Ohio’s Mechanic’s Lien Law - Home Construction or Purchase Contracts

In prior blogs I’ve discussed Ohio Mechanic’s Lien law and its impact on Private Improvements and Public Improvements (See blogs of July 17, 2009). In my discussion of Private Improvements I told you improvements made to private homes are treated differently than the standard “commercial” improvement. The purpose of this blog is to discuss home construction or purchase contracts and the differences between them and the standard private improvement.

Ohio Revised Code 1311.011 protects the owner of a private residence against paying more than originally contracted. If the owner can prove he has paid the original contractor 100% of the contract price PRIOR TO the receipt of the affidavit to obtain a mechanic’s lien any lien filed by a subcontractor, materialman or laborer can be invalidated.

First let me define the terms:

“Home Construction Contract” means a contract entered into between an original contractor and an owner, part owner, or lessee for the improvement of any single- or double-family dwelling or portion of the dwelling or a residential unit of any condominium property that has been submitted to the provisions of Chapter 5311. of the Revised Code; an addition to any land; or the improvement of driveways, sidewalks, swimming pools, porches, garages, carports, landscaping, fences, fallout shelters, siding, roofing, storm windows, awnings, and other improvements that are adjacent to single- or double-family dwellings or upon lands that are adjacent to single- or double-family dwellings or residential units of condominium property, if the dwelling, residential unit of condominium property, or land is used or is intended to be used as a personal residence by the owner, part owner, or lessee.”

"Home purchase contract" means a contract for the purchase of any single- or double-family dwelling or residential unit of a condominium property that has been subjected to the provisions of Chapter 5311 of the Revised Code if the purchaser uses or intends to use the dwelling, a unit of a double dwelling, or the condominium unit as the purchaser's personal residence.

As defined, this statute applies to any home construction contract or any home improvement contract. In order to take advantage of these provision the owner must prove:

1. That he is the owner of a single or double family home pr condominium, and

2. The he has paid the original contractor in full, and

3. Payment was made in full prior to receipt of the lien.

Note the definition of “Home Purchase Contract, DOES NOT include a spec house - A home constructed by a contractor, later sold to an individual intending to use it for their personal residence.

The statute goes on to say if the original contractor has not been paid in full the subcontractor, material supplier, or laborer can only recover an amount equal to the amount still owed on the home construction contract or the home purchase agreement. If more than one lien is filed, those lien holders are only paid a pro rata share of the balance owed to the original contract.

The statute also contains provisions for the invalidation of any lien recorded in violation of the statute. The provisions call for the owner to provide written notice to the lien holder that they have paid the original contractor in full and that payment in full was made prior to receipt of the copy of the lien. If the lien holder fails to satisfy the lien within 30 days, the lien holder is liable to the owner for any damages, including the cost of having the lien invalidated, attorney fees and court costs.

Furthermore, no lending institution is permitted to make any payment to any original contractor until the original contractor has given the lending institution the original contractor's affidavit stating:

1. That the original contractor has paid in full for all labor and work performed and for all materials furnished by the original contractor and all subcontractors, material suppliers, and laborers prior to the date of the closing of the purchase or during and prior to the payment period, except such unpaid claims as the original contractor specifically sets forth and identifies both by claimant and by amount claimed, and

2. That no claims exist other than those claims set forth and identified in the affidavit.

While the lending institution is not financially liable to the owner after accepting an affidavit from the original contractor (in good faith), it can be held liable if it fails to obtain a lien release after receiving a notice that a lien has been filed.

It must be noted, while these provisions of Ohio’s Mechanic’s Lien Law protect the home owner from paying twice for improvements made to their home, other provisions of the lien law fail to protect homeowners as well as they protect the owners of commercial properties. Pursuant to O.R.C. 1311.04(O) and 1311.05(E) and a Notice of Commencement need to posted or recorded and a Notice of Furnishing need not be served when providing labor or materials for a home construction contract.