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S.B. 197

             1     

AMEND MECHANICS LIEN LAW

             2     
1999 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Sponsor: Scott N. Howell

             5      AN ACT RELATING TO THE RESIDENCE LIEN RESTRICTION AND LIEN RECOVERY
             6      FUND ACT; PROVIDING FOR THE ASSIGNMENT OF A CLAIMANT'S JUDGMENT TO
             7      THE FUND; CLARIFYING THE PROCEDURAL REQUIREMENTS IN CASES OF
             8      BANKRUPTCY; ADDING A SEVERABILITY CLAUSE; PROVIDING FOR THE PAYMENT
             9      OF INTEREST, COSTS, AND ATTORNEY'S FEES FROM THE FUND; AND MAKING
             10      TECHNICAL CHANGES.
             11      This act affects sections of Utah Code Annotated 1953 as follows:
             12      AMENDS:
             13          38-11-102, as last amended by Chapter 13, Laws of Utah 1998
             14          38-11-202, as last amended by Chapter 10, Laws of Utah 1997
             15          38-11-203, as last amended by Chapter 49, Laws of Utah 1998
             16          38-11-204, as last amended by Chapter 49, Laws of Utah 1998
             17          38-11-205, as last amended by Chapter 172, Laws of Utah 1995
             18      ENACTS:
             19          38-11-109, Utah Code Annotated 1953
             20      Be it enacted by the Legislature of the state of Utah:
             21          Section 1. Section 38-11-102 is amended to read:
             22           38-11-102. Definitions.
             23          (1) "Board" means the Residence Lien Recovery Fund Advisory Board established under
             24      Section 38-11-104 .
             25          (2) "Construction on an owner-occupied residence" means designing, engineering,
             26      constructing, altering, remodeling, improving, repairing, or maintaining a new or existing
             27      residence.


             28          (3) "Department" means the Department of Commerce.
             29          (4) "Director" means the director of the Division of Occupational and Professional
             30      Licensing.
             31          (5) "Division" means the Division of Occupational and Professional Licensing.
             32          (6) "Encumbered fund balance" means the aggregate amount of all outstanding claims
             33      against the fund. The remainder of monies in the fund are unencumbered funds.
             34          (7) "Executive director" means the executive director of the Department of Commerce.
             35          (8) "Fund" means the Residence Lien Recovery Fund established under Section 38-11-201 .
             36          (9) "Laborer" means a person who provides services at the site of the construction on an
             37      owner-occupied residence as an employee of an original contractor or other qualified beneficiary
             38      performing qualified services on the residence.
             39          (10) "Licensee" means any holder of a license issued under Title 58, Chapters 3a, 22, 53,
             40      and 55.
             41          (11) "Nonpaying party" means the original contractor, subcontractor, or real estate
             42      developer who has failed to pay the qualified beneficiary making a claim against the fund.
             43          [(11)] (12) "Original contractor" means a person who contracts with the owner of real
             44      property or the owner's agent to provide services, labor, or material for the construction of an
             45      owner-occupied residence.
             46          [(12)] (13) "Owner" means a person who:
             47          (a) contracts with a person who is licensed as a contractor or is exempt from licensure
             48      under Title 58, Chapter 55, Utah Construction Trades Licensing Act, for the construction on an
             49      owner-occupied residence upon real property owned by that person;
             50          (b) contracts with a real estate developer to buy a residence upon completion of the
             51      construction on the owner-occupied residence; or
             52          (c) buys a residence from a real estate developer after completion of the construction on
             53      the owner-occupied residence.
             54          [(13)] (14) "Owner-occupied residence" means a residence that is, or after completion of
             55      the construction on the residence will be, occupied by the owner or the owner's tenant or lessee as
             56      a primary or secondary residence within 180 days from the date of the completion of the
             57      construction on the residence.
             58          [(14)] (15) "Qualified beneficiary" means a person who:


