Oregon Construction Liens: Protect Yourself Now

[Ivan Seeking]

I was just reading the contract for some work that we are having done. Get this, under Oregon Law, apparently I have no way to protect myself against a lien filed by suppliers to my contractor. If I pay the contractor, but he doesn't pay his suppliers, they can come after me!

What a load of bull! They give you a page of small print stating your risk but offer no practical means of preventing a problem. It seems to me that I am held liable for poor judgement on the part of suppliers. What is to prevent them from doing business with known crooks and then holding the innocent customers hostage with a lien?

I love Oregon, but many of the laws in this State are ridiculous.

 

[junglebeast]

I was just reading the contract for some work that we are having done. Get this, under Oregon Law, apparently I have no way to protect myself against a lien filed by suppliers to my contractor. If I pay the contractor, but he doesn't pay his suppliers, they can come after me!

What a load of bull! They give you a page of small print stating your risk but offer no practical means of preventing a problem. It seems to me that I am held liable for poor judgement on the part of suppliers. What is to prevent them from doing business with known crooks and then holding the innocent customers hostage with a lien?

I love Oregon, but many of the laws in this State are ridiculous.

I don't get it. What is the connection between you and the supplier? You purchased something from the contractor, and the contractor purchased something from his supplier. If the contractor takes product from the supplier without paying for it, wouldn't that just be theft committed by the contractor?

 

[Ivan Seeking]

I don't get it. What is the connection between you and the supplier? You purchased something from the contractor, and the contractor purchased something from his supplier. If the contractor takes product from the supplier without paying for it, wouldn't that just be theft committed by the contractor?

You would think!

You are correct in that I have no connection to the supplier. But apparently it is implied if I have a contract with a contractor.

 

[LowlyPion]

Sounds like the law recognizes your contractor as your agent for the work. You are after all hiring him.

This means that the supplier has recourse. You don't, hence the onus is on you to be certain of the contractor.

Since you are responsible for the bills to suppliers, you could manage to have the bills for that come to you and you settle with your contractor for the net.

 

[Ivan Seeking]

Sounds like the law recognizes your contractor as your agent for the work. You are after all hiring him.

Apparently that is the view. Of course I am not the one who gave him credit at the lumber yard. Frankly, I doubt this law could stand a good legal review. I didn't issue the credit nor sign a contract with the supplier, so how can I logically be held liable?

This means that the supplier has recourse. You don't, hence the onus is on you to be certain of the contractor.

Since you are responsible for the bills to suppliers, you could manage to have the bills for that come to you and you settle with your contractor for the net.

Yeah, I guess I will have to insist that either I be shown a receipt for the materials, or somehow pay the supplier directly.

IMO, the legal logic completely fails here. It strikes me as a law pushed through by suppliers who want to issue credit for easy sales and make the profit, but assume no risk.

 

[LowlyPion]

Apparently that is the view. Of course I am not the one who gave him credit at the lumber yard. Frankly, I doubt this law could stand a good legal review. I didn't issue the credit nor sign a contract with the supplier, so how can I logically be held liable?

Yeah, I guess I will have to insist that either I be shown a receipt for the materials, or somehow pay the supplier directly.

IMO, the legal logic completely fails here. It strikes me as a law pushed through by suppliers who want to issue credit for easy sales and make the profit, but assume no risk.

You must at least be able to appreciate that if I delivered a load of 2x4 and drywall and you built out a garage interior, that after it's in place, that the supplier can't simply come back and take back possession of what he delivered if he wasn't paid. Attaching an ownership lien is really his only effective recourse, if the materials are all used.

You should realize the same is true for a painter or roofer or plumber that repairs something for you directly you don't pay for too. It shouldn't be that onerous, so long as you protect yourself by paying the major supply bills directly.

 

[Jimmy Snyder]

It shouldn't be that onerous, so long as you protect yourself by paying the major supply bills directly.

Read the OP again.

 

[Ivan Seeking]

You must at least be able to appreciate that if I delivered a load of 2x4 and drywall and you built out a garage interior, that after it's in place, that the supplier can't simply come back and take back possession of what he delivered if he wasn't paid. Attaching an ownership lien is really his only effective recourse, if the materials are all used.

Poor boys. I have to deal with unrecoverable risk as a function of my business. If I fly to New York, stay for a week, and don't get paid for the job, I'm out everything - airfare, hotel, auto - including the cost of services. For that matter, if I sell them hardware, say something like a $30K control system, I can't return it once it has been used. If the customer defaults on their payment, then I'm hosed - in a worst case, the customer just files chapter 11 or 13, and I can get in line to get 5% of my money. But, if the customer pays, I can make an extra $10K. The risk is the price of doing business.

You should realize the same is true for a painter or roofer or plumber that repairs something for you directly you don't pay for too. It shouldn't be that onerous, so long as you protect yourself by paying the major supply bills directly.

