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Third Substitute S.B. 107

Representative Kevin S. Garn proposes the following substitute bill:


             1     
LIEN AMENDMENTS

             2     
2010 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Curtis S. Bramble

             5     
House Sponsor: Kevin S. Garn

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies provisions relating to mechanic's liens.
             10      Highlighted Provisions:
             11          This bill:
             12          .    modifies the time for filing an action to enforce a mechanic's lien if an owner files
             13      bankruptcy;
             14          .    changes a notice of intent to file a notice of completion into a notice of intent to
             15      obtain final completion and modifies a provision relating to its filing;
             16          .    bars a person otherwise qualified to file a lien from maintaining a lien on an
             17      owner-occupied residence under certain circumstances, including if the general
             18      contract is no more than $5,000; and
             19          .    makes technical changes.
             20      Monies Appropriated in this Bill:
             21          None
             22      Other Special Clauses:
             23          None
             24      Utah Code Sections Affected:
             25      AMENDS:


             26          38-1-11, as last amended by Laws of Utah 2008, Chapters 3 and 382
             27          38-1-40, as enacted by Laws of Utah 2009, Chapter 239
             28          38-11-107, as last amended by Laws of Utah 2006, Chapter 205
             29          38-11-110, as last amended by Laws of Utah 2008, Chapter 382
             30          38-11-204, as last amended by Laws of Utah 2009, Chapter 183
             31     
             32      Be it enacted by the Legislature of the state of Utah:
             33          Section 1. Section 38-1-11 is amended to read:
             34           38-1-11. Enforcement -- Time for -- Lis pendens -- Action for debt not affected --
             35      Instructions and form affidavit and motion.
             36          (1) As used in this section:
             37          (a) "Owner" is as defined in Section 38-11-102 .
             38          (b) "Residence" is as defined in Section 38-11-102 .
             39          (2) A lien claimant shall file an action to enforce the lien filed under this chapter:
             40          (a) except as provided in Subsection (2)(b), within 180 days [from] after the day on
             41      which the lien claimant filed a notice of claim under Section 38-1-7 [.]; or
             42          (b) if an owner files for protection under the bankruptcy laws of the United States
             43      before the expiration of the 180-day period under Subsection (2)(a), within 90 days after the
             44      automatic stay under the bankruptcy proceeding is lifted or expires.
             45          (3) (a) Within the time period provided for filing in Subsection (2) the lien claimant
             46      shall file for record with the county recorder of each county in which the lien is recorded a
             47      notice of the pendency of the action, in the manner provided in actions affecting the title or
             48      right to possession of real property, or the lien shall be void, except as to persons who have
             49      been made parties to the action and persons having actual knowledge of the commencement of
             50      the action.
             51          (b) The burden of proof is upon the lien claimant and those claiming under the lien
             52      claimant to show actual knowledge under Subsection (3)(a).
             53          (4) (a) A lien filed under this chapter is automatically and immediately void if an action
             54      to enforce the lien is not filed within the time required by this section.
             55          (b) Notwithstanding Section 78B-2-111 , a court has no subject matter jurisdiction to
             56      adjudicate a lien that becomes void under Subsection (4)(a).


