Builder's Unpaid Bill From Stiffed Sub Leaves New Home Buyer Stuck With Unrecorded $42K Mechanics Lien & Unprotected By Title Insurance

In Fayetteville, Arkansas, the Northwest Arkansas Times reports:

• Banks aren't the only ones losing money thanks to the developer who built the mostly empty luxury condo development near Dickson Street known as the Legacy Building. A Fayetteville couple faces possible foreclosure of their home because one of troubled developer Brandon Barber's companies did not pay for the materials to build it.(1) Scott and Donna Powers have made more than $15,000 of improvements to their 2,850-square-foot home they purchased in February 2008 in phase two of Deer Path Estate subdivision.

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• The Powers moved into the house in December 2007, soon after it was completed. Before closing, they went to National Home Centers to pick out the carpet, some mirrors and a ceiling fan, never knowing Barber's account was past due there, he said. Soon after closing, Powers said that he found out about the materialman's lien. He was surprised to learn that his owner's title insurance policy did not protect him.

• "We all think we bought a house and we're safe, but the dirty little secret is that title insurance does not protect you from materialman's liens," he said. Powers said no one ever explained to him that you had to pay extra to get coverage against outstanding bills that might not be paid at the time of closing.(2)

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• Powers said that he plans to file a criminal complaint and ask authorities to file felony charges against Barber for signing an affidavit saying that all of the bills had been paid.

For more, see Couple could lose house over Barber's unpaid bill (Buyers not protected at closing from unrecorded liens).

(1) They reportedly face a materialman's lien involving more than $42,000 in past due bills owed by the builder.

(2) According to the story, Ed Young, an attorney for Elite Title Company, which handled the closing, explained that a general owner's policy will not protect a buyer against unrecorded liens. He said that subcontractors and suppliers can file a lien against a property within 120 days. That's why title companies and banks always insist on a bills-paid affidavit from the builder at closing. He said that home buyers can get "affirmative lien coverage" for an additional 10 percent fee, but that the two title underwriters that Elite buys coverage through no longer offer this type of coverage on new homes. Young said that he does not believe that the companies were offering this enhanced coverage when Powers closed on the home. The title underwriters are getting away from it because of the added risk. "They all took some big hits last year," he said. title insurance legal issues