Residence Lien Recovery Fund

FAQs for Potential Fund Claimants (contractor, supplier, etc.)

In 1994, the Utah Legislature recognized a problem within the residential construction industry. A few contractors were taking money for construction but not paying subcontractors and suppliers. Therefore, homeowners had to pay the subcontractors and suppliers directly to prevent loss of the home due to lien foreclosure. In effect, the homeowner had to pay twice for the same product or service. To correct this inequity, the legislature passed the Utah Residence Lien Restriction and Lien Recovery Fund Act (“the Act”). The Act addresses the problem in two ways. First, the Act prohibits anyone who provides services or materials for residential housing construction from either maintaining a mechanics' lien against a residence or obtaining a civil judgment against a homeowner for construction expenses—provided the homeowner complies with the following requirements:

The homeowner must enter into a written contract with a licensed contractor, a contractor exempt from licensure, a factory built housing retailer or a real estate developer for construction on or the purchase of a single family or duplex residence.
The homeowner must pay the original contractor, factory built housing retailer, or real estate developer in full according to the terms of the written contract and any amendments to the contract.
The homeowner must occupy the residence as a primary or secondary residence within 180 days of the completion of construction. Alternatively, the homeowner's tenant or lessee must occupy the residence within 180 days of the completion of construction.

Second, the Act creates the Residence Lien Recovery Fund (“the Fund”).

No. The Fund acts as a surrogate to the Utah Mechanics' Lien Law. Rather than subcontractors and suppliers collecting through the mechanics' lien they collect from the Fund. Prior to the Fund, the lien claimant would have collected through the lien process. Under either scenario the subcontractor or supplier is afforded an opportunity to collect from an entity other than the one with which it contracted. The Fund's existence neither increases nor decreases the collection risk to the claimant — it merely shifts the burden of payment off of the homeowner.

Yes. The Act provides homeowner protection and fund availability limited to construction performed on single-family and duplex homes that are occupied by the homeowner or his tenant as a primary or secondary residence within 180 days of the completion of construction. Neither the lien restriction provisions of the Act nor fund availability apply to larger residential projects, "spec" homes that remain unoccupied for more than 180 days, condominiums with more than two units per building, or commercial projects.

The Act requires all contractors licensed in classifications that regularly engage in providing goods and services for residential construction to register with the Fund, regardless of whether an individual contractor within that classification actually provides such goods and services. The reasons for this requirement include the following:

The Utah Construction Trades Licensing Act does not distinguish between residential and commercial contractors.
Contractors licensed in classifications that regularly engage in residential construction may perform residential construction at any time.
The legislature has determined that the burden of funding the Fund should be spread over as large a segment of the construction industry as possible to lessen the burden on the individual registrant.
General contractors cause the vast majority of the problems the Act addresses. Accordingly, the legislature determined that this classification of contractor should be included with those responsible for funding the solution to the problem.

A Fund registration becomes active on the date the Division receives the registration fee. That registration remains effective indefinitely unless the registrant allows its contractor license to expire, if applicable, or the registrant fails to pay a special assessment renewal fee.

A registration only covers those qualified services provided on or after the date of registration. Therefore, any services provided by a registrant prior to the date that registrant became registered with the Fund cannot be paid by the Fund even if all other requirements for payment are met.

The Act requires funding is to come from the initial assessment (registration fee) and subsequent special (renewal) assessments, registration of new licensees, interest on the Fund's balance, reimbursements obtained from nonpaying parties, and civil penalties obtained from the same parties. The Act requires that, once funded, the Fund balance should remain between approximately $1.5 and $2.5 million. When claim payments cause the Fund’s balance to drop below $1.5 million on December 31 of any given year, a special assessment in the amount necessary to replenish the balance to approximately $2.5 million will be triggered. Accordingly, the frequency and amount of special assessments depends substantially upon the Fund's claim payment activity.

