Construction Industry Splits on Lien Reform

Does Missouri law on real estate liens need fixing? Representatives from broad coalition of subcontractor groups testified to the House Special Committee on General Laws that it does, while representatives from a coalition of financial industry groups and general contractors testified that it does not.

Subcontractor groups want to change lien law so that they can include the legal costs of applying a lien in the amount of the lien. Rep. Shane Schoeller (R-Willard) is sponsoring H.B. 595, which reflects the changes that subcontractor groups want.

Opponents of the change say the law works fine just the way it is.

“The issue is people aren’t paying their bills. That is why we are here,” Rep. Schoeller told the committee at the start of the hearing on Tuesday afternoon.

Joe Hoette, president of Hoette Concrete Construction said the problem has been growing for six years, since well before the start of the current downturn. “I was in court recently to enforce a lien against a homebuilder for work we completed 20 months ago,” he said. “I was owed $120,000. He agreed I should be paid,” but the problem was with the title company, Hoette said. “I spent $24,000 in attorney’s fees to collect what I was owed,” he said.

“I have declined to file liens when I am going to spend more on attorney’s fees than the lien is worth. Property owners know that, so they reduce payments to increase their profits. We need this change in the law to help the small contractor,” Hoette said. He noted that the total value of liens he has pending now is $600,000. “If I can’t collect it, this company will be out of business after 62 years,” he said. His is the third generation to run the family-owned company.

Jim Compton, president of the Roofing & Siding Contractors Association and Compton Roofing, said adding attorney’s fees to lienable costs is necessary to level the field for small contractors. Compton also dismissed as meaningless the criticism that contractors, who claim they are owed money, could drag out negotiations to settle debts owed them if they could get reimbursed for attorney’s fees. “What negotiations,” he asked? “This is money that is owed to me. I’m being charged 25 – 35 percent of my contract amount by builders [now], so I say let’s lengthen the time of negotiations, because I’m in favor of getting all my money,” he said.

Opponents testifying against the bill, including Brad Goss and John Mattingly from the Home Builders Association, insisted there was no need for such a “fundamental” change in lien law, because all that subcontractors have to do to recover attorney’s fees if they file a lien is have the prime contractor agree to it in advance by putting it either in their contract or in a credit application.

“I’m shocked you would say that,” Rep. Curt Dougherty (D-Independence) told Goss. “In 15 years as a subcontractor, I never got to write contract terms. If I scratched one thing out, I didn’t get the job,” he said. As for requiring that the prime contractor fill out a credit application and agree the sub has a right to collect attorney’s fees on any collection process, “they would never agree to it,” Rep. Dougherty said.

“Then I wouldn’t do business with them,” Mattingly retorted.

Sean Flower, president of American Heritage Homes, said subcontractors should just accept that the cost of collecting bad debts is just a cost of doing business. “I didn’t come down to the state legislature when my concrete sub didn’t pay his supplier. I sucked it up and handled it on my own. That’s what you should do,” he said.

Flower and other opponents of the legislation also said it could delay the eventual economic recovery by increasing title insurance costs and thus the costs of doing business in Missouri.

The hearing ended without any action by the committee. Similar legislation in the Senate, S.B. 267, was reported out of committee to the Senate floor on Thursday and is scheduled for debate and perfection on March 18.

Columns