Then the lumber yards should only sell to the owners. THEY are the ones who issued credit, not me. I didn't order the materials nor did I sign a contract with the supplier. To me it seems clear that it ain't my problem.

What I did was to write an addendum stating that I need proof of payment for all materials before I will pay a dime.

 

[TVP45]

You need to get hold of Oregon's version of the Uniform Commercial Code. A materialman's lien is pretty standard and you aren't going to get a court to rule it invalid unless the supplier screwed up by not giving proper notices in a timely manner, etc. Some people require a bond on the General Contractor to cover any shenanigans; for small jobs, usually people don't bother and take their chances.

 

[junglebeast]

But apparently it is implied if I have a contract with a contractor.

Options:
1) Have the contractor write you a receipt for materials which you buy from him. Then he is free to use that money to purchase materials from any source he wants, and from your end it is no different from back-ordering a product from a retail store where they get it from their wholesale warehouse.

2) Have the contractor assess the material needs, then purchase the materials yourself from the supplier, and let the contractor use them.

The thing that perplexes me about this whole situation is the premise: if the contractor takes the money and runs without paying for the supplies, then how did he get the supplies from the supplier? If he simply takes your money and buys nothing, then he's obviously stealing from you. If he got the supplies, then he must have completed the exchange with the supplier in order to get them...

 

[Ivan Seeking]

The thing that perplexes me about this whole situation is the premise: if the contractor takes the money and runs without paying for the supplies, then how did he get the supplies from the supplier? If he simply takes your money and buys nothing, then he's obviously stealing from you. If he got the supplies, then he must have completed the exchange with the supplier in order to get them...

That is my point. I didn't issue credit to the contractor, the supplier did! That was entirely their choice. In fact I won't pay the contractor until the job is done.

I don't see how the supplier can hold me liable for an agreement between us that was never made.

 

[Evo]

I was just reading the contract for some work that we are having done. Get this, under Oregon Law, apparently I have no way to protect myself against a lien filed by suppliers to my contractor. If I pay the contractor, but he doesn't pay his suppliers, they can come after me!

What a load of bull! They give you a page of small print stating your risk but offer no practical means of preventing a problem. It seems to me that I am held liable for poor judgement on the part of suppliers. What is to prevent them from doing business with known crooks and then holding the innocent customers hostage with a lien?

I love Oregon, but many of the laws in this State are ridiculous.

I take it Oregon does not allow homesteading? Everytime I built a house I filed for homesteading, which prevents liens from being applied to your property. But I found out that some states don't alow it, or have serious restrictions.

 

[Ivan Seeking]

I take it Oregon does not allow homesteading? Everytime I built a house I filed for homesteading, which prevents liens from being applied to your property. But I found out that some states don't alow it, or have serious restrictions.

I remember checking into that but didn't do it. I don't remember why anymore. Maybe I should take another look.

I completely freaked when I learned that people grazing cattle on my land could attempt to claim the land under certain conditions, but I put a stop to that before it could become a problem.

We had cows and a horse at one point. When I told my lawyer that someone had their horse here, his head nearly exploded.

 

[Moonbear]

That sounds like a very odd law. With such a thing in place, though, I would require contracts to have materials itemized and a stipulation that every item used for work you've hired the contractor to do must be signed for by you as it arrives on the job site and is accounted for, and that it's not considered materials for your job until it's physically delivered to your property and signed by you. The contract should also stipulate that you pay for materials as they arrive, that way you're not paying a contractor for materials and then on the hook for also paying the supplier if they don't pay the bills with the money you gave them.

In that regard, if the contractor gets all the supplies delivered and then never shows up again, if you're stuck paying the bills, at least you have the supplies in your possession and can hire another contractor to just do the labor. And, if it hasn't been delivered to your property yet, then the contract is there to show that whatever the contractor purchased and still has in his possession is NOT for your job or part of your responsibility.

 

[junglebeast]

And use someone who comes highly recommended from people you know as opposed to just picking a random name out of the phone book.

 

[Equate]

I was just reading the contract for some work that we are having done. Get this, under Oregon Law, apparently I have no way to protect myself against a lien filed by suppliers to my contractor. If I pay the contractor, but he doesn't pay his suppliers, they can come after me!

Same thing here in Texas...

 

[chemisttree]

Yes, I was about to say...

Ivan, imagine if there were no law. You hire some scofflaw, pay him and he does the work but doesn't pay his bill. Who owns the material used? It wasn't paid for, after all. You want the lumber yard to come to your house and remove their materials?

Kinda makes you want to do business with well-established contractors, eh? When we built our house, the bank required that 10% of the funds be withheld until letters from all of the suppliers, the punch list etc.. had been resolved. Oh, and it is a lot harder to "http://www.pfshield.com/apfund/apfundperfectlien.htm"" than most people believe and only perfected liens get paid.

 

[Ivan Seeking]

Yes, I was about to say...