             59          (a) provides qualified services;
             60          (b) pays all necessary fees or assessment required under this chapter; and
             61          (c) registers with the division:
             62          (i) as a licensed contractor under Subsection 38-11-301 (1) or (2) if that person seeks
             63      recovery from the fund as a licensed contractor; or
             64          (ii) as a person providing qualified services other than as a licensed contractor under
             65      Subsection 38-11-301 (3) if the person seeks recovery from the fund in a capacity other than as a
             66      licensed contractor.
             67          [(15)] (16) "Qualified services" means the following performed in construction on an
             68      owner-occupied residence:
             69          (a) contractor services provided by a contractor licensed or exempt from licensure under
             70      Title 58, Chapter 55, Utah Construction Trades Licensing Act;
             71          (b) architectural services provided by an architect licensed under Title 58, Chapter 3a;
             72          (c) engineering and land surveying services provided by a professional engineer or land
             73      surveyor licensed or exempt from licensure under Title 58, Chapter 22;
             74          (d) landscape architectural services by a landscape architect licensed or exempt from
             75      licensure under Title 58, Chapter 53;
             76          (e) design and specification services of mechanical or other systems;
             77          (f) other services related to the design, drawing, surveying, specification, cost estimation,
             78      or other like professional services;
             79          (g) providing materials, supplies, components, or similar products;
             80          (h) renting equipment or materials; and
             81          (i) labor at the site of the construction on the owner-occupied residence.
             82          [(16)] (17) "Real estate developer" means a person having an ownership interest in real
             83      property who contracts for the construction of a residence that is offered for sale to the public.
             84          [(17)] (18) "Residence" means an improvement to real property used or occupied, to be
             85      used or occupied as, or in conjunction with, a primary or secondary detached single-family
             86      [residence] dwelling or multifamily [residence] dwelling up to two units.
             87          [(18)] (19) "Subsequent owner" means a person who purchases a residence from an owner
             88      within 180 days from the date of the completion of the construction on the residence.
             89          Section 2. Section 38-11-109 is enacted to read:


             90          38-11-109. Severability clause.
             91          If any provision of this chapter is held invalid or unconstitutional by court of competent
             92      jurisdiction, the invalidity shall not affect the other provisions of this chapter which can be given
             93      effect without the invalid or unconstitutional provision.
             94          Section 3. Section 38-11-202 is amended to read:
             95           38-11-202. Payments to the fund.
             96          The Residence Lien Recovery Fund shall be supported solely from:
             97          (1) initial and special assessments collected by the division from licensed contractors
             98      registered as qualified beneficiaries in accordance with Subsections 38-11-301 (1) and (2) and
             99      Section 38-11-206 ;
             100          (2) initial and special assessments collected by the division from other qualified
             101      beneficiaries registering with the division in accordance with Subsection 38-11-301 (3) and Section
             102      38-11-206 ;
             103          (3) fees determined by the division under Section 63-38-3.2 collected from laborers under
             104      Subsection 38-11-204 [(5)](7) when the laborers obtain a recovery from the fund;
             105          (4) amounts collected by subrogation under Section 38-11-205 on behalf of the fund
             106      following a payment from the fund;
             107          (5) application fees determined by the division under Section 63-38-3.2 collected from
             108      qualified beneficiaries or laborers under Subsection 38-11-204 (1)(b) when qualified beneficiaries
             109      or laborers make a claim against the fund;
             110          (6) registration fees determined by the division under Section 63-38-3.2 collected from
             111      other qualified beneficiaries registering with the department in accordance with Subsection
             112      38-11-301 (3)(a)(iii);
             113          (7) reinstatement fees determined by the division under Section 63-38-3.2 collected from
             114      registrants in accordance with Subsection 38-11-302 (5)(b);
             115          (8) civil fines authorized under Subsection 38-11-205 (2) collected by the attorney general
             116      for failure to reimburse the fund; and
             117          (9) any interest earned by the fund.
             118          Section 4. Section 38-11-203 is amended to read:
             119           38-11-203. Disbursements from the fund -- Limitations.
             120          (1) A payment of any claim upon the fund by a qualified beneficiary shall be made only


             121      upon an order issued by the director finding that:
             122          (a) the claimant was a qualified beneficiary during the construction on a residence;
             123          (b) the claimant complied with the requirements of Section 38-11-204 ; and
             124          (c) there is adequate money in the fund to pay the amount ordered.
             125          (2) A payment of a claim upon the fund by a laborer shall be made only upon an order
             126      issued by the director finding that:
             127          (a) the laborer complied with the requirements of Subsection 38-11-204 [(4)](6); and
             128          (b) there is adequate money in the fund to pay the amount ordered.
             129          (3) (a) An order under this section may be issued only after the division has complied with
             130      the procedures established by rule under Section 38-11-105 .
             131          [(b) If the claimant is a laborer or is precluded from obtaining a judgment because the
             132      person described in Subsection 38-11-204 (3) (b) has filed bankruptcy, the director shall determine
             133      the amount to be paid from the fund.]
             134          [(c) If the qualified beneficiary obtains a judgment, subject to the limitation of this section,
             135      the director shall order payment of the amount of the judgment.]
             136          (b) The director shall order payment of the qualified services as established by evidence,
             137      or if the claimant has obtained a judgment, then in the amount awarded for qualified services in
             138      the judgment to the extent the qualified services are attributable to the owner-occupied residence
             139      at issue in the claim.
             140          (c) The director shall order payment of interest on all claims at the rate of 12% from the
             141      date payment was due to the date the claim is approved for payment except for delays attributable
             142      to the claimant.
             143          (d) The director shall order payment of costs in the amount stated in the judgment. If the
             144      judgment does not state a sum certain for costs, or if no judgment has been obtained, the director
             145      shall order payment of reasonable costs as supported by evidence. The claim application fee as
             146      established by the division pursuant to Subsection 38-11-204 (1)(b) is not a reimbursable cost.
             147          (e) The director shall order payment of attorney's fees in the amount stated in a judgment.
             148          (4) (a) Payments made from the fund may not exceed:
             149          (i) $75,000 per residence to all qualified beneficiaries and laborers who have claim against
             150      the fund for that residence; and
             151          (ii) $500,000 per qualified beneficiary or laborer for payments to the qualified beneficiary


