Liens, delays dash hopes for spec home; case involves several local companies

BINGHAM TOWNSHIP – Building a new home for your family has always been part of the American dream. And, for Lee and Margaret Lawson, building a house as an investment was just as exciting.

In 2003, the Garfield Township couple wanted to have a $430,000 spec home built in a Bingham Township subdivision. So they obtained a construction loan and hired a contractor, expecting the home to be built in about seven to nine months.

Everything about it seemed perfect. It was to be one of the first homes in the new Bingham Ridge subdivision, complete with a fireplace, high-end amenities and sweeping views of Lake Leelanau. The subdivision is located along County Road 641, south of Bingham Road.

Three years later, their project was supposedly over budget, their lender had foreclosed, and they had lost the house. Delays had forced them to pay thousands in extra mortgage fees, and subcontractors were knocking on their doors for payment. As a final indignity, liens were slapped on the home.

All this occurred despite the fact that they had received regular statements saying the project was on budget and that regular draws were being made on the construction loan.

The Lawsons' dream investment had turned into a nightmare. It was an example of a problem that is becoming more common in northern Michigan: disputes between homeowners, contractors, subcontractors and suppliers over payment for the goods and services used to build a new home.

For much of the last nine months, the Bingham Ridge house has stood at the center of a lawsuit that Brown Lumber, a supplier to the project, had brought, seeking payment for materials used to build it.

The company sued contractor Realm Contracting LLC, lender Countrywide Home Loans, Northridge Construction, and the Lawsons, along with several parties.

Brown Lumber, a construction supply company, asked that the Lawsons' house be sold, and that it be paid $21,160 from the proceeds. Other area subcontractors also filed liens: Climatron for $2,098, Northridge Construction for $7,000 and Consolidated Plumbing for $6,780.

"Any person who says he is owed for work or materials on a property can file a lien," said C. Enrico Schaefer, the attorney representing the Lawsons. "Any persons who do so can foreclose on that lien no matter where they are in the pecking order. So if someone puts a lien on a property, it can trigger a lot of bad stuff, including a foreclosure."

About eight months after the Brown Lumber lawsuit was filed, the Lawsons were dropped as defendants-about the first good turn handed to them over the past three years. Schaefer had helped the couple navigate their way through the morass, ultimately extricating them from the case. Soon after that, the case was dismissed.

One undisputed fact emerging from the court filings was that the Lawsons bore no responsibility whatsoever for their plight. Schaefer believes the Lawson's case was not unusual; many people face similar risks when they decide to have a home built. In many cases, it may be less risky to buy an existing home, he said. That, at least, gets them out from under a potential, unwelcome house-warming present. In the Lawsons' situation, it was a final bill that raised the total cost to $50,000 to $60,000 over budget.

In the end, it wasn't construction liens that caused the Lawsons to lose their home, Lee Lawson said. It was delays. He said the construction took about 22 months; he was expecting about a third of that time.

"As a result of that, there were thousands and thousands of dollars in penalties to the mortgage company that resulted," he said. "By the time I finally got it ready to sell, the housing market had crashed.

"By that time, I had expended all of my funds, and basically was out of money. I kept hoping the house would sell, but it didn't."

Then he put his own house up for sale, thinking he would move into the new one.

"I liked the house. It has a beautiful view, but, the way the housing market was, my house didn't sell. I had to finally make a decision as to what I was going to do, but I had no choice. I had to let that house go."

Homeowner beware

Industry experts have no shortage of theories as to why liens keep cropping up in home construction projects.

They blame everything from freewheeling management styles and loose accounting practices, to the lenient credit practices of building material suppliers, or worse. Whatever the reason, the money budgeted for a home's construction might not stretch far enough.

When that happens, subcontractors and suppliers may come up short. They then can resort to a legal instrument that few other business people have at their disposal when there are payment disputes: a lien on the property.

It is a claim against the home, removed once the subcontractor is paid for its work. A lien can tie up a home even if the homeowner believes that he or she has already paid the full price for it.

There is protection available to consumers, however. Grand Rapids attorney Robert Swartz, who represents the Michigan construction lien fund, this mechanism is intended "to protect the homeowner from having to pay twice for the same improvement," he said.

He cites this scenario: "If you hire me to build your house, and I go buy your lumber and I go talk to Joe Blow the plumber, you don't know any of those people. You have no connection or contact with them. You pay me off at the end of construction, and they come out of the woodwork and say, 'I didn't get paid,' Before the enactment of this legislation, the homeowner could get stuck."

Subcontractors could file liens, possibly preventing the sale of the house or setting the stage for foreclosure.

"The construction lien fund gets involved when a homeowner pays a contractor, and the contractor for whatever reason fails to pay subcontractors, suppliers or laborers," he said.

When that happens, the subcontractors can turn to the fund for payment. That way, they don't have to knock on the homeowners' door. BN