SENATE BILL REPORT
SB 5728
BYSenators Lee and Warnke
Providing for construction liens.
Senate Committee on Economic Development & Labor
Senate Hearing Date(s):February 14, 1989
Senate Staff:David Cheal (786-7576)
AS OF FEBRUARY 13, 1989
BACKGROUND:
Construction lien laws have not been substantially amended or modernized during this century.
Activities which could lead to lien claims for a typical construction project are covered by at least three chapters of the Revised Code of Washington. The notice provisions of current law may provide inadequate and unclear notice of the possibility of lien claims against the property of consumers of construction services.
Construction lenders have priority over some lien claimants in foreclosure proceedings, even though the lien claimant may have performed services before the lender's security interest attached to the property.
SUMMARY:
NOTE: Due to the length and complexity of this bill, a full summary is not provided here. Following is a general description and a list of the substantive changes the bill would make in current law. A full section-by-section analysis is available from the committee staff.
The general policies of existing law are retained. Chapters 60.20 and 60.48 RCW, relating to landscaping and engineering services respectively, are largely incorporated in the proposed construction lien act.
A comprehensive definitional section is included, making the lengthy repetitions which appear in the current statute unnecessary.
The following are the major substantive changes:
(1) "Professional services" are all treated the same and are no longer "labor." Under current law architectural services have a different priority with respect to certain mortgage holders than engineers. The bill treats all professional services alike, and the lien for such services attaches when performance of those services begins rather than when the lien is filed. This changes the law as announced in CH2M Hill vs. Greg Bogart and Company, Inc., 47 Wash. App. 414, 735 P.2d, 1330(1987).
(2) The notice requirements are changed so that the ten day requirement applies to all lien claimants other than laborers. Currently only material suppliers in residential projects must give ten days notice of a possible lien claim to the owner after they begin to supply materials. For other projects the time period is 60 days under current law.
Notice is not required if the lien claimant dealt directly with the owner or the owner's agent.
(3) A distinction is made between "agent" and "construction agent." The former refers to agent as defined by the common law rules of agency. A typical example would be full-time employees of the owner who have the authority or the apparent authority to act on behalf of the owner. "Construction agent" is a registered contractor or other professional who is the agent of the owner for the limited purposes of improving real property and establishing the lien created by the act.
(4) Before any lien can be foreclosed, it must be recorded with the county auditor in the same way that deeds and other instruments affecting title are recorded. Some real property in Washington is "registered" under a system called the Torrens Register. The bill makes recordation of a lien effective against registered land as well as other land, which should eliminate a trap which few people know exists.
(5) Lien claimants may not reject a payment bond and must give a release of their claim to the owner or other person who records a proper bond in the auditor's office.
(6) Notices must be posted at construction sites other than very minor projects which give the name and address of the owner and the general contractor. The threshold for requiring this notice is raised from $5,000 to $10,000. The penalty, a misdemeanor, is removed.
Any potential lien claimant can request the same information in writing. Once the request is made, that claimant (for example, a subcontractor) can suspend further performance without being in breach of their contract until they receive the information.
(7) The provisions relating to lender supervision are changed.
If a payment bond of at least 50 percent of the amount of the construction financed is not provided, the lender must follow certain procedures: Potential lien claimants such as subcontractors may file a notice with the lender that they have or are about to furnish labor, services, materials, or equipment which will entitle them to a lien. Contents of the notice are prescribed. The lender is then required to withhold from subsequent payments to the general contractor amounts indicated in the notice, unless the lender obtains a payment bond from the borrower or general contractor. If this notice is given, the lender loses its first priority in any subsequent foreclosure action to the extent they were required to withhold funds. The lender or other mortgagee who receives such a notice from a subcontractor may demand a thorough list of materials or equipment and the names of persons performing labor or professional services. If this further information is not supplied to the lender, the lien claimant loses its priority in a subsequent foreclosure action.
Lien claimants are held liable for losses anyone experiences as a result of the claimant overstating their claim.
(8) Under current law the owner may record a statement after the job is completed which indicates the last date when labor or material was furnished. This starts the clock running on the 90 day period in which lien claimants have to file their claim. The bill would make this notice a rebuttable presumption of the time when labor was completed or the last material was supplied, instead of conclusive evidence as it is under law.
Appropriation: none
Revenue: none
Fiscal Note: none requested