Buy a new home, get a mechanic's lien for free!

Imagine: you move into your new home, you unpack, and just before you sit down to catch up with American Idol, you're slapped with a mechanic's lien for work not paid for by a bankrupt homebuilder. Can you say 'PR fiasco?' According to a story in the Sacramento Bee, that's just what's happened with some hapless buyers of homes built by recently bankrupt builder Dumore Homes:

Pacific Parks Landscaping Inc. filed its lawsuit in Sacramento Superior Court against 13 individuals and the builder, Dunmore Laguna Reserve LLC, in December. Dunmore Laguna Reserve, the subsidiary, was not part of the bankruptcy filing.

And a 2007 lawsuit filed by Christian Brothers Mechanical Inc. against the builder and eight individuals wasn't served on homeowner Kathleen Petree until Thursday.

"Now I'm saying, 'Uh oh. How many other lawsuits are coming?' " said Petree. "I'm scared."

She has good reason to be scared. In California, unpaid subcontractors and suppliers have a powerful remedy. The state constitution allows them to pursue payment from the owners of property where the work was done.

"If they follow the proper steps, they can place a lien on the house and foreclose on that lien," said Joan M. Medeiros, an Elk Grove attorney with Sweeney & Greene LLP who was hired by four homeowners.

They can, in essence, "force the homeowner to pay twice for the work done," she said...

So what about the pricey title insurance policy everyone pays before a loan can close?

Some homeowners are exploring the possibility their title insurance policies will pay the liens. But Kaur contacted Stewart Title Guaranty Co. and didn't get good news. A Jan. 8 letter from a Stewart Title field office says her coverage does not extend to liens filed after the policy was issued.

I would expect many, many lawsuits against title underwriters who should have taken into account possible builder bankruptcies (and the fallout from subcontractors not getting paid) before writing these policies. I just can't see these buyers actually being on the hook for these unpaid bills, as the PR fall-out alone would mean no builders would EVER sell homes and title companies would also suffer from their myopia.

Looking for help from the State of California? Maybe not:

Rebecca Westmore, senior staff counsel for the state Department of Insurance, said contractor liens could become more common as the home market slides. If builders are closing up their shop and not paying, "that's the natural fallout of this market," she said.

Thank you, Rebecca, for remaining so detached. That's REALLY helpful.

A PR maven you are not.