             57          (5) This section may not be interpreted to impair or affect the right of any person to
             58      whom a debt may be due for any work done or materials furnished to maintain a personal
             59      action to recover the debt.
             60          (6) (a) If a lien claimant files an action to enforce a lien filed under this chapter
             61      involving a residence, the lien claimant shall include with the service of the complaint on the
             62      owner of the residence:
             63          (i) instructions to the owner of the residence relating to the owner's rights under Title
             64      38, Chapter 11, Residence Lien Restriction and Lien Recovery Fund Act; and
             65          (ii) a form to enable the owner of the residence to specify the grounds upon which the
             66      owner may exercise available rights under Title 38, Chapter 11, Residence Lien Restriction and
             67      Lien Recovery Fund Act.
             68          (b) The instructions and form required by Subsection (6)(a) shall meet the requirements
             69      established by rule by the Division of Occupational and Professional Licensing in accordance
             70      with Title 63G, Chapter 3, Utah Administrative Rulemaking Act.
             71          (c) If a lien claimant fails to provide to the owner of the residence the instructions and
             72      form required by Subsection (6)(a), the lien claimant shall be barred from maintaining or
             73      enforcing the lien upon the residence.
             74          (d) Judicial determination of the rights and liabilities of the owner of the residence
             75      under this chapter and Title 38, Chapter 11, Residence Lien Restriction and Lien Recovery
             76      Fund Act, and Title 14, Chapter 2, Private Contracts, shall be stayed until after the owner is
             77      given a reasonable period of time to establish compliance with Subsections 38-11-204 (4)(a)
             78      and (4)(b) through an informal proceeding, as set forth in Title 63G, Chapter 4, Administrative
             79      Procedures Act, commenced within 30 days of the owner being served summons in the
             80      foreclosure action, at the Division of Occupational and Professional Licensing and obtain a
             81      certificate of compliance or denial of certificate of compliance, as defined in Section
             82      38-11-102 .
             83          (e) An owner applying for a certificate of compliance under Subsection (6)(d) shall
             84      send by certified mail to all lien claimants:
             85          (i) a copy of the application for a certificate of compliance; and
             86          (ii) all materials filed in connection with the application.
             87          (f) The Division of Occupational and Professional Licensing shall notify all lien


             88      claimants listed in an owner's application for a certificate of compliance under Subsection
             89      (6)(d) of the issuance or denial of a certificate of compliance.
             90          (7) The written notice requirement applies to liens filed on or after July 1, 2004.
             91          Section 2. Section 38-1-40 is amended to read:
             92           38-1-40. Notice of intent to obtain final completion.
             93          (1) An owner, as defined in Section 14-2-1 , of a nonresidential construction project
             94      that is registered with the database [who intends to file a notice of completion in accordance
             95      with the provisions of Subsection 38-1-33 (1)(a)], or a contractor of a commercial
             96      nonresidential construction project that is registered with the database [who intends to file a
             97      notice of completion in accordance with the provisions of Subsection 38-1-33 (1)(a)] under
             98      Section 38-1-33 , shall [first] file with the database a notice of intent to [file a notice of] obtain
             99      final completion [with the database in accordance with the provisions of Section 38-1-40 ] as
             100      provided in this section if:
             101          (a) the completion of performance time under the original contract is greater than 120
             102      days;
             103          (b) the total original construction contract price exceeds $500,000; and
             104          (c) the contractor or owner has not obtained a payment bond in accordance with
             105      Section 14-2-1 .
             106          (2) The notice of intent described in Subsection (1) shall be filed at least 45 days before
             107      the day on which the owner or contractor of a commercial nonresidential construction project
             108      files or could have filed a notice of completion under Section 38-1-33 .
             109          (3) A person supplying labor, materials, or services to an owner, a contractor, or
             110      subcontractor who files a notice of intent in accordance with Subsection (1) shall file an
             111      amendment to the person's preliminary notice previously filed by the person as required in
             112      Section 38-1-32 :
             113          (a) that includes:
             114          (i) a good faith estimate of the total amount remaining due to complete the contract,
             115      purchase order, or agreement relating to the person's approved labor, approved materials, and
             116      approved services;
             117          (ii) the identification of each contractor or subcontractor with whom the person has a
             118      contract or contracts for supplying project labor, materials, or services; and


