Dear Clients and Friends,

Welcome To Build On This

By Grant M. Yoakum, Esq.

Welcome to the new issue of Build on This, the Buckingham, Doolittle & Burroughs, LLP newsletter for clients and friends who want to keep up with changes in real estate and construction law. We begin with a greeting from Nick George, President and CEO of our Firm, and then present an article by John Slagter and David Lindner, of Buckingham Cleveland^SM. John and David address the adoption of a new residential disclosure form and how this changes  what the seller is required to disclose to a potential buyer.

Our attorney profile in this issue introduces Rick Lolli, of Buckingham Canton^SM. Rick is also President of one of the Firm’s subsidiaries, Certified Title Agency, Inc. He has an interesting perspective on the ways that title insurance can support real estate transactions, as well as some corporate refinancing projects and mergers and acquisitions.

Grant Yoakum is an Associate attorney and member of the Real Estate & Construction and Business Practice Groups.  He can be contacted at gyoakum@bdblaw.com or 216.615.7356.

As of January 1, 2004, sellers of residential real property in Ohio are required to complete a new, in-depth form of the real property disclosure form established by Ohio Revised Code § 5302.30.  The Ohio Department of Commerce has updated the disclosure form for the first time since its inception in 1993, partly in response to concerns that the form did not ask specific enough questions and left too much room for the seller’s interpretation of what he or she had to disclose.   

The additional information required by the revised form should provide a substantial benefit to purchasers.  Although the old form contained a “catch-all” provision requiring the seller to reveal any known material defects in addition to those specifically listed, some sellers assumed that an item not listed on the form did not constitute a material defect.  The revised form should elicit more detailed information and reduce the number of items that sellers fail to reveal based on the belief that items not mentioned specifically on the form are not relevant or important. 

For example, the old form asked simply whether the seller knows of any “current water leakage, water accumulation, excess dampness or other defects” in the basement.  A seller could have reasoned that this language did not require him or her to reveal other water-damage issues, such as a water pipe break in another part of the house.  The new form addresses this issue by inquiring further whether the owner has knowledge of “any water- or moisture-related damage to floors, walls or ceilings as a result of flooding; moisture seepage; moisture condensation; ice damming; sewer overflow/backup; or leaking pipes, plumbing fixtures, or appliances.”   

In addition to requesting more detailed information on topics addressed by the old form, the revised form adds several new areas of inquiry.  For example, sellers now have to complete questions regarding any nonconforming uses of the property, whether there is any smoke damage, whether the property has been inspected for mold, and whether the property is in a flood plain or the Lake Erie Coastal Erosion Area.  There are also questions on whether the property is located in a historical area or subject to assessments from a homeowners’ or condominium association, and whether there are any boundary line, encroachment, shared-driveway or party-wall issues affecting the property.   

The revised form further notifies purchasers that that Ohio’s Sex Offender Registration and Notification Law (R.C. § 2950.11, sometimes referred to as “Megan’s Law”), requires the county sheriff to notify residents if a sexual predator resides in the area.  The form does not, however, require the seller to reveal if he or she has actual knowledge of a sexual predator living in the area, and specifies that the seller does not make any representations with respect to “offsite conditions.”  

In the event that a seller fails to disclose a known material defect in the property, the buyer’s remedy remains a common law action, usually for fraud.  Revised Code § 5302.30 does not provide a penalty for a failure to complete the disclosure form accurately, nor does it provide the buyer with a remedy.  Courts have, however, held that the doctrine of caveat emptor or “buyer beware” applies to items not listed on the form.  Therefore, a more inclusive form may benefit the purchaser by reducing the number of items to which that doctrine is applied.   

While the intent of the residential disclosure form was to reduce disputes relating to real estate transfers, the amount of litigation may have actually increased due to disputes over the interpretation of the form.  It remains to be seen whether the revised disclosure form will succeed in reducing the number of disputes.  As always, seeking the advice of qualified professionals before entering into a real estate transaction is the best way to avoid problems.

John Slagter is a Shareholder and a member of the Real Estate & Construction and Litigation  Practice Groups.  He can be contacted at jslagter@bdblaw.com or 216.615.7331.  David Lindner is an Associate attorney and a member of the Real Estate & Construction Practice Group. He can be contacted at dlindner@bdblaw.com or 216.453.4290.

Lien on Me

If it’s a residential mechanics’ lien, it’s not very strong, and likely won’t carry on.

By Christopher L. McCloskey, Esq.

You have been patching your roof for years, but this past rainy summer, and the resulting water spots on the ceiling in your bedroom, have convinced you that it’s time to bite the bullet and get the roof replaced.  Being ever diligent, you get three separate estimates for the work.   

The first company, Number One, is recommended by two of your neighbors who recently replaced their roofs.  The salesman arrives in his shiny new company truck and spends one hour up on the roof surveying the project and two hours with you going over the process.  He shows you a model of the type of roof vent cap he will install and a slide show on his laptop computer of other roofing jobs they have performed in the community.  He leaves you with a sample of the type of shingle you have selected as a replacement, along with his estimate of $15,000.  Despite the grade A presentation, his estimate is $5,000 more than you wanted to spend.  Accordingly, Number One is out. 

The next guy, Number Two, comes to your house in a beat-up, rusted-out 1973 van with the remnants of “Love Machine” painted on the side.  He is unsavory and unshaven.  In an effort to avoid being judgmental, you hand him the sample from Number One and ask him what he would charge to install the same shingle.  He takes a five-minute lap around your house, looking up at the roof only about half of the time, and says “I can do it for $8,000.”  Despite the price, your confidence in Number Two is understandably shaken.  He is definitely out. 

For the third estimate, you decide to go with a company, Number Three, whose ad you heard on the radio.  The salesman does not arrive in a company truck, but he is clean-cut and his presentation was almost as good as the first guy.  Most importantly, his estimate was $3,000 less.  We have a winner!  You inform him that you would like the work to start as soon as possible.  He says, “No problem, I will have my best crew here in two weeks.  All I need is $8,000 now and $4,000 upon completion.”   “Great,” you say as you sign the contract and cut the check.

Two weeks later, the Love Machine arrives at your house with Number Two behind the wheel and three other partners-in-crime riding in back.  You have just been rudely introduced to the concept of subcontracting.  The van, however, is full of materials and the crew appears ready to work.  Accordingly, you forego the salty telephone call to Number Three and allow the work to proceed.  In the end, after a number of neighborly chides about the Love Machine, Number Two and his crew do a relatively decent job.   

A few weeks later, however, before you make the final $4,000 payment to Number Three, you receive a certified envelope in the mail containing a mechanics’ lien filed on behalf of Number Two against your house, along with a letter from Number Two’s attorney requesting payment in the amount of $8,000 and threatening to foreclose on the lien unless payment is forthcoming immediately.  Unbeknownst to you, Number Three went out of business and failed to pay Number Two for the work performed on your roof.  In addition, your banker is less than amused by the whole ordeal and informs you that you had better straighten the matter out, or your home-equity line of credit will be cut off. 

Shortly thereafter, you also discover a problem in the way the roof vent cap was installed by Number Two.  Accordingly, you call him up to come out and fix the problem. He responds by informing you that he will not fix anything until he is paid $8,000 and that if he is not paid shortly, his attorney will be foreclosing on your house.  Because the vent problem must be repaired immediately, you call Number One to do the work, and they charge you $1,000 to fix the roof cap.  As a result, you have effectively paid out $9,000 to complete the roof project.  The issue is, of course, whether or not you now have to pay Number Two an additional $8,000 to remove his mechanics’ lien.  If this were a commercial setting, the answer is probably yes, less the amount for the repairs performed by Number One.  Because this is a residential setting, however, a different, more owner-friendly, set of rules applies. 

Ohio Revised Code § 1311.011 governs residential mechanics’ liens, and it limits the rights of subcontractors and material suppliers by restricting the amount that is recoverable in this type of situation.  Specifically, the statute provides that a homeowner is only liable to lien claimants for an amount up to the unpaid balance of the contract, less the cost to complete the contract according to its terms, including any warranty or repair work.  This provision allows the homeowner to complete the improvement project with funds that might otherwise be available for lien claimants. 

Thus, in our case, you entered into a contract in which you agreed to pay $12,000 for a new roof.  You paid $8,000 to Number Three under the contract, and you paid Number One $1,000 to fix a defect with the work.  The payment to Number One can be characterized as warranty or repair work.  Therefore, you have paid out a total of $9,000 under the contract.  As a result, according to § 1311.011, you are only liable to lien claimants for $3,000 (i.e., the remaining balance of the contract).   

Ohio Revised Code § 1311.20 also provides that if the lienholder fails to release the lien within thirty days after receiving written notice from the owner that full payment has been made under the contract, the lienholder will be liable to the owner for any resulting damages from its failure to do so, up to the amount of the lien plus costs.  Thus, along with the $3,000, you should send a letter to Number Two informing him that the payment constitutes payment in full for the roof work and that he should immediately release the lien.  If he fails or refuses to do so and, as a result, your banker cancels your home-equity line of credit, Number Two will be responsible for any corresponding damages you may incur, up to the amount of the lien plus your costs.

From this tale of intrigue and suspense, it is hopefully clear that the goal of the residential mechanics’ lien statute is to strike a balance between preserving lien rights for residential lien claimants and protecting an unknowing homeowner from paying twice for the same labor and materials.  Keep in mind, however, that if you, as a homeowner, have actual notice, through your receipt of a mechanics’ lien, that a subcontractor (e.g., Number Two) has not been paid and you go ahead and pay the general contractor (e.g., Number Three) anyway, you are likely forfeiting your right to protection from double payment under the statute.  In the end, when compared to its commercial counterpart, the residential statute weighs heavily in favor of the homeowner, and, as long as a homeowner does not act in a manner that knowingly harms a subcontractor’s chances for collecting an amount owed from a general contractor, a residential mechanics’ lien is not very strong and likely won’t carry on.

Chris McCloskey is an Associate attorney and a member of the Real Estate & Construction and Litigation Practice Groups.  He can be contacted at cmccloskey@bdblaw.com or 614.227.4298.

The Real Estate & Construction Law Practice Group welcomes new associate attorney David J. Lindner to the practice group in Buckingham Cleveland^SM.   David obtained his bachelor’s degree from The Ohio State University prior to attending The Ohio State University College of Law where he obtained a law degree in 2001.  

David focuses his practice on condominium and homeowners’ associations’ matters including collections, foreclosures, contracts, real estate, and general litigation. 

Practice Group Profile Featuring Richard J. Lolli, Esq. 

Richard J. Lolli, shareholder, is a member of the Real Estate & Construction Law and Business Law Practice Groups, resident  in Buckingham Canton^SM. Rick is also President of Certified Title Agency, a wholly owned subsidiary of Buckingham, Doolittle & Burroughs, LLP. Certified Title Agency can provide closing and escrow services as well as title insurance “anywhere and everywhere,” working mostly throughout Ohio but also co-brokering deals and being involved with transactions, both residential and commercial, in other states. Rick advises small businesses on general business matters and on blended business-real estate issues.  

“My work is transactional,” Rick explained. “My clients can have any type of involvement in a transaction that includes real estate – buyers, sellers, realtors, or lenders. I provide closing services, title insurance, and legal drafting of such things as conveyance documents, loan documents, leