Building A New Home?
Know Your Rights and Responsibilities

You're building a new home. You are excited and looking forward to seeing the home of your dreams take shape. But there are some things you should know to insure that the building process goes according to the way you planned, and some steps you should take to protect your investment.

Be certain going into your project that you have a firm bid from your general contractor on the final price of building your new home. Ask your contractor to apprise you of overages before they are incurred and be emphatic about obtaining approval from you before proceeding with anything not outlined in the original contract. A good contractor will include a contingency percentage in his bid to cover unexpected costs or overages.

Keep your thumb on the cost and number of materials going into your home by requesting copies of all invoices for materials and labor relating to your project.  You should, at all times, be aware of what invoices are outstanding on your project, and when those invoices are due for payment.

You should know that even if you pay your general contractor and he acts as the disburser of funds to suppliers and subcontractors, and he defaults on payment to suppliers or subcontractors, you are still responsible for those outstanding bills.

Suppliers of building materials and contractors and subcontractors who provide materials or labor on your project are protected from non-payment by you, or your general contractor, by a legal process know as a Mechanic's Lien.

Mechanic's Liens are available on privately owned projects and/or property, and allow the supplier of materials or service to place a lien for the amount of indebtedness against your property in the event you default on payment. If this became the case, suppliers and contractors would begin the paperwork necessary to place the lien.

A lien is considered a security interest (similar to a mortgage) in real estate. Once a lien is in place, provided required notices are sent within the time constraints allowed, and the Statement of Lien is properly completed and recorded in the county in which the property is located, the unpaid creditor may begin the proceedings necessary to foreclose on the property. A public sale of the project improvements along with as much of the land as is necessary for the convenient use and occupation of those improvements will ensue. This should illustrate the importance of knowing what invoices are out there and which ones have been paid!

The first line of defense to lien claims is the defense of waiver. As progress payments are made (contractors call these construction draws), you should request, from the supplier or the contractor, the execution of a lien waiver for that portion of the bill. These can be obtained as either a part of the check endorsement or as a separate document or both. Care must be taken to assure that the language of such waivers does not waive more or less than intended. Most companies will list the invoice(s) the check is in payment of and will specify the waiver invalid if the check bounces.

These laws were designed not only to protect suppliers and contractors from default by you, but to protect you as well. The existence of these laws was intended to place the responsibility on the property owner in terms of funds disbursement for every aspect of the project.

This means that a closely monitored accountability with your contractor is essential to insure that all costs connected with your project are paid in full. Otherwise, you open yourself up for lien proceedings, and eventually foreclosure on your property if payment cannot be made.

It is in your own best interest to regularly go over invoices and billings with your contractor. Review the materials and services listed to be sure that all materials claimed and all services billed went into your project. Review the due dates on your invoices and consider issuing joint checks made out to both the contractor and the supplier to be certain that the contractor pays the supplier. Insist on a signed lien waiver for every invoice paid.

Building a new home is often a stressful time as well as a highly gratifying time. Knowing your rights and responsibilities can go a long way in alleviating the financial stress associated with construction and allows you the opportunity to monitor the costs consistently as the project proceeds.

Your attorney can provide you with a more complete understanding of the lien process and how to protect your investment during the construction process.