             119          (iii) a separate statement of all known amounts or categories of work in dispute; and
             120          (b) no later than 20 days after the day on which the owner or contractor files a notice of
             121      intent.
             122          (4) (a) A person identified in accordance with Subsection (3)(a)(i) who has complied
             123      with, or is exempt from, the provisions of Section 38-1-22 , may demand a statement of
             124      adequate assurance from the owner, contractor, or subcontractor with whom the person has
             125      privity of contract no later than 10 days after the day on which the person files a balance
             126      statement in accordance with Subsection (3) from an owner, contractor, or subcontractor who is
             127      in privity of contract with the person.
             128          (b) A demand for adequate assurance as described in Subsection (4)(a) may include a
             129      request for a statement from the owner, contractor, or subcontractor that the owner, contractor,
             130      or subcontractor has sufficient funds dedicated and available to pay for all sums due to the
             131      person filing for the adequate assurances or that will become due in order to complete a
             132      construction project.
             133          (c) A person who demands adequate assurance under Subsection (4)(a) shall deliver
             134      copies of the demand to the owner and contractor:
             135          (i) by hand delivery with a responsible party's acknowledgment of receipt;
             136          (ii) by certified mail with a return receipt; or
             137          (iii) as provided under Rule 4, Utah Rules of Civil Procedure.
             138          (5) (a) A person identified in accordance with Subsection (3)(a)(i) who has complied
             139      with, or is exempt from, the provisions of Section 38-1-32 may bring a legal action against a
             140      party with whom the person is in privity of contract, including a request for injunctive or
             141      declaratory relief, to determine the adequacy of an owner's, with whom the demanding person
             142      contracted, contractor's, with whom the demanding person contracted, or subcontractor's, with
             143      whom the demanding person contracted, funds if, after the person demands adequate assurance
             144      in accordance with the requirements of this section:
             145          (i) the owner, contractor, or subcontractor fails to provide adequate assurance that the
             146      owner, contractor, or subcontractor has sufficient available funds, or access to financing or
             147      other sufficient available funds, to pay for the completion of the demanding person's approved
             148      work on the construction project; or
             149          (ii) the parties disagree, in good faith, as to whether there are adequate funds, or access


             150      to financing or other sufficient available funds, to pay for the completion of the demanding
             151      person's approved work on the construction project.
             152          (b) If a court finds that an owner, contractor, or subcontractor has failed to provide
             153      adequate assurance in accordance with Subsection (4)(a), the court may require the owner,
             154      contractor, or subcontractor to post adequate security with the court sufficient to assure timely
             155      payment of the remaining contract balance for the approved work of the person seeking
             156      adequate assurance, including:
             157          (i) cash;
             158          (ii) a bond;
             159          (iii) an irrevocable letter of credit;
             160          (iv) property;
             161          (v) financing; or
             162          (vi) another form of security approved by the court.
             163          (6) (a) A person is subject to the civil penalty described in Subsection (6)(b), if the
             164      person files a balance statement described in Subsection (3):
             165          (i) that misrepresents the amount due under the contract; and
             166          (ii) with the intent to:
             167          (A) charge an owner, contractor, or subcontractor more than the actual amount due; or
             168          (B) procure any other unfair advantage or benefit on the person's behalf.
             169          (b) The civil penalty described in Subsection (6)(a) is the greater of:
             170          (i) twice the amount by which the balance statement filed under Subsection (3) exceeds
             171      the amount actually remaining due under the contract for completion of construction; or
             172          (ii) the actual damages incurred by the owner, contractor, or subcontractor.
             173          (7) A court shall award reasonable attorney fees to a prevailing party for an action
             174      brought under this section.
             175          (8) Failure to comply with the requirements established in this section does not affect
             176      any other requirement or right under this chapter.
             177          (9) A person who has not complied with, or is not exempt from, the provisions of
             178      Section 38-1-32 may not be entitled to a right or a remedy provided in this section.
             179          (10) This section does not create a cause of action against a person with whom the
             180      demanding party is not in privity of contract.


