I’m considering buying a house at auction which is partially built. It’s a custom new house which I estimate is 80% completed – foundation, framing, stucco exterior, roof and windows. My question concerns mechanic liens. In a normal world, the general contractor would get paid in draws as construction progress is made, and the GC would then pay his subcontractors. The nightmare scenario would be after I buy the house, a slew of subcontractors and general contractors all file liens claiming they never got paid. Not being the original owner, I would not have receipts to prove that they are billing twice for the same work. How does one deal with this situation?
You should check with an attorney but I believe they would have to file and record their lien in order to have a legitimate claim. That doesn’t mean they can’t sue you - anyone can sue anyone for anything - but my guess is that you would prevail.
Primary things I would look at include;
- The status of the building permit, and payment of fees - I looked at a deal once where the county told me they had put a stop to construction because it was non-conforming and that it would need to be torn down and rebuilt. On another deal, they said a new permit would have to be filed because the original expired - and that all fees would need to be repaid.
- Careful review of title for unpaid liens.
- Contact the general contractor and find out the status directly. Usually asking if they would be interested in completing the work will get them talking - but don’t mention the auction sale, you don’t want to give them any ideas.
- A really careful assessment of what it will actually cost to finish.