In the last few weeks we’ve seen three big Portland area builders in trouble. Last week’s Portland Business Journal explored who that effects a little more. Subcontractor liens are way up. If a contractor doesn’t pay their subs, the subs can file lien against the property that they work on. Subcontractor liens get paid before the contractor’s construction loan.

Multnomah County reports that construction liens, also known as mechanic’s liens, have soared as contractors and subcontractors line up to secure their right to payment for work on financially troubled projects.

Contractors and subcontractors recorded 1,119 liens in Multnomah County through Aug. 31. That’s 41 more than the number of liens filed in all of 2007 and 70 percent more than the 654 filed in 2005 when the residential market was booming.

The story is similar in Washington County, where contractors filed 910 claims this year through Sept. 12, 46 percent more than for all of 2007, and 53 percent more than for the full year 2005.

The RMLS New Construction Real Estate Agreement includes this section:
Multnomah County reports that construction liens, also known as mechanic’s liens, have soared as contractors and subcontractors line up to secure their right to payment for work on financially troubled projects.

Contractors and subcontractors recorded 1,119 liens in Multnomah County through Aug. 31. That’s 41 more than the number of liens filed in all of 2007 and 70 percent more than the 654 filed in 2005 when the residential market was booming.

The story is similar in Washington County, where contractors filed 910 claims this year through Sept. 12, 46 percent more than for all of 2007, and 53 percent more than for the full year 2005.

Multnomah County reports that construction liens, also known as mechanic’s liens, have soared as contractors and subcontractors line up to secure their right to payment for work on financially troubled projects.

Contractors and subcontractors recorded 1,119 liens in Multnomah County through Aug. 31. That’s 41 more than the number of liens filed in all of 2007 and 70 percent more than the 654 filed in 2005 when the residential market was booming.

The story is similar in Washington County, where contractors filed 910 claims this year through Sept. 12, 46 percent more than for all of 2007, and 53 percent more than for the full year 2005.

CONSTRUCTION LIENS: Seller warrants and represents that from and after the date of closing, all Seller’s contractors, subcontractors, suppliers and all others who provided labor or material to the Property or who have the right to lien, will have been fully paid and/or will have released all of their lien rights as against the property.

If you think you are in a position where the property you are buying might be subject to liens make sure you seek confident professional advise, including an attorney. It is possible that liens could be filed, and be valid, after closing. Since the lien attaches to the property, you could potentially be liable for the debt.

I’m yet to come across an issue with a construction lien, either personally through our remodeling or real estate related, but it is clearly more likely to happen in this market.