including but not limited to information regarding the
coverage of an individual employee of the applicant. If coverage is
provided under the laws of another state, the department may notify the
other state that the applicant is employing employees in Washington.
(3)(a) The department shall deny an application for registration
if: (i) The applicant has been previously performing work subject to
this chapter as a sole proprietor, partnership, corporation, or other
entity and the department has notice that the applicant has an
unsatisfied final judgment against him or her in an action based on
this chapter or the applicant owes the department money for penalties
assessed or fees due under this chapter as a result of a final
judgment; (ii) the applicant was a principal or officer of a
partnership, corporation, or other entity that either has an
unsatisfied final judgment against it in an action that was incurred
for work performed subject to this chapter or owes the department money
for penalties assessed or fees due under this chapter as a result of a
final judgment; or (iii) the applicant does not have a valid unified
business identifier number, if required by the department of revenue.
(b) The department shall suspend an active registration if (i) the
department has notice that the registrant is a sole proprietor or a
principal or officer of a registered contractor that has an unsatisfied
final judgment against it for work within the scope of this chapter; or
(ii) the applicant does not maintain a valid unified business
identifier number, if required by the department of revenue.
(4) The department shall not deny an application or suspend a
registration because of an unsatisfied final judgment if the
applicant's or registrant's unsatisfied final judgment was determined
by the director to be the result of the fraud or negligence of another
party.
Sec. 11 RCW 18.27.040 and 2001 c 159 s 3 are each amended to read
as follows:
(1) Each applicant shall file with the department a surety bond
issued by a surety insurer who meets the requirements of chapter 48.28
RCW in the sum of twelve thousand dollars if the applicant is a general
contractor and six thousand dollars if the applicant is a specialty
contractor. If no valid bond is already on file with the department at
the time the application is filed, a bond must accompany the
registration application. The bond shall have the state of Washington
named as obligee with good and sufficient surety in a form to be
approved by the department. The bond shall be continuous and may be
canceled by the surety upon the surety giving written notice to the
director. A cancellation or revocation of the bond or withdrawal of
the surety from the bond automatically suspends the registration issued
to the registrant until a new bond or reinstatement notice has been
filed and approved as provided in this section. The bond shall be
conditioned that the applicant will pay all persons performing labor,
including employee benefits, for the contractor, will pay all taxes and
contributions due to the state of Washington, and will pay all persons
furnishing labor or material or renting or supplying equipment to the
contractor and will pay all amounts that may be adjudged against the
contractor by reason of breach of contract including negligent or
improper work in the conduct of the contracting business. A change in
the name of a business or a change in the type of business entity shall
not impair a bond for the purposes of this section so long as one of
the original applicants for such bond maintains partial ownership in
the business covered by the bond.
(2) At the time of initial registration or renewal, the contractor
shall provide a bond or other security deposit as required by this
chapter and comply with all of the other provisions of this chapter
before the department shall issue or renew the contractor's certificate
of registration. Any contractor registered as of July 1, 2001, who
maintains that registration in accordance with this chapter is in
compliance with this chapter until the next renewal of the contractor's
certificate of registration.
(3) Any person, firm, or corporation having a claim against the
contractor for any of the items referred to in this section may bring
suit upon the bond or deposit in the superior court of the county in
which the work was done or of any county in which jurisdiction of the
contractor may be had. The surety issuing the bond shall be named as
a party to any suit upon the bond. Action upon the bond or deposit
brought by a residential homeowner for breach of contract by a party to
the construction contract shall be commenced by filing the summons and
complaint with the clerk of the appropriate superior court within two
years from the date the claimed contract work was substantially
completed or abandoned. Action upon the bond or deposit brought by any
other authorized party shall be commenced by filing the summons and
complaint with the clerk of the appropriate superior court within one
year from the date the claimed labor was performed and benefits
accrued, taxes and contributions owing the state of Washington became
due, materials and equipment were furnished, or the claimed contract
work was substantially completed or abandoned. Service of process in
an action against the contractor, the contractor's bond, or the deposit
shall be exclusively by service upon the department. Three copies of
the summons and complaint and a fee adopted by rule of not less than
twenty dollars to cover the costs shall be served by registered or
certified mail, or other delivery service requiring notice of receipt,
upon the department at the time suit is started and the department
shall maintain a record, available for public inspection, of all suits
so commenced. Service is not complete until the department receives
the fee and three copies of the summons and complaint. The service
shall constitute service on the registrant and the surety for suit upon
the bond or deposit and the department shall transmit the summons and
complaint or a copy thereof to the registrant at the address listed in
the registrant's application and to the surety within two days after it
shall have been received.