Ivan, imagine if there were no law. You hire some scofflaw, pay him and he does the work but doesn't pay his bill. Who owns the material used? It wasn't paid for, after all. You want the lumber yard to come to your house and remove their materials?

Kinda makes you want to do business with well-established contractors, eh? When we built our house, the bank required that 10% of the funds be withheld until letters from all of the suppliers, the punch list etc.. had been resolved. Oh, and it is a lot harder to "http://www.pfshield.com/apfund/apfundperfectlien.htm"" than most people believe and only perfected liens get paid.

I still haven't heard a good reason why I am responsible for the lumber yard issuing credit to a bad contractor. The problem is that THEY issued credit but I am now liable for it. If they didn't do that, then there wouldn't be a problem. They should just sell to the owners directly. Why would that be a problem? I suspect the real answer is that the suppliers would have to work harder for their sales.

The obvious problem with this law is that I could have to pay twice for their bad judgement. Also, as a customer, I don't have inside knowledge of the industry. I can only make my best guesses as to who is a reputable contractor and who isn't. If anyone has an advantage in this regard, it is the suppliers!

You suggest that I should only use reputable contractors. You seem to imply that it is a reasonable burden to put on me, but you don't feel that is true for a supplier who issues credit. Again, I didn't issue credit. I just hired someone to do a job. There is a huge difference.

 

[Ivan Seeking]

Consider this: If I buy a car from a car dealer and the dealer doesn't pay the supplier, can they come an take my car or make me pay twice?

If I go to the store and buy food, and the store doesn't pay their suppliers, do they come and charge me again for the food.

If I go to a restaurant and buy dinner, but the restaurant doesn't pay their suppliers, do I have to pay for the dinner again?

The same applies if I go to a mechanic and get my car fixed; go to the doctor and get meds; go to a mall and buy clothes. In any of these cases, can I be made to pay twice if my vendor defaults on their debts?

IMO, this law is nothing but a scam.

 

[Ivan Seeking]

Ivan, imagine if there were no law.

I was trying to boil this down and see what's left. If there were no law, the suppliers might require payment for materials at the time of the purchase, or they would eat the loss for bad credit like everyone else...

...or, they would sell directly to the customer, in which case I might start shopping the suppliers and not go with the one the contractor uses. This puts the business for the supplier at risk, and the contractor doesn't get to take a markup. Hmmmm.

Late edit: Another interesting thought. For a truckload of material, I may well find it is cheaper to buy from Portland and have the materials delivered, rather than buying it locally.

 

[junglebeast]

In any case, you can buy the materials from the supplier directly to avoid this risk.

 

[russ_watters]

Not sure about the food at a grocery store, but if you buy a car from someone who doesn't legally own it, the legal owner most certainly can take it from you.

 

[Ivan Seeking]

Not sure about the food at a grocery store, but if you buy a car from someone who doesn't legally own it, the legal owner most certainly can take it from you.

That is a misdirection. I said, if I buy a car from a dealer. A car dealer is engaged in a legal activity based on credit issued by the manufacturer - pretty much the same situation if I use a contractor. The dealer defaulting is synonomous with the contractor defaulting.

The difference between what I said and what you said is the difference between getting something on credit, and stealing it.

 

[Ivan Seeking]

In any case, you can buy the materials from the supplier directly to avoid this risk.

Not one contractor has offered this as an option. I wrote an addendum stating that I need proof of payment before I will pay, but now apparently we need to talk about that. It will be interesting to see what they say.

Btw, I chose to go with one of the bigger outfits in the area. I'm sure the little guys are the real problem.

 

[TheStatutoryApe]

Not one contractor has offered this as an option. I wrote an addendum stating that I need proof of payment before I will pay, but now apparently we need to talk about that. It will be interesting to see what they say.

Btw, I chose to go with one of the bigger outfits in the area. I'm sure the little guys are the real problem.

Since you mentioned a lawyer earlier I assume you have talked to your lawyer on this?
If not you should. Many companies put clauses into their contracts that may not actually hold up in court. A lawyer would know the best way to work around this and combat any issues that crop up.

 

[Ivan Seeking]

No I haven't contacted a lawyer, but note that this is Oregon law, not a specific contract clause. That is why I find it so hard to believe. What gets me is not the specific risk that I am taking, but the principle of it.

You are right in that in order to really understand all of the implications, I should see a lawyer, but I decided to wing it. I take bigger risks based on my own contract writing as function of my business. And, of course, I tried to choose a respectable company.

 

[Ivan Seeking]

I called my lawyer to get the proper language for a waiver of a right to lien. The suggested course of action was to issue joint checks [one check written to company A and company B for X amount] to the primary contractor and each subcontractor and supplier. So that would be four checks. Then get a waiver for the right to lien from the sub and suppliers.

I asked the lawyer how they can justify such a law. "This is nuts!" He stammered a bit and said that it can be justified if he can remember the argument...[long pause]...then he said, no I can't justify it. :rofl: