In our market, remodeling a home has become part of our housing conversation, whether it is to make a necessary repair in order to sell or a total gut rehab. Hiring a reputable contractor is the beginning, though – making sure your client gets all the necessary paperwork at completion could be the difference between a clear title and a possible foreclosure nightmare.
Few consumers know about a document called the Sworn Contractors Affidavit. This form is prepared by the contractor to ensure the consumer that all subcontractors, along with the business that supply them with building materials, are being paid in a timely manner and/or paid in full.
This document requires the contractors’ signature and must be notarized in order to make it valid.
The volatility of our market has caused many a contractor to suddenly close their doors, not only leaving people with an unfinished project but subcontractors and material houses unpaid. Many of them, as a result, file mechanics liens on clients’ homes.
Permission by the homeowner is not required to file these recordable documents, and if enforced by the contractor, can even jump position of the first mortgage. What does that translate to? They can effectively foreclose on a home. Meanwhile you have a client who has paid their contractor who is nowhere to be found, and now, in order to save their home, have to pay for the services all over again.
What can you advise your clients to do? Tell them to ask for the Sworn Contractors Affidavit either as the project progresses or upon completion. Also, upon completion, ask for lien waivers and proof paid from all those listed. This way they have a manner in which to fight back should something like this happen.
To quote the Mechanics Lien Act: “The law requires that a contractor shall submit a sworn statement of persons furnishing labor, services, material, fixtures, apparatus, machinery forms or form of work before any payments are required to be made to the contractor.”
Also make your client aware that after a two year period the lien “falls off” or becomes invalid. In that two year span, the contractor must file their lawsuit in order to enforce it or it must be updated every two years to ensure its validity.
The consumer, however, must still have a lien release in order to remove it. In most cases where a contractor is unreachable and the time limit has exceeded the two year period, most title companies will insure over it if you are closing on a sale.
The best way to keep a client is to keep them informed. Be their go-to person! Everyone has a mechanic, or a doctor, or a hairdresser…be their preferred real estate professional.