             152      over the qualified beneficiary's lifetime.
             153          (b) If claims against the fund for a residence exceed $75,000, the $75,000 shall be awarded
             154      proportionately so that each qualified beneficiary and laborer awarded compensation from the fund
             155      for qualified services shall receive an identical percentage of the qualified beneficiary's or laborer's
             156      award.
             157          (5) Subject to the limitations of Subsection (4), if on the day the order is issued there are
             158      inadequate funds to pay the entire claim and the director determines that the claimant has otherwise
             159      met the requirements of Subsection (1) or (2), the director shall order additional payments once
             160      the fund meets the balance limitations of Section 38-11-206 .
             161          Section 5. Section 38-11-204 is amended to read:
             162           38-11-204. Claims against the fund -- Requirement to make a claim -- Qualifications
             163      to receive compensation.
             164          (1) To claim recovery from the fund a person shall:
             165          (a) meet the requirements of either Subsection (3) or [(4)] (6);
             166          (b) pay an application fee determined by the division under Section 63-38-3.2 ; and
             167          (c) file with the division a completed application on a form provided by the division
             168      accompanied by supporting documents establishing:
             169          (i) that the person meets the requirements of either Subsection (3) or [(4)] (6);
             170          (ii) that the person was a qualified beneficiary or laborer during the construction on the
             171      owner-occupied residence; and
             172          (iii) the basis for the claim.
             173          (2) To recover from the fund, the application required by Subsection (1) shall be filed no
             174      later than 120 days:
             175          (a) from the date the judgment required by Subsection (3) (c) is entered;
             176          (b) from the date the nonpaying party filed bankruptcy, if the claimant is precluded from
             177      obtaining a judgment [because the person described in Subsection (3) (b) filed bankruptcy, from
             178      the date the person filed bankruptcy] or from satisfying the requirements of Subsection (3)(c)
             179      because the nonpaying party filed bankruptcy; or
             180          (c) if a laborer, the date the laborer completed the laborer's qualified services.
             181          (3) To recover from the fund, regardless of whether the residence is occupied by the
             182      owner, a subsequent owner, or the owner or subsequent owner's tenant or lessee, a qualified


             183      beneficiary shall establish that:
             184          (a) (i) the owner of the owner-occupied residence or the owner's agent entered into a
             185      written contract with an original contractor licensed or exempt from licensure under Title 58,
             186      Chapter 55, Utah Construction Trades Licensing Act, for the performance of qualified services,
             187      to obtain the performance of qualified services by others, or for the supervision of the performance
             188      by others of qualified services in construction on that residence; or
             189          (ii) the owner of the owner-occupied residence or the owner's agent entered into a written
             190      contract with a real estate developer for the purchase of an owner-occupied residence;
             191          (b) the owner has paid in full the original contractor licensed or exempt from licensure
             192      under Title 58, Chapter 55, Utah Construction Trades Licensing Act, real estate developer, or both,
             193      under Subsection (3)(a)(i) or (ii) with whom the owner has a written contract in accordance with
             194      the written contract and any amendments to the contract, and:
             195          (i) the original contractor or real estate developer licensed or exempt from licensure under
             196      Title 58, Chapter 55, Utah Construction Trades Licensing Act, subsequently failed to pay a
             197      qualified beneficiary who is entitled to payment under an agreement with that original contractor
             198      or real estate developer licensed or exempt from licensure under Title 58, Chapter 55, Utah
             199      Construction Trades Licensing Act, for services performed or materials supplied by the qualified
             200      beneficiary;
             201          (ii) a subcontractor who contracts with the original contractor or real estate developer
             202      licensed or exempt from licensure under Title 58, Chapter 55, Utah Construction Trades Licensing
             203      Act, failed to pay a qualified beneficiary who is entitled to payment under an agreement with that
             204      subcontractor or supplier; or
             205          (iii) a subcontractor who contracts with a subcontractor or supplier failed to pay a qualified
             206      beneficiary who is entitled to payment under an agreement with that subcontractor or supplier;
             207          (c) (i) the qualified beneficiary filed:
             208          (A) an action against the nonpaying party to recover monies owed him within 180 days
             209      from the date the qualified beneficiary last provided qualified services, unless precluded from
             210      doing so by the nonpaying party's bankruptcy filing within the 180 days after completion of
             211      services; and
             212          (B) [filed with the division] a notice of commencement of action with the division within
             213      30 days from the date the qualified beneficiary filed [an] the civil action [to recover monies owed


