New Home Construction
In a construction contract, the scope of work and allowances should be carefully reviewed. Also, consider inserting an outside completion date with a penalty for late delivery. Finally, make sure you have the right to inspect the home during the building process and prior to closing — just because a home is new does not mean it was properly built.
No Lien Provision.
A contract for the construction of a home may include a provision that a lien may not attach to the real estate or any improvement of the owner. To be effective against subcontractors/suppliers the contract must be recorded not more than 5 days after execution.
Contractor’s Affidavit and Lien Waivers.
Any payment request should be accompanied by a sworn contractor’s affidavit and lien waivers from the subcontractors and suppliers. If lien waivers are not provided, the check should be payable to the general contractor and subcontractor/supplier to ensure the subcontractor/supplier receives payment.
Responsibility to Subcontractors and Suppliers.
A subcontractor/ supplier may have the right to file a lien against the real estate even if you pay the general contractor in full. In addition, if you receive a notice of personal liability, you may be responsible to the subcontractors/suppliers for the amount paid directly to the general contractor after receiving the notice if the general contractor fails to pay the subcontractors/suppliers.
If you close prior to completion, make sure that sufficient funds are held back (escrowed) at closing to motivate the builder to complete the remaining items — typically 200% of the cost of the items.
If your new home is defective, there are statutory warranties provided by a new home builder (unless properly disclaimed) which may provide you some help. However, before filing a lawsuit, there is a statutory notice and dispute procedure with which you must comply.
If you have any questions, we would be happy to help. Please call us at 219-926-2188.