Encumbrance to Title Residential Improvement in PA
Our Pittsburgh lawyers will handle mechanic’s lien claim and defenses throughout PA — for non-payment of new construction or renovations — but how do liens relate to home improvement? Silent on this topic was the Mechanic’s Lien Act of 1963 in Pennsylvania. The same went for the 2007 amendments. But in 2014, Pennsylvania finally created special treatment for home owners (and some renters) of property newly constructed or renovated.
Problem for the Owner of One’s Home
“I paid the contractor, yet my home has a mechanic’s lien?!
Imagine owning a home or (or renting) and you pay for substantial home improvement, such as:
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- a major upgrade, such as a new a kitchen, bathrooms, plumbing, electrical or a new roof, or
- an entirely new “in law suite,” or
- new swimming pool and entertainment area.
Your improvements cost five — or even high six — figures. In fact, home owners often go deeply into debt, to pay for such renovation. Then, what if general contractor fails to pay his subcontractors and they, in turn, file liens against the home owner’s property? What?! Can that even happen? The answer is: yes. However, homeowners obtained some important relief from a law, which took effect on September 7, 2014.
2014 Amendments to PA’s Mechanic’s Lien Law
PA’s Mechanic’s Lien Law of 1963 was amended to allow most property owners or tenants to obtain an automatic defense of payment to a subcontractor lien on owner occupied residential projects. These means that the home owner in the above scenario can strike off a lien by any contractor not paid, so long as she paid the general contractor. In other words, if the owner had paid the general contractor in full, all subcontractor liens will be defeated.
Partial Payment Situations
Moreover, the defense of payment also exists for partial payment. For example, let’s say the contract between the home owner and general contractor was for a $100,000 renovation of a home. However, the home owner only paid $80,000. There, the maximum amount mechanics lien is $20,000 to reflect the partial payment. Make sense?
Limitations
There are two key limitations to the 2014 amendments to the Mechanic’s Lien law of 1963, which relating to residential or home improvement.
Definition of Residential Property
First, “residential property” includes homes and townhouses but note the limitations:
“… the residential property is a single townhouse or a building that consists of one or two dwelling units used, intended or designed to be built, used, rented or leased for living purposes. For the purposes of this paragraph, the term ‘townhouse’ shall mean a single-family dwelling unit constructed in a group of three or more attached units in which each unit extends from foundation to roof with a yard or public way on at least two sides.
Hence, the property must be used or intended to be used as the residence of the owner or a tenant of the owner subsequent to occupation by the owner. Therefore, this can protect a tenant (paying for home improvement), so long as the property had been occupied by the owner at one point. That said, this would exclude and builder or developer owned residential structures.
There Might be a Mechanic’s Lien Anyway
The 2014 amendments allow a home owner (or renter) to challenge a lien – once filed, but it does not stop the lien from being filed in the first place. Why would a subcontractor file such a lien, when it is improper and will be stricken?
The 2014 Amendments provide that “a subcontractor does not have the right to a lien with respect to an improvement to a residential property” if certain conditions are met. However, a subcontractor may have no way to know whether the owner or renter had compensated the general contractor. Likewise, he might not know the intent for the improvement: whether for residential use existed. Thus, it would not be frivolous for a contractor to file a lien in the absence of such knowledge. With that, the property owner or renter would necessarily incur unnecessary attorney fees to defeat the improper lien.
Solutions For Property Owners, Renters and Contractors
Its always best for parties to a dispute or potential dispute to communicate before triggering the courts. The Mechanic’s Lien Law of 1963 (as amended in 2008 and 2014) contains tight deadlines. However, the residential property owner or renter should strive to put any contractor on notice of payment to the general contractor. Likewise, the contractor should try to learn as much as possible about the job: had the GC been paid? Was this home improvement? — before taking court action, if possible.
Rights of Consumers and Home Owners
In Pennsylvania home owners have rights as consumers via Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. There, any false statement (even without “fraud”) made by a business to a consumer regarding a consumer transaction can be actionable. Hence, a contractor should refrain from making false statements to consumer about the facts or law. In other words, the sub-contractor should avoid falsely informing a home owner (or renter) that the contractor has rights that do not exist, such as the right a lien, when the GC has been paid in full.
Home Improvement and Consumer Protection Act
In 2011, Pennsylvania enacted the Home Improvement and Consumer Protection Act (“HICPA”) which specifically protects home owners from the enforcement of certain home improvement contracts. Enforcement is illegal if, for example, the contract lacks a start date and end date. Also illegal is a home improvement contract requiring payment of greater than 1/3 upfront, or has an oral change order (not in writing). However, HICPA does not prevent a contractor from taking a lien against a property. This is true even when HICPA has been violated. This was confirmed in Shafer Elec. & Const. v. Mantia, 96 A.3d 989, 626 Pa. 258 (2014).
There, the reasoning is technical, but it boils down to this. PA’s Supreme Court has opined, HICPA prevents the enforcement of a home improvement contract, where HICPA has been violated. However, the contractor’s right are not limited to enforcement of a contract. There can be more than one action. Rather, a contractor can also assert “quasi-contract” – such as claims for unjust enrichment (the extent a home owner benefits from the work), or quantum meruit. The latter is the value of the contractor’s work, even if not stated in a contract. A mechanic’s lien can be taken for the value of the contractor’s work. This holds true, even if the home improvement contract is otherwise stricken down due to a violation of HICPA.
Caution Going Forward With Mechanic’s Lien
All that said, the contractor should be very careful in its dealing with the home owner. Any dealings with the homeowner risk creating a new contract. Such dealings could also expose the contractor a claim for triple damages, because HICPA expressly embodies PA’s UTPCPL, which carries the penalizes described above, namely treble damages and attorney fees.
Likewise, some contractors mistaken believe that the Contractor Subcontractor Payment Act applies to home improvement agreements. It does not. Click here to learn more. A contractor’s threat to brining a claim — not available to a contractor — can expose the contractor to UTPCPL liability, also.
Cost-Effective Review of Mechanic’s Lien For Home Improvement
Our Pittsburgh mechanic’s lien lawyers are happy to review your claim or defense in regard to any construction or renovation matter for home improvement or otherwise. Contact us today by phone or email or to learn how or Pittsburgh attorneys can provide value to your situation.
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