             214      him] if a civil action was filed as required by Subsection (3)(c)(i)(A);
             215          (ii) the qualified beneficiary has obtained a judgment against the [person described in
             216      Subsection (3) (b)] nonpaying party who failed to pay the qualified beneficiary under an agreement
             217      to provide qualified services for construction of that owner-occupied residence;
             218          (iii) (A) the qualified beneficiary has obtained from a court of competent jurisdiction the
             219      issuance of an order requiring the judgment debtor, or if a corporation any officer of the
             220      corporation, to appear before the court at a specified time and place to answer concerning the
             221      debtor's or corporation's property [and], has received return of service of the order from a person
             222      qualified to serve documents under the Utah Rules of Civil Procedure, Rule 4(b), and has made
             223      reasonable efforts to obtain asset information from the supplemental proceedings; and
             224          (B) if assets subject to execution are discovered as a result of the order required under
             225      Subsection (3) (c)(iii)(A) or for any other reason, to obtain the issuance of a writ of execution from
             226      a court of competent jurisdiction; or
             227          (iv) [has been precluded from obtaining a judgment against that person because that person
             228      filed bankruptcy; and] the claimant timely filed a proof of claim where permitted in the bankruptcy
             229      action, if the original contractor, subcontractor, or real estate developer has filed bankruptcy; and
             230          (d) the qualified beneficiary is not entitled to reimbursement from any other person.
             231          (4) The requirements of Subsection 38-11-204 (3)(c) need not be met if the qualified
             232      beneficiary has been precluded from obtaining a judgment against the nonpaying party or from
             233      satisfying the requirements of Subsection 38-11-204 (3)(c) because the nonpaying party filed
             234      bankruptcy.
             235          [(e)] (5) If a qualified beneficiary fails to file the notice with the division required under
             236      Subsection (3)(c)(i)(B), the claim of the qualified beneficiary shall be paid:
             237          (i) if otherwise qualified under this chapter;
             238          (ii) to the extent that the limit of Subsection 38-11-203 (4)(a)(i) has not been reached by
             239      payments from the fund to qualified beneficiaries who have complied with the notice requirements
             240      of Subsection (3)(c)(i)(B); and
             241          (iii) in the order that the claims are filed by persons who fail to comply with Subsection
             242      (3)(c)(i)(B), not to exceed the limit of Subsection 38-11-203 (4)(a)(i).
             243          [(4)] (6) To recover from the fund a laborer shall:
             244          (a) establish that the laborer has not been paid wages due for the work performed at the


             245      site of a construction on an owner-occupied residence; and
             246          (b) provide any supporting documents or information required by rule by the division.
             247          [(5)] (7) A fee determined by the division under Section 63-38-3.2 shall be deducted from
             248      any recovery from the fund received by a laborer.
             249          Section 6. Section 38-11-205 is amended to read:
             250           38-11-205. Subrogation.
             251          (1) (a) (i) The state, on behalf of the fund, has the right of subrogation only to the extent
             252      of payments made from the fund.
             253          (ii) Upon payment from the fund to a claimant, any payment to the claimant that was the
             254      basis of the claimant's claim against the fund shall be assigned to the fund for the enforcement of
             255      subrogation rights by the attorney general.
             256          (iii) A claimant's judgment or bankruptcy claim against the nonpaying original contractor,
             257      subcontractor, or real estate developer shall be automatically assigned to the state, to the extent
             258      paid by the fund on a particular residence, upon the state's filing of the director's order of payment
             259      of claim with the appropriate court.
             260          (b) The state's right of subrogation under Subsection (1)(a) has priority over any rights of
             261      the qualified beneficiary under the judgment or any civil penalties imposed.
             262          (c) The state shall be awarded attorney's fees and court costs incurred in recovering claims
             263      paid from the fund.
             264          (2) (a) The attorney general shall enforce all subrogation claims and may contract with
             265      private attorneys as necessary to adequately enforce subrogation claims.
             266          (b) (i) In addition to the subrogation claims the attorney general may seek a civil fine of
             267      $5,000 per residence for failure to reimburse the Residence Lien Recovery Fund within 90 days
             268      after any disbursement from the fund resulting from the registrant's failure to pay qualified
             269      beneficiaries under this chapter.
             270          (ii) All claims under the judgment have priority over the civil penalty.
             271          (3) The attorney general may charge the fund for costs incurred by the attorney general
             272      under this chapter.





Legislative Review Note
    as of 2-9-99 6:24 PM


A limited legal review of this legislation raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel


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