INTRODUCTION :: During the past eight years, the housing market boom carried the United States economy out of the 2000 recession. Due in part to low interest rates for mortgages and home-equity loans, Americans have constructed millions of custom-built homes and renovated their current homes using home-equity loans and lines of credit. Yet what goes up must come down, and over the past two years the housing market has continually declined, leading developers to scrap or downsize construction projects in many markets. In the last three years, the slowing housing market in Florida has led to the demise of numerous general contracting companies, and in the wake of the companies’ failures, consumers face construction liens by subcontractors who were not paid by the general contractor. Florida has been hit particularly hard by the slowing housing market, leaving many banks, contractors, and developers short of cash and unable to fulfill their contractual obligations.
In the residential construction industry, homeowners or buyers contract with a general contractor to oversee building or renovations. Acknowledging that the general contractor cannot become an expert in all facets of construction (and that it would rarely be efficient to do so), the general contractor usually hires subcontractors to complete portions of a construction job. If contractors do not pay the subcontractors, the Florida subcontractor may place a lien on the property to which the work was furnished.
This Note addresses two scenarios: in the first, the buyer contracts with a general contractor to build a home. After paying the contractor and closing on the home, the buyer receives notice that the contractor did not make payment in full to the subcontractors who worked on the home. Current Florida law would allow the unpaid subcontractor to place a lien and foreclose on the buyer’s new home if the buyer does not pay the outstanding debts to the subcontractor. In the second scenario, the homeowner hires a contractor to remodel her kitchen. After the homeowner pays a sizeable portion of the project, the contractor walks off the job. Later, the tile subcontractor files a lien against the home, although the kitchen remodel remains unfinished. The homeowner ignores the notice of the lien, fails to pay the amount due, and loses her home when the subcontractor forecloses on the lien. Both these scenarios pose serious risks for Florida homeowners.
November 2014, Vol. 66, No. 6
Lily Kahng, The Taxation of Intellectual Capital