             181          Section 3. Section 38-11-107 is amended to read:
             182           38-11-107. Restrictions upon maintaining a lien against residence or owner's
             183      interest in the residence.
             184          (1) (a) A person qualified to file a lien upon an owner-occupied residence and the real
             185      property associated with that residence under [the provisions of Title 38,] Chapter 1,
             186      Mechanics' Liens, who provides qualified services under an agreement [effective on or after
             187      January 1, 1995], other than directly with the owner, [shall be] is barred [after January 1,
             188      1995,] from maintaining a lien upon that residence and real property or recovering a judgment
             189      in any civil action against the owner or the owner-occupied residence to recover monies owed
             190      for qualified services provided by that person if:
             191          [(a)] (i) an owner meets the conditions described in Subsections 38-11-204 (4)(a) and
             192      [(4)](b); or
             193          [(b) (i)] (ii) (A) a subsequent owner purchases a residence from an owner;
             194          [(ii)] (B) the subsequent owner who purchased the residence under Subsection
             195      (1)[(b)(i)](a)(ii)(A) occupies the residence as a primary or secondary residence within 180 days
             196      from the date of transfer or the residence is occupied by the subsequent owner's tenant or lessee
             197      as a primary or secondary residence within 180 days from the date of transfer; and
             198          [(iii)] (C) the owner from whom the subsequent owner purchased the residence met the
             199      conditions described in Subsections 38-11-204 (4)(a) and [(4)](b).
             200          (b) (i) As used in this Subsection (1)(b):
             201          (A) "Contract residence":
             202          (I) means the owner-occupied residence for which a subcontractor provides service,
             203      labor, or materials; and
             204          (II) includes the real property associated with that owner-occupied residence.
             205          (B) "General contract" means an oral or written contract between an owner and an
             206      original contractor for providing service, labor, or materials for construction on an
             207      owner-occupied residence.
             208          (C) "Subcontractor" means a person who provides service, labor, or materials for
             209      construction on an owner-occupied residence under an agreement other than directly with the
             210      owner.
             211          (ii) A subcontractor qualified to file a lien upon a contract residence under Chapter 1,


             212      Mechanics' Liens, is barred from maintaining a lien upon that contract residence or from
             213      recovering a judgment in a civil action against the owner, the contract residence, or, as
             214      provided in Subsection (1)(b)(iii), a subsequent owner to recover for service, labor, or materials
             215      provided by the subcontractor:
             216          (A) if the amount of the general contract under which the subcontractor provides
             217      service, labor, or materials totals no more than $5,000; and
             218          (B) whether or not the original contractor is licensed under Title 58, Chapter 55, Utah
             219      Construction Trades Licensing Act.
             220          (iii) A subsequent owner is protected under Subsection (1)(b)(ii) to the same extent as
             221      an owner if:
             222          (A) the subsequent owner purchases the contract residence from the owner; and
             223          (B) (I) the subsequent owner occupies the residence as a primary or secondary
             224      residence within 180 days after the date of transfer; or
             225          (II) the subsequent owner's tenant or lessee occupies the residence as a primary or
             226      secondary residence within 180 days after the date of the transfer.
             227          (2) If a residence is constructed under conditions that do not meet all of the provisions
             228      of Subsection (1)(a) or (b), that residence and the real property associated with that residence as
             229      provided in Section 38-1-4 shall be subject to any mechanics' lien as provided in Section
             230      38-1-3 .
             231          (3) A lien claimant who files a mechanics' lien [or foreclosure] under Chapter 1,
             232      Mechanics' Liens, or a foreclosure action upon an owner-occupied residence is not liable for
             233      costs and [attorneys'] attorney fees under Sections 38-1-17 and 38-1-18 or for any damages
             234      arising from a civil action related to the lien filing or foreclosure action if the lien claimant
             235      removes the lien within 15 days from the date the owner obtains a certificate of compliance and
             236      mails a copy of the certificate of compliance by certified mail to the lien claimant at the address
             237      provided for by Subsection 38-1-7 (2)(a)(v). The 15-day period begins accruing from the date
             238      postmarked on the certificate of compliance sent to the lien claimant.
             239          Section 4. Section 38-11-110 is amended to read:
             240           38-11-110. Issuance of certificates of compliance.
             241          (1) (a) The director [shall have authority to] may issue [or deny] a certificate of
             242      compliance only after determining through an informal proceeding, as set forth in Title 63G,