(4) The surety upon the bond shall not be liable in an aggregate
amount in excess of the amount named in the bond nor for any monetary
penalty assessed pursuant to this chapter for an infraction. The
liability of the surety shall not cumulate where the bond has been
renewed, continued, reinstated, reissued or otherwise extended. The
surety upon the bond may, upon notice to the department and the
parties, tender to the clerk of the court having jurisdiction of the
action an amount equal to the claims thereunder or the amount of the
bond less the amount of judgments, if any, previously satisfied
therefrom and to the extent of such tender the surety upon the bond
shall be exonerated but if the actions commenced and pending at any one
time exceed the amount of the bond then unimpaired, claims shall be
satisfied from the bond in the following order:
(a) Employee labor and claims of laborers, including employee
benefits;
(b) Claims for breach of contract by a party to the construction
contract;
(c) Registered or licensed subcontractors, material, and equipment;
(d) Taxes and contributions due the state of Washington;
(e) Any court costs, interest, and ((attorney's [attorneys']))
attorneys' fees plaintiff may be entitled to recover. The surety is
not liable for any amount in excess of the penal limit of its bond.
A payment made by the surety in good faith exonerates the bond to
the extent of any payment made by the surety.
(5) The total amount paid from a bond or deposit required of a
general contractor by this section to claimants other than residential
homeowners must not exceed one-half of the bond amount. The total
amount paid from a bond or deposit required of a specialty contractor
by this section to claimants other than residential homeowners must not
exceed one-half of the bond amount or four thousand dollars, whichever
is greater.
(6) The prevailing party in an action filed under this section
against the contractor and contractor's bond or deposit, for breach of
contract by a party to a construction contract, is entitled to costs,
interest, and reasonable attorneys' fees. The surety upon the bond is
not liable in an aggregate amount in excess of the amount named in the
bond nor for any monetary penalty assessed pursuant to this chapter for
an infraction.
(7) If a final judgment impairs the liability of the surety upon
the bond so furnished that there is not in effect a bond in the full
amount prescribed in this section, the registration of the contractor
is automatically suspended until the bond liability in the required
amount unimpaired by unsatisfied judgment claims is furnished.
(8) In lieu of the surety bond required by this section the
contractor may file with the department a deposit consisting of cash or
other security acceptable to the department.
(9) Any person having filed and served a summons and complaint as
required by this section having an unsatisfied final judgment against
the registrant for any items referred to in this section may execute
upon the security held by the department by serving a certified copy of
the unsatisfied final judgment by registered or certified mail upon the
department within one year of the date of entry of such judgment. Upon
the receipt of service of such certified copy the department shall pay
or order paid from the deposit, through the registry of the superior
court which rendered judgment, towards the amount of the unsatisfied
judgment. The priority of payment by the department shall be the order
of receipt by the department, but the department shall have no
liability for payment in excess of the amount of the deposit.
(10) The director ((may)) shall require an applicant applying to
renew or reinstate a registration or applying for a new registration to
file a bond of ((up to three)) at least two times, but not more than
five times the normally required amount, if the director determines
that:
(a) An applicant, or a previous registration of a corporate
officer, owner, or partner of a current applicant, has had in the past
five years a total of six final judgments in actions under this chapter
involving a residential single-family dwelling on two or more different
structures; or
(b) The applicant engages in the new construction, repair,
alteration, or remodel of the single-family residence or appurtenant
garage of any residential homeowner, as defined in RCW 60.04.011, and
the applicant or any of the applicant's principals, partners, officers,
directors, vice principals, and the employee with the greatest
executive, physical, or actual control over the accounting or
disbursement of funds received by the contractor from residential
homeowners have been party to collection action or lien action
instituted pursuant to RCW 60.04.021(2)(a)(i), where the claims against
parties other than the residential homeowner were insufficient to
satisfy the lien.
(11) The director may adopt rules necessary for the proper
administration of the security.
NEW SECTION. Sec. 12 This act takes effect July 1, 2006.