Every contractor who enters into a written contract with a homeowner is required to provide in the text of the contract notice to the homeowner of the rights and responsibilities afforded under the Act. Division rules provide the language of the required notice is:
PROTECTION AGAINST LIENS AND CIVIL ACTION. Notice is hereby provided in accordance with Section 38-11-108 of the Utah Code that under Utah law an "owner" may be protected against liens being maintained against an "owner occupied residence" and from other civil action being maintained to recover monies owed for "qualified services" performed or provided by suppliers and subcontractors as a part of this contract, if and only if the following conditions are satisfied:

the owner entered into a written contract an original contractor, a factory built housing retailer, or a real estate developer;
the original contractor was properly licensed or exempt from licensure under Title 58, Chapter 55, Utah Construction Trades Licensing Act at the time the contract was executed; and
the owner paid in full the original contractor, factory built housing retailer, or real estate developer or their successors or assigns in accordance with the written contract and any written or oral amendments to the contract.
An owner who has satisfied all of these conditions may perfect his protection from liens by applying for a Certificate of Compliance with the Division of Occupational and Professional Licensing by calling (801) 530-6029 and requesting to speak to the Lien Recovery Fund. (Utah Administrative Code R156-38a-108)

Failure to include this language in the contract constitutes unlawful conduct and is punishable by citation and fine.

Every entity claiming mechanics' lien on a residence is required to include notice to the homeowner of that homeowner's rights and obligations under the Act. The notification must be included on the face of the Notice of Intent to Hold and Claim Lien. Division rules provide that the language of the required notice is:
PROTECTION AGAINST LIENS AND CIVIL ACTION. Notice is hereby provided in accordance with Section 38-11-108 of the Utah Code that under Utah law an "owner" may be protected against liens being maintained against an "owner occupied residence" and from other civil action being maintained to recover monies owed for "qualified services" performed or provided by suppliers and subcontractors as a part of this contract, if and only if the following conditions are satisfied:

the owner entered into a written contract an original contractor, a factory built housing retailer, or a real estate developer;
the original contractor was properly licensed or exempt from licensure under Title 58, Chapter 55, Utah Construction Trades Licensing Act at the time the contract was executed; and
the owner paid in full the original contractor, factory built housing retailer, or real estate developer or their successors or assigns in accordance with the written contract and any written or oral amendments to the contract.
An owner who has satisfied all of these conditions may perfect his protection from liens by applying for a Certificate of Compliance with the Division of Occupational and Professional Licensing by calling (801) 530-6029 and requesting to speak to the Lien Recovery Fund. (Utah Administrative Code R156-38a-108)

Failure to include this language on the Notice of Lien may result in lien foreclosure being denied.

Every entity that files action to collect on a mechanics' lien or similar action against a homeowner (i.e. failure to obtain bond, unjust enrichment, etc.) for qualified services is required to provide to the homeowner instruction on how to gain protection from the lien under the Act.

The claimant is also required to provide the homeowner with an application for a Certificate of Compliance the homeowner can use to have the Division adjudicate whether all the requirements of the Act have been met. Download the Certificate of Compliance Application or call (801) 530-6029.

Filing a claim with the Fund follows basically same process as filing a lien foreclosure action against the property. The following steps are usually required:

File a civil action against the nonpaying party (required) and the homeowner (optional). The Division recommends qualified beneficiaries consult with competent legal counsel prior to filing this action. The lawsuit must be filed within the earlier of: (1) 180 days from the date the qualified beneficiary filed a lien; or (2) 270 days from the completion of the original contract.
Provide the homeowner with the required the application for a Certificate of Compliance (see question No. 17).
Obtain judgment against the nonpaying party.
Attempt to collect on the judgment. The Act requires that, at a minimum, the claimant must issue a Motion and Order in Supplemental Proceedings and attempt to serve that Motion. If the Motion is served, the claimant must provide evidence that no assets were located as a result of the Supplemental Proceeding.
Complete and submit the claim application. The application instructions list all documents that must be included with the application. If any documents are missing, processing of the claim will be delayed and the claim may be denied. Therefore, the Division recommends claimants carefully read through the entire application and assemble all documents before submitting the claim. Download the Laborer Claim Form or call (801) 530-6029.

Important Notes

If the nonpaying party has filed for bankruptcy, the claimant may not be able to complete some or all of these steps. In that case, claimants are advised to call (801)530-6029 for information on how to proceed.
The Division must receive the claim application not more than one year from the date judgment is entered against the nonpaying party or the date the nonpaying party files for bankruptcy – if that bankruptcy prevents the claimant from completing one or more of the required steps. Failure to meet this deadline will result in the claim being denied.