             243      Chapter 4, Administrative Procedures Act[,]:
             244          (i) that the owner is in compliance with Subsections 38-11-204 (4)(a) and [(4)](b)[.]; or
             245          (ii) subject to Subsection (2), that the owner is entitled to protection under Subsection
             246      38-11-107 (1)(b).
             247          (b) If the director determines through an informal proceeding under Subsection (1)(a)
             248      that an owner seeking the issuance of a certificate of compliance under Subsection (1)(a)(i) is
             249      not in compliance as provided in that subsection, the director may not issue a certificate of
             250      compliance.
             251          (2) (a) An owner seeking the issuance of a certificate of compliance under Subsection
             252      (1)(a)(ii) shall submit an affidavit, as defined by the division by rule, affirming that the owner
             253      is entitled to protection under Subsection 38-11-107 (1)(b).
             254          (b) If an owner's affidavit under Subsection (2)(a) is disputed, the owner may file a
             255      complaint in small claims court or district court to resolve the dispute.
             256          (c) The director may issue a certificate of compliance to an owner seeking issuance of a
             257      certificate under Subsection (1)(a)(ii) if:
             258          (i) the owner's affidavit under Subsection (2)(a) is undisputed; or
             259          (ii) a small claims court or district court resolves any dispute over the owner's affidavit
             260      in favor of the owner.
             261          Section 5. Section 38-11-204 is amended to read:
             262           38-11-204. Claims against the fund -- Requirement to make a claim --
             263      Qualifications to receive compensation -- Qualifications to receive a certificate of
             264      compliance.
             265          (1) To claim recovery from the fund a person shall:
             266          (a) meet the requirements of [either] Subsection (4) or [(7)] (6);
             267          (b) pay an application fee determined by the division under Section 63J-1-504 ; and
             268          (c) file with the division a completed application on a form provided by the division
             269      accompanied by supporting documents establishing:
             270          (i) that the person meets the requirements of [either] Subsection (4) or [(7)] (6);
             271          (ii) that the person was a qualified beneficiary or laborer during the construction on the
             272      owner-occupied residence; and
             273          (iii) the basis for the claim.


             274          (2) To recover from the fund, the application required by Subsection (1) shall be filed
             275      no later than one year:
             276          (a) from the date the judgment required by Subsection (4)(d) is entered;
             277          (b) from the date the nonpaying party filed bankruptcy, if the claimant is precluded
             278      from obtaining a judgment or from satisfying the requirements of Subsection (4)(d) because the
             279      nonpaying party filed bankruptcy within one year after the entry of judgment; or
             280          (c) from the date the laborer, trying to recover from the fund, completed the laborer's
             281      qualified services.
             282          (3) [To obtain] The issuance of a certificate of compliance [an owner or agent of the
             283      owner shall establish with the division that the owner meets the requirements of Subsections
             284      (4)(a) and (4)(b)] is governed by Section 38-11-110 .
             285          (4) To recover from the fund, regardless of whether the residence is occupied by the
             286      owner, a subsequent owner, or the owner or subsequent owner's tenant or lessee, a qualified
             287      beneficiary shall establish that:
             288          (a) (i) the owner of the owner-occupied residence or the owner's agent entered into a
             289      written contract with an original contractor licensed or exempt from licensure under Title 58,
             290      Chapter 55, Utah Construction Trades Licensing Act:
             291          (A) for the performance of qualified services;
             292          (B) to obtain the performance of qualified services by others; or
             293          (C) for the supervision of the performance by others of qualified services in
             294      construction on that residence;
             295          (ii) the owner of the owner-occupied residence or the owner's agent entered into a
             296      written contract with a real estate developer for the purchase of an owner-occupied residence;
             297      or
             298          (iii) the owner of the owner-occupied residence or the owner's agent entered into a
             299      written contract with a factory built housing retailer for the purchase of an owner-occupied
             300      residence;
             301          (b) the owner has paid in full the original contractor, licensed or exempt from licensure
             302      under Title 58, Chapter 55, Utah Construction Trades Licensing Act, real estate developer, or
             303      factory built housing retailer under Subsection (4)(a) with whom the owner has a written
             304      contract in accordance with the written contract and any amendments to the contract;


