CHALLENGES TO SECURING PAYMENTFOR SUPPLIERS AND SUB CONTRACTORS
Did you know that recent changes to the Homestead Act and decisions relating to the Mechanics Lien Statute make it more difficult for Subcontractors and Suppliers to secure payment on private projects?
In short, The Homestead Protection Act exempts a certain amount of the equity of a home from attachment, seizure, execution on judgment, and levy and sale for unsecured debts of the Homeowner.
On December 16, 2010, our Governor signed legislation that significantly changed the Massachusetts Homestead Act.
Massachusetts General Laws, Chapter 188, the new Homestead Act, as of March 16, 2011, provides for an automatic exemption of $125,000.00. This automatic homestead exemption exists in a home for the benefit of the Owner and/or the Owner’s family members who occupy or intend to occupy the home as a principal residence.
This law was created to protect Homeowners from losing their homes in these economically, troubled times. However, for Suppliers who rely on personal guarantees (and for homes which are typically the guarantor’s biggest asset), it is that much more important that other measures be taken to secure payment.
The new law creates two levels of homestead protection: automatic and declared. A Homeowner is now entitled to automatic homestead protection of up to $125,000.00, without the need to do anything. By filing a Declaration of Homestead, however, a Homeowner’s protection is increased to $500,000.00.
Mechanics Liens are still one of the best ways for Subcontractors and Suppliers to secure payment on private projects. A Notice of Identification is becoming more of a pre-requisite then an option in perfecting a Mechanics Lien to secure payment on private projects.
The Massachusetts Supreme Judicial Court in Trace Construction, Inc. v. Dana Barros Sports Complex, LLC decided on April 13, 2011, made a distinction between the Mechanics Lien rights of a General Contractor under Massachusetts General Laws Chapter 254, Section 2 and a Subcontractors/Suppliers’ lien rights under Massachusetts General Laws Chapter 254, Section 4, noting the difference in the statutory language. The SJC noted that the statutory language in Section 4, which provides Subcontractors and Suppliers with statutory lien rights, limits a Subcontractors’ and Suppliers’ rights under the lien statute to a Tenant’s leasehold interest and not the Owner’s interest in the land and building when it is the Tenant and not the Owner that executes the original Contract with the General Contractor.
The Court citing the difference in the statutory language noted that a General Contractor under Section 2 has rights to the Owner’s fee interest as well as the Tenant’s leasehold interest when the Tenant obtains the Owner’s consent prior to entering into a contract with the General Contractor.
In circumstances where it is the Owner who enters into a written contract with the General Contractor for improvements, the above distinction between the rights of the General Contractors and Subcontractors/Suppliers under Section 2 and Section 4 do not exist.
The need to properly secure payment is becoming a necessity. Call for any assistance TO SECURE YOUR PAYMENT.