BILL REQ. #:  S-3863.2 

Read first time 01/19/2006.   Referred to Committee on Labor, Commerce, Research & Development.

     AN ACT Relating to protecting homeowners who hire contractors to remodel or build their homes; amending RCW 60.04.021, 60.04.171, 60.04.091, 60.04.250, 60.04.031, 60.04.011, 18.27.010, 18.27.020, 18.27.030, 18.27.040, and 18.27.080; 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 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, negligently, 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 when prime contractors are personally responsible for mismanagement of funds received from or on behalf of homeowners that are intended for suppliers, subcontractors, and others; (2) increase awareness by homeowners to the potential for liens against their residence if contractors fail to pay suppliers and subcontractors as promised; and (3) 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.
     The legislature recognizes the independence of the federal bankruptcy courts, but nonetheless encourages such courts, when addressing whether or not to discharge liabilities of contractors arising under this act due to the mismanagement of funds received from or for the benefit of homeowners, to adopt a policy disfavoring the discharge of such liabilities 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) A prime residential contractor and all persons financially responsible for the prime residential contractor shall be presumed to be personally liable to all lien claimants for the full amount of any lien claim filed against a residential homeowner under RCW 60.04.091, if the prime residential contractor retained by the residential homeowner:
     (a) Is not properly registered, insured, and bonded pursuant to chapter 18.27 or 19.28 RCW at the time the prime residential contractor: (i) Incurs any expense or obligation for or on behalf of the homeowner from any other potential lien claimant; or (ii) requests or receives any funds from the homeowner;
     (b) Requests or accepts funds from the residential homeowner in an amount exceeding one-half of the amount of the contractor's bond on file with the department of labor and industries under RCW 18.27.040 or 19.28.041(3) and the amount requested or accepted exceeds the amount owed or due to all other potential lien claimants at the time the funds are requested or accepted; or
     (c) Requests or accepts any funds from the residential homeowner after the prime residential contractor incurs expenses or obligations for or on behalf of the homeowner from any other potential lien claimant, but before providing the homeowner a billing statement, invoice, or other written notice described in subsection (3) of this section.
     (2) A prime residential contractor and all persons financially responsible for the prime residential contractor shall be presumed to be personally liable to a lien claimant for the full amount of any lien claim filed against a residential homeowner if:
     (a) The prime residential contractor retained by the residential homeowner:
     (i) Requests or accepts any funds from the homeowner after the contractor incurs expenses or obligations for or on behalf of the homeowner from any other potential lien claimant;
     (ii) Makes the request for and accepts funds from the homeowner at the same time or after the prime residential contractor provides the homeowner with a billing statement, invoice, or other written notice as described in subsection (3) of this section; and
     (iii) Purposefully fails to (A) identify a potential lien claimant on such written notice pursuant to subsection (3)(a) of this section; or (B) identify the potential lien claimants to which the payment due and amount owed has not been fully satisfied as of the date of the notice pursuant to subsection (3)(b) of this section; or (C) apply the requested homeowner's payment to the potential lien claimant or claimants as indicated on such written notice under subsection (3)(c) or (d) of this section; and
     (b) A potential lien claimant that the prime residential contractor failed to properly identify or pay, as described in (a)(iii) of this subsection, files a lien claim against the homeowner under RCW 60.04.091.
     (3) The written notice provided by this section shall identify:
     (a) The other potential lien claimants, if any, from which goods or services have been ordered or obtained by the prime residential contractor for or on behalf of the homeowner, and for which the payment due and amount owed has been fully satisfied as the date of the notice;
     (b) The other potential lien claimants, if any, from which goods or services have been ordered or obtained by the prime residential contractor for or on behalf of the homeowner, and for which the payment due and amount owed has not been fully satisfied as of the date of the notice;
     (c) The other potential lien claimants, if any, identified pursuant to (b) of this subsection to which the prime residential contractor intends to pay all amounts owed from the homeowner's payment; and
     (d) The potential lien claimants, if any, identified pursuant to (b) of this subsection to which the prime residential contractor does not intend to pay all amounts owed from the homeowner's payment, and the reason for less than full payment.

Sec. 3   RCW 60.04.021 and 1991 c 281 s 2 are each amended to read as follows:
     (1) Except as provided in RCW 60.04.031 and subsection (2) of this section, 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) If a prime residential contractor is engaged in any activity described in section 2 of this act giving rise to personal liability on the part of the prime residential contractor and the prime residential contractor's financially responsible parties:
     (a) Any person furnishing labor, professional services, materials, or equipment for the improvement of the property of the residential homeowner who retained the prime residential contractor has a lien upon any real property owned by the prime residential contractor and the prime residential contractor's financially responsible parties in the amount of the contract price of labor, professional services, materials, or equipment furnished at the instance of the prime residential contractor; and
     (b) Any person furnishing professional services, materials, or equipment for the improvement of the property of the residential homeowner who retained the prime residential contractor has a lien upon the improvement for no more than one-half of such contract price.

Sec. 4   RCW 60.04.171 and 1992 c 126 s 11 are each amended to read as follows:
     (1) The lien provided by this chapter, for which claims of lien have been recorded, may be foreclosed and enforced by a civil action in the court having jurisdiction in the manner prescribed for the judicial foreclosure of a mortgage. The court shall have the power to order the sale of the property.
     (2)(a) In any action brought to foreclose a lien, the owner shall be joined as a party.
     (b) The court shall dismiss, with prejudice, any action to foreclose a lien filed with respect to property owned by a residential homeowner if:
     (i) The lien is filed pursuant to RCW 60.04.021(1); and
     (ii) The homeowner shows, by a preponderance of the evidence, that the prime residential contractor retained by the homeowner engaged in any activity or transaction described in section 2 of this act.
     (c) The court shall dismiss, without prejudice, any action to foreclose a lien filed with respect to property owned by a residential homeowner if:
     (i) The lien is filed pursuant to RCW 60.04.021(2);
     (ii) The homeowner shows, by a preponderance of the evidence, that the prime residential contractor retained by the homeowner engaged in any activity or transaction described in section 2 of this act; and
     (iii) The party bringing the action fails to show, by clear and convincing evidence, that the party (A) has made or is making reasonable attempts to satisfy the debt underlying the lien through reasonable collection efforts, including an action authorized by RCW 60.04.021(2) where applicable, against the prime residential contractor and the prime residential contractor's financially responsible parties; and (B) has substantially complied with the procedures established by rule by the department of labor and industries for notifying the department of such collection attempts and efforts, including but not limited to the payment of required filing fees.
     (d) A court may consolidate (i) any action to foreclose a lien filed pursuant to RCW 60.04.021(2) with respect to property owned by a residential homeowner; and (ii) any action to foreclose a lien filed pursuant to RCW 60.04.021(2) with respect to property owned by a prime residential contractor retained by the residential homeowner, and property owned by any person financially responsible for the prime residential contractor, if the prime residential contractor has incurred any expense or obligation for or on behalf of a homeowner from the party bringing the actions.
     (3) The interest in the real property of any person who, prior to the commencement of the action, has a recorded interest in the property, or any part thereof, shall not be foreclosed or affected unless they are joined as a party.
     (4) A person shall not begin an action to foreclose a lien upon any property while a prior action begun to foreclose another lien on the same property is pending, but if not made a party plaintiff or defendant to the prior action, he or she may apply to the court to be joined as a party thereto, and his or her lien may be foreclosed in the same action. The filing of such application shall toll the running of the period of limitation established by RCW 60.04.141 until disposition of the application or other time set by the court. The court shall grant the application for joinder unless to do so would create an undue delay or cause hardship which cannot be cured by the imposition of costs or other conditions as the court deems just. If a lien foreclosure action is filed during the pendency of another such action, the court may, on its own motion or the motion of any party, consolidate actions upon such terms and conditions as the court deems just, unless to do so would create an undue delay or cause hardship which cannot be cured by the imposition of costs or other conditions. If consolidation of actions is not permissible under this section, the lien foreclosure action filed during the pendency of another such action shall not be dismissed if the filing was the result of mistake, inadvertence, surprise, excusable neglect, or irregularity. An action to foreclose a lien shall not be dismissed at the instance of a plaintiff therein to the prejudice of another party to the suit who claims a lien.

NEW SECTION.  Sec. 5   A new section is added to chapter 60.04 RCW to read as follows:
     (1) The personal liability inuring to any person under section 2 of this act shall not extend to the community or separate property of the spouse of a prime residential contractor or a person financially responsible for a prime residential contractor, unless such spouse is otherwise a person financially responsible for the prime residential contractor.
     (2) An action to enforce the personal liability inuring to any person under section 2 of this act shall be dismissed with respect to that person if the person shows, by clear and convincing evidence in defending against a claimed lien or other collection action, that:
     (a) He or she is a person financially responsible for the prime residential contractor who actually did not know and, in the exercise of due diligence incumbent to the person's position as a financially responsible party, had no reasonable opportunity to know of the registration status, activities, or transactions of the contractor that gave rise to the liability;
     (b) The prime residential contractor or an entity other than the prime residential contractor paid the lien claimant the full contract price for the labor, professional services, materials, or equipment incurred on behalf of the homeowner by the prime residential contractor and supplied by a lien claimant;
     (c) The failure to either identify a potential lien claimant or apply a homeowner's payment as provided in section 2(2)(a)(iii) of this act was due to an inadvertent error or a reasonable mistake, and was not a substantial cause of the filing of the lien claim; or
     (d) The prime residential contractor: (i) Did not incur personal liability pursuant to section 2(1) of this act; (ii) substantially complied with the notice provisions of section 2 (2) and (3) of this act; and (iii) the amount claimed by the lien claimant was not paid solely because of a dispute between the prime residential contractor or the homeowner and the lien claimant over the quality or quantity of work performed or goods supplied, the legitimacy or accuracy of the amount billed, or similar issues.
     (3)(a) A person is guilty of a gross misdemeanor if the person (i) obtains personal liability under section 2 of this act; (ii) enters into an agreement or is party to a judgment where a residential homeowner is required to pay some or all of such claimed debt; and (iii) fails to file a certified copy of such judgment or agreement with the department of labor and industries, and pay the filing fee established by rule by the department, within thirty days of the entry of such judgment or agreement.
     (b) The clerk of the court entering a judgment in a lien action commenced pursuant to RCW 60.04.021(2) shall mail a copy of the judgment to the department of labor and industries, by certified mail, if (i) a residential homeowner, a prime residential contractor, or any person financially responsible for the prime residential contractor are parties, and (ii) the residential homeowner is required under the judgment to pay any part of the claimed lien.

Sec. 6   RCW 60.04.091 and 1992 c 126 s 7 are each amended to read as follows:
     Except as provided under subsection (4) 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.
     (1) The notice of claim of lien((:
     (1))) 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
     (f))) (g) The principal amount for which the lien is claimed, excluding any interest, late fees, costs, attorneys' fees, or similar charges; and
     (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. 7   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)) this chapter. 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. Before any building permit may be issued for (a) the construction of a new owner-occupied single-family residence; or (b) 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 residential contractor, the permit-issuing agency shall not issue any permit until the homeowner has acknowledged receipt of the document personally, or through an agent who is not the prime residential contractor or any employee, owner, or agent of the prime residential contractor. The permit-issuing agency shall maintain a copy of the acknowledgment of receipt of the 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:
     Before any permit can be issued, you must file with this agency the attached document acknowledging that you have received and read this form. You should also review 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 handler. 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(2), 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/SCS/contractors/ or by calling the contractor registration hotline at 1-800-647-0982. You may also call your local department of labor and industries office. See listings under "Washington, state of" in the government section or the white pages of the telephone book.
     Signed by (property owner): . . . . . . . . . . . . . . . .
     Date signed: . . . . . . . .

Sec. 8   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)(a) 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))) (i) Who contract directly with the ((owner-occupier or their)) residential homeowner or the homeowner'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))) (ii) Who do not contract directly with the ((owner-occupier or their)) residential homeowner or the homeowner's common law agent shall give notice of the right to claim a lien to the ((owner-occupier)) homeowner.
     (b) Claims of liens of persons furnishing professional services, materials, or equipment who do not contract directly with the ((owner-occupier)) homeowner or their common law agent ((may only be satisfied from)) for the repair, alteration, or remodel of the homeowner's residence shall be dismissed if:
     (i) The amounts ((not yet)) paid to the prime residential contractor by the owner at the time the notice described in this section is received equals or otherwise satisfies all amounts owed by the homeowner to all potential lien claimants, including the prime residential contractor, regardless of whether amounts ((not yet)) paid to the prime residential contractor are due; and
     (ii) The homeowner notifies the potential lien claimant in writing that the lien is subject to dismissal pursuant to this subsection, and such notice is received by the potential lien claimant within thirty days of receipt of the notice provided by (a)(ii) of this subsection.
     (c) 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. 9   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) "Other potential lien claimant" means a lien claimant other than a prime residential contractor.
     (10) "Owner-occupied" means a single-family residence occupied by the owner as his or her principal residence.
     (((10))) (11) "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))) (12) "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))) (13) "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))) (14) "Prime residential contractor" or "residential contractor" means a prime residential contractor, as defined in RCW 18.27.010(6).
     (15) "Prime residential contractor's financially responsible parties" or "persons financially responsible for a prime residential contractor" means (a) all persons having a contractual right to more than five percent of the profits of, or legal responsibility for more than five percent of the debts of, a prime residential contractor; (b) all partners, officers, directors, principals, or vice-principals of the prime residential contractor; and (c) the person, if different from those persons identified in (a) or (b) of this subsection, who received or is 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.
     (16) "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))) (17) "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))) (18) "Residential homeowner" or "homeowner" means the same as the term is defined by RCW 18.27.010.
     (19) "Site" means the real property which is or is to be improved.
     (((16))) (20) "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. 10   RCW 18.27.010 and 2001 c 159 s 1 are each amended to read as follows:
     Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
     (1)(a) "Contractor" means any person, firm, or corporation who or which, in the pursuit of an independent business undertakes to, or offers to undertake, or submits a bid to, construct, alter, repair, add to, subtract from, provide construction consultation or management services for, develop, improve, move, wreck or demolish, for another, any building, highway, road, railroad, excavation or other structure, project, development, or improvement attached to real estate or to do any part thereof including the installation of doors, windows, carpeting or other floor covering, kitchen and bathroom cabinetry, fixtures, and built-in appliances, the erection of scaffolding or other structures or works in connection therewith or who installs or repairs roofing or siding, or who provides tree removal or trimming services; or, who, to do similar work upon his or her own property, employs members of more than one trade upon a single job or project or under a single building permit except as otherwise provided herein.
     (b) "Contractor" includes any person, firm, corporation, or other entity covered by this subsection, whether or not registered as required under this chapter.
     (c) A "contractor" is presumed to be a developer and prime residential contractor in business for another, and is not eligible for the exemption provided in RCW 18.27.090 (11) or (12), when the contractor owns and constructs, alters, repairs, or remodels one or more residential structures, and offers for sale or lease (i) more than two such structures in any twenty-four month period, or (ii) any such structure without occupying or using it for more than one year.
     (2) "Department" means the department of labor and industries.
     (3) "Director" means the director of the department of labor and industries or designated representative employed by the department.
     (4) "General contractor" means a contractor whose business operations ((require)) involve the use or supervision of more than ((two unrelated)) one building ((trades or crafts)) trade, craft, or contractor whose work the general contractor ((shall)) superintends or ((do)) does in whole or in part. "General contractor" ((shall)) does not include an individual who does all work personally without employees or other "specialty contractors" as defined in this section. The terms "general contractor," "developer," and "builder" are synonymous.
     (5) "Partnership" means a business formed under Title 25 RCW.
     (6) "Prime residential contractor" means a prime contractor, as defined in RCW 60.04.011, that is engaged in the business of constructing, altering, repairing, or remodeling single-family homes for residential homeowners.
     (7) "Registration cancellation" means a written notice from the department that a contractor's action is in violation of this chapter and that the contractor's registration has been revoked.
     (((7))) (8) "Registration suspension" means a written notice from the department that a contractor's action is a violation of this chapter and that the contractor's registration has been suspended for a specified time, or until the contractor shows evidence of compliance with this chapter.
     (((8))) (9) "Residential homeowner" for the purposes of this chapter and chapter 64.04 RCW 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 upon completion of any construction; or
     (b) Upon which there is a single-family residence to which improvements are to be made and in which the owner or lessee intends to reside upon completion of any construction.
     (((9))) (10) "Specialty contractor" means a contractor whose operations do not (a) require or involve the use of any unrelated building trade, craft, or contractor; nor (b) fall within the definition of "general contractor".
     (((10))) (11) "Unregistered contractor" means a person, firm, corporation, or other entity doing work as a contractor without being registered in compliance with this chapter. "Unregistered contractor" includes contractors whose registration is expired, revoked, or suspended. "Unregistered contractor" does not include a contractor who has maintained a valid bond and the insurance or assigned account required by RCW 18.27.050, and whose registration has lapsed for thirty or fewer days.
     (((11))) (12) "Unsatisfied final judgment" means a judgment that has not been satisfied either through payment, court approved settlement, discharge in bankruptcy, or assignment under RCW 19.72.070.
     (((12))) (13) "Verification" means the receipt and duplication by the city, town, or county of a contractor registration card that is current on its face, checking the department's contractor registration data base, or calling the department to confirm that the contractor is registered.