             305          (c) (i) the original contractor, licensed or exempt from licensure under Title 58,
             306      Chapter 55, Utah Construction Trades Licensing Act, the real estate developer, or the factory
             307      built housing retailer subsequently failed to pay a qualified beneficiary who is entitled to
             308      payment under an agreement with that original contractor or real estate developer licensed or
             309      exempt from licensure under Title 58, Chapter 55, Utah Construction Trades Licensing Act, for
             310      services performed or materials supplied by the qualified beneficiary;
             311          (ii) a subcontractor who contracts with the original contractor, licensed or exempt from
             312      licensure under Title 58, Chapter 55, Utah Construction Trades Licensing Act, the real estate
             313      developer, or the factory built housing retailer failed to pay a qualified beneficiary who is
             314      entitled to payment under an agreement with that subcontractor or supplier; or
             315          (iii) a subcontractor who contracts with a subcontractor or supplier failed to pay a
             316      qualified beneficiary who is entitled to payment under an agreement with that subcontractor or
             317      supplier;
             318          (d) (i) unless precluded from doing so by the nonpaying party's bankruptcy filing
             319      within the applicable time, the qualified beneficiary filed an action against the nonpaying party
             320      to recover monies owed to the qualified beneficiary within the earlier of:
             321          (A) 180 days from the date the qualified beneficiary filed a notice of claim under
             322      Section 38-1-7 ; or
             323          (B) 270 days from the completion of the original contract pursuant to Subsection
             324      38-1-7 (1);
             325          (ii) the qualified beneficiary has obtained a judgment against the nonpaying party who
             326      failed to pay the qualified beneficiary under an agreement to provide qualified services for
             327      construction of that owner-occupied residence;
             328          (iii) (A) the qualified beneficiary has:
             329          (I) obtained from a court of competent jurisdiction the issuance of an order requiring
             330      the judgment debtor, or if a corporation any officer of the corporation, to appear before the
             331      court at a specified time and place to answer concerning the debtor's or corporation's property;
             332          (II) received return of service of the order from a person qualified to serve documents
             333      under the Utah Rules of Civil Procedure, Rule 4(b); and
             334          (III) made reasonable efforts to obtain asset information from the supplemental
             335      proceedings; and


             336          (B) if assets subject to execution are discovered as a result of the order required under
             337      Subsection (4)(d)(iii)(A) or for any other reason, to obtain the issuance of a writ of execution
             338      from a court of competent jurisdiction; or
             339          (iv) the qualified beneficiary timely filed a proof of claim where permitted in the
             340      bankruptcy action, if the nonpaying party has filed bankruptcy;
             341          (e) the qualified beneficiary is not entitled to reimbursement from any other person;
             342      and
             343          (f) the qualified beneficiary provided qualified services to a contractor, licensed or
             344      exempt from licensure under Title 58, Chapter 55, Utah Construction Trades Licensing Act.
             345          (5) The requirements of Subsections (4)(d)(ii) and (iii) need not be met if the qualified
             346      beneficiary is prevented from compliance because the nonpaying party files bankruptcy.
             347          (6) To recover from the fund a laborer shall:
             348          (a) establish that the laborer has not been paid wages due for the work performed at the
             349      site of a construction on an owner-occupied residence; and
             350          (b) provide any supporting documents or information required by rule by the division.
             351          (7) A fee determined by the division under Section 63J-1-504 shall be deducted from
             352      any recovery from the fund received by a laborer.
             353          (8) The requirements of Subsections (4)(a) and [(4)](b) may be satisfied if an owner or
             354      agent of the owner establishes to the satisfaction of the director that the owner of the
             355      owner-occupied residence or the owner's agent entered into a written contract with an original
             356      contractor who:
             357          (a) was a business entity that was not licensed under Title 58, Chapter 55, Utah
             358      Construction Trades Licensing Act, but was solely or partly owned by an individual who was
             359      licensed under Title 58, Chapter 55, Utah Construction Trades Licensing Act; or
             360          (b) was a natural person who was not licensed under Title 58, Chapter 55, Utah
             361      Construction Trades Licensing Act, but who was the sole or partial owner and qualifier of a
             362      business entity that was licensed under Title 58, Chapter 55, Utah Construction Trades
             363      Licensing Act.
             364          (9) The director shall have equitable power to determine if the requirements of
             365      Subsections (4)(a) and [(4)](b) have been met, but any decision by the director under this
             366      chapter shall not alter or have any effect on any other decision by the division under Title 58,


             367      Occupations and Professions.


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