Failure to Pay Subcontractors: A Homeowner’s Perspective

Although a homeowner has signed a contract with a builder, and may have only dealt with one person or company, there are a varying number of subcontractors, suppliers, and other entities that may perform work on any given construction project.

Often, homeowners often find themselves receiving notices from companies that they had no idea were involved with the construction project. These pre-lien notices (based on language from Minnesota Statutes Chapter 514) advise property owners that these companies performing work or supplying materials may file a lien on the property if they are not paid for their contributions by the general contractor.

Because of the lien rights of subcontractors and suppliers, homeowners risk paying twice for the same work; once to their general contractor, and again to any sub/supplier that exercises their lien rights if they are not paid.

State law requires that contractors (or any person/entity) who have been paid for improvements to real property hold those funds in trust for those actually furnishing the labor, skill, material, or machinery contributing to the improvement (i.e. subcontractors and material suppliers). *(Minnesota Statute 514.02).  Minn. Stat. Ch. 514 also gives property owners the right to pay their general contractor’s subcontractors or suppliers directly.

Any pre-lien notice given to the property owner, whether included in a written contract or separately given, must be in at least 10-point bold type, if printed, or in capital letters, if typewritten and must state as follows:

“(a) Any person or company supplying labor or materials for this improvement to your property may file a lien against your property if that person or company is not paid for the contributions.

(b) Under Minnesota law, you have the right to pay persons who supplied labor or materials for this improvement directly and deduct this amount from our contract price, or withhold the amounts due them from us until 120 days after completion of the improvement unless we give you a lien waiver signed by persons who supplied any labor or material for the improvement and who gave you timely notice.”

*(Minnesota Statute 514.011)

Minnesota law permits recovery of damages against the general contractor, together with costs and disbursements, including costs of investigation and reasonable attorney fees, and receive other relief as determined by the court, including, without limitation, equitable tracing. *(Minn. Stat. 514.02, Subd. 1a).

Contractors are also subject to criminal and licensing sanctions (including revocation)  by the Department of Labor and Industry pursuant to Minnesota Statute 326B.84 for failure to hold funds in trust for their subs/suppliers.

Homeowners should take reasonable steps when served with pre-lien notice to ensure they receive lien waivers and that all subcontractors/suppliers are being paid by their builder.

If you have any questions about your rights as a homeowner when faced with non-payment of subs or mechanic’s liens, contact attorney Anthony Thompson at (612)-597-4229 or online at www.MN-LAW.net.

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Failure to Pay Subcontractors: How to protect your right to payment

State law requires that contractors (or any person/entity) who have been paid for improvements to real property hold those funds in trust for those actually furnishing the labor, skill, material, or machinery contributing to the improvement (i.e. subcontractors and material suppliers).

Minnesota Statute 514.02 also provides:

If a person fails to use the proceeds of a payment made to that person for the improvement, for the payment for labor, skill, material, and machinery contributed to the improvement, knowing that the cost of the labor performed, or skill, material, or machinery furnished remains unpaid, and who has not furnished the person making such payment either a valid lien waiver under section 514.07, or a payment bond in the basic amount of the contract price for the improvement, conditioned for the prompt payment to any person entitled thereto for the performance of labor or the furnishing of skill, material, or machinery for the improvement, shall be guilty of theft of the proceeds of the payment and is punishable under section 609.52.

Minnesota law permits unpaid subcontractors or suppliers to recover damages against the general contractor, together with costs and disbursements, including costs of investigation and reasonable attorney fees, and receive other relief as determined by the court, including, without limitation, equitable tracing. *(Minn. Stat. 514.02, Subd. 1a).

In addition to possible criminal penalties, licensed contractors are subject to licensing sanctions (including revocation)  by the Department of Labor and Industry pursuant to Minnesota Statute 326B.84.

Subcontractors should be sure to protect themselves on the front-end by sending property owners pre-lien notice and afterwards by taking quick action against general contractors.

If you have any questions about how to protect your rights to payment, contact attorney Anthony Thompson at (612)-597-4229 or online at www.MN-LAW.net.

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Construction Defect Claims in Minnesota

For Minnesota homeowners dealing with problem contractors, contract disputes, or defect claims,  it is important to remember that statutory warranty and other protections/requirements may apply to a wide variety of situations involving residential construction work.

What are the most common claims/issues made by homeowners against their builders/contractors?

*Contractor abandons job-site

*Contract fraud/disputes

*Payment issues (subcontractor/suppliers not being paid)

*Mechanic’s Liens filed on property

*New home warranty claims (Minn. Stat. Ch. 327A):
~ one-year – defects caused by faulty workmanship and defective materials.
~ two-year – defects caused by faulty installation of plumbing, electrical, heating, and cooling systems
~ ten-year – major construction defects due to noncompliance with building standards

*Moisture intrusion/mold claims

*Building code violations, otherwise defective work, and resultant damage.

*Window installation issues (all types of siding: stucco, stone, Hardiboard, vinyl, etc.)

How can Minnesota homeowners protect their rights under the home warranty statute?

Homeowners should:

*contact the city or local building official for the exact date the Home was given its Certificate of Occupancy (date from which the warranty period likely runs).

*provide written notice to their builder within six months of discovering problems with their home.

*keep track of their builder’s corporate status (only warranty claims under Minn. Stat. 327A survive a corporation’s dissolution).

*contact the Minnesota Department of Labor and Industry for information on their contractor (including: corporate status, license and insurance information).

*contact an attorney experienced in residential construction to help protect your rights and ensure compliance with statutory technical and timing requirements.

If you have any questions regarding the Minnesota New Home and Home Improvement Warranties or your rights with regards to claims against your general contractor, contact attorney Anthony Thompson at (612)-597-4229 or online at www.MN-LAW.net

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Minnesota Contractor Recovery Fund

Homeowners and renters of residential property that have lost money or been otherwise damaged by a licensed residential building contractor may have recourse against the State of Minnesota Contractor Recovery Fund.

The purpose of the Recovery Fund is to compensate homeowners/renters that have been affected by a licensed contractor’s fraud, failure to perform, and/or breach of their warranties.

A sample of situations where homeowners may seek recourse against the Recovery Fund include: theft (or conversion) of funds; fraudulent, dishonest or deceptive trade practices, breach of contract, and breach of warranties (including statutory warranties under Minn. Stat. Chapter 327A).

While homeowners may seek to recover damages caused by their contractors (including, potentially, their licensed subcontractors) from the Contractor Recovery Fund, they may only do so after exhausting all other potential remedies and by having a sheriff serve a writ of execution upon the company seeking potential assets to satisfy the judgment.

The first step is obtaining a judgment (either in conciliation court for claims less than $7,500 or district court) against the builder. Depending on when the work at issue was performed, homeowners may seek to recover upto $75,000 (for work after December 1, 2007) or $50,000 (for work before December 1, 2007).  The judgment amount can be for any amount, but recovery from the fund is limited by statute and is distributed pro rata amongst all claimants.

Homeowners must be sure that their contractor was licensed at the time it performed the work at question.  If not, the Fund will not provide recourse.

After obtaining a judgment, homeowners must complete an application to the Recovery Fund (applications can be found at the Department of Labor and Industry’s website at http://www.dli.state.mn.us)  The application should outline and provide evidence of their damages, as well as their efforts to secure payment.

Applications are subject, depending upon the break between pre-/post- December 1, 2007 claims, to strict timing deadlines which may significantly delay payment by the Recovery Fund.

If you have any questions regarding the Minnesota Contractor’s Recovery Fund or your rights with regards to claims against your general contractor, contact attorney Anthony Thompson at (612)-597-4229 or online at www.MN-LAW.net.

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