The Missouri Legislature passed several years ago regarding mechanic’s liens that not only have a profound effect on the sub-contractors in the state of Missouri, but also on us as Real Estate Investors. The construction trades state that the statute is a nightmare for the construction industry, and it will probably be no walk in the park for the Property Owner either.
First the law discusses residential properties. These are painted with a broad brush to include not just houses, but apartments, condos, streets, sidewalks, and “and other facilities within the defined residential use structure or located on or within the separate and identifiable parcels identified as and for residential use.” So does that mean sheds, garages, fences, etc?
The new mechanic’s lien legislation in Missouri will make it much harder for everyone, the subcontractor, the material supplier, and the property owner. It went into effect on August 28 and will come into play on real estate closings that happen on or after November 1st. It was supposedly promoted by the general contractors and the title companies that somehow gain at the expense of the subcontractor and material supplier.
So what’s the problem?
There are two new rulings coming into play. First the property owner (that’s us the investor) must file a “Notice of Sale.” Second the subcontractor or supplier must file a “Notice of Rights”.
With the “Notice of Sale”, the new law says that if a property owner plans on selling the real estate, then the owner must give a 45 day notice to the world by filing a “Notice of Sale”. So this is going to be new cost and hassle for the real estate investor. Buy the house, get comparables, figure out what you are going to do to it, hire the contractors to rehab it, and run down and file a piece of paper to let the world know you plan on selling it. But since we are buying to sell, when are we going to sell, do we know that exact date 45 days in advance. Probably not, so is it ok to buy today and file the “Notice of Sale” tomorrow even if it could be 45 days, 120 days, or a year before the sale?
With the “Notice of Rights”, the contractor must file at least five days before the closing date, or sooner. If the contractor fails to file in this time frame, all mechanic’s lien rights are lost. So what if a contractor is working on a job that will be a long 6 month project, and the building is sold to a new owner, with work ongoing? How does the contractor or supplier find out about the owner filing a “Notice of Sale”.
The old law gave the suppliers and contractors six months after the job was complete or the materials supplied to file a lien. Now the supplier or contractor must file this lien at least 5 days before closing.
So not it seems that rather than buying and selling houses and going out bidding jobs to contractor or supply, that investors, contractors and suppliers are going to be spending a lot of time filing Notices. When the investor buys and plans on selling, first thing we do is go file a “Notice of Sale”. Not sure when we are going to sell, but we are! Then the contractors and suppliers the day before they start a job or supply a material must go file their “Notice of Rights”, not sure if the owner is going to pay or not, but we have to file this in order to have the right to file a mechanics lien within finishing the job.
All these filings will probably muddle up title. Make a hard job even harder. And make it harder to do business in Missouri. If we work in Missouri, it’s the new rules we have to play by. As investors, contractors, and suppliers we need to check with our title companies to see how to file all these “Notices”, are there special forms? And maybe we as Investors could band together in an Association and hook up with the Associations for Contractors and approach law makers to get the rules changed? It’s a thought.