Sec. 11   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; or
     (e) Subcontract work to or employ an unregistered 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. 12   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.
     (h) 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.
     (i) If the applicant is a prime residential contractor, (i) the name and address of the person who received or is 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, if different, each person financially responsible for the prime residential contractor, as defined by RCW 60.04.011; and (ii) whether any person so identified has obtained personal liability under section 2 of this act and has, in the previous two years, entered into an agreement or was a party to a judgment where a residential homeowner was required to pay some or all of such claimed debt.
     (A) An applicant shall update information required under this subsection (1)(i) no later than thirty days after there is a change in the persons required to be identified under this subsection (1)(i).
     (B) A prime residential contractor shall not be required to provide the names and other information specified in this subsection (1)(i) if the contractor files with the department a surety bond pursuant to RCW 18.27.040(1) in the amount of two hundred fifty thousand dollars.
     (j) 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 contractor or 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. 13   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)) the construction contract involving a residential homeowner, 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 is a prime residential contractor, and the contractor or any of the prime residential contractor's financially responsible parties has or have been, in the twenty-four months preceding the application or renewal, party to (i) any lien action instituted pursuant to RCW 60.04.021(2); or (ii) more than one collection action, other than a lien action instituted pursuant to RCW 60.04.021(2), in which the action or actions, respectively, resulted in a residential homeowner being required to make any payment to satisfy some or all of a debt arising out of a transaction described in section 2 of this act.
     (11) The director may adopt rules necessary for the proper administration of the security, including such rules relating to procedures and fees reasonably necessary to administer the filing and notification requirements of RCW 60.04.171(2)(c)(iii)(B) and section 5(3)(a)(iii) of this act.

Sec. 14   RCW 18.27.080 and 1988 c 285 s 2 are each amended to read as follows:
     (1) No person engaged in the business or acting in the capacity of a contractor may: (a) Bring or maintain any action in any court of this state for the collection of compensation for the performance of any work or for breach of any contract for which registration is required under this chapter; or (b) commence any action to compel another to comply with an arbitration or similar provision in the contractor's contract, or to enforce any such arbitration ruling; without alleging and proving that he was a duly registered contractor and held a current and valid certificate of registration at the time he contracted for the performance of such work or entered into such contract.
     (2) For the purposes of this section, the court shall not find a contractor in substantial compliance with the registration requirements of this chapter unless: (((1))) (a) The department has on file the information required by RCW 18.27.030; (((2))) (b) the contractor has a current bond or other security as required by RCW 18.27.040; and (((3))) (c) the contractor has current insurance as required by RCW 18.27.050. In determining under this section whether a contractor is in substantial compliance with the registration requirements of this chapter, the court shall take into consideration the length of time during which the contractor did not hold a valid certificate of registration.

NEW SECTION.  Sec. 15   This act takes effect July 1, 2007.