An employee of a contractor who provides services for wages on residential construction can apply for payment from the Fund by:

Filing an administrative or civil action to determine that you are owed wages. You must file either a wage claim assignment with the Employment Standards Bureau of the Antidiscrimination & Labor Division of the Labor Commission of Utah or a civil action in a court of competent jurisdiction against your employer to recover wages owed.
Obtaining a final determination that wages are owed. You must obtain either (1) a final administrative order from the Labor Commission containing findings that you are an employee and that your employer failed to pay you for wages for your work performed on the site of an owner-occupied residence; or (2) a civil judgment against your employer finding that the employer failed to pay you for wages due for your work performed on the site of an owner-occupied residence.
Completing and submitting the claim application. The application instructions list all documents that must be included with the application. If any documents are missing processing of the claim will be delayed and the claim may be denied. Therefore, the Division recommends claimant’s carefully read through the entire application and assemble all documents before submitting the claim. Download the Claim Form or call (801) 530-6029 for assistance.

Important Notes:

If the nonpaying party has filed for bankruptcy, the claimant may not be able to complete some or all of these steps. In that case, claimants are advised to call (801) 530-6029 for information on how to proceed.
The Division must receive the claim application not more than one year from the date you last provided services on the residence at issue in the claim. Failure to meet this deadline will result in the claim being denied.

If the nonpaying party declares bankruptcy, it may be impossible for a qualified beneficiary or laborer claimant to file a civil action or Labor Commission wage assignment, or to obtain or collect on a civil judgment or a Labor Commission order. In such cases, the claimant must file a claim with the Division within one year of the nonpaying party's bankruptcy filing. The laborer claimant must file a claim with the Division within one year of the last day he or she provided qualified services. The Division will determine the claimant's entitlement to payment through a formal proceeding.

You may recover court costs, attorney fees (up to 15% of qualified services awarded), and/or interest from the Fund if the following conditions are met:

You entered into a contract to provide qualified services to the nonpaying party, which contract contains provisions allowing you to collect (a) court costs and attorney fees incurred in enforcing the contract; and (b) interest on the amount owed under the contract.
You obtained a civil judgment containing an order for the recovery of costs, a sumcertain amount of attorney fees, and interest.

If your judgment does not contain such orders, the Fund cannot pay your costs and attorney fees but will still pay interest. If you are precluded from obtaining a judgment by the nonpaying party’s bankruptcy filing, the Division may be able to pay a limited amount of substantiated costs and fees.

Qualified services include the following: Contractor services; architectural services; engineering services; land surveying services; landscape architectural services; design and specification services of mechanical and other systems; other services relating to the design, drawing, surveying, specification, cost estimation, or other professional services; providing materials, supplies, components or similar products; renting equipment or materials; or providing labor at the site of construction.

The Act provides substantial penalties for contractors who try to avoid paying their suppliers and subcontractors. Once the Fund pays a claim on behalf of a nonpaying party, the party must reimburse the Fund within 20 days unless protected under federal bankruptcy laws. If the nonpaying party does not reimburse the Fund when required to do so, the Act allows the Division to:

Obtain reimbursement for the claim payment from the nonpaying party through the courts;
Obtain reimbursement from the nonpaying party for court costs and attorney fees incurred in the subrogation action;
Impose up to a $5,000 per-residence fine upon the nonpaying party.

Additionally, once the Division pays a claim, the nonpaying party’s license is suspended for one year or until the nonpaying party is approved for reinstatement, whichever is later.

The legislature has not authorized any state agency to assist contractors with filing, enforcing, collecting, etc. on any type of lien. All lien-related activities are handled through the civil court. Therefore, no one in state government can provide advice on how to file or enforce a lien. Persons needing such assistance are encouraged to obtain a copy of the laws related to mechanics' liens and/or contact the Utah Bar Association's Lawyer Referral Service or a lien filing service. Information on the Utah's various lien laws can be obtained at: https://le.utah.gov/xcode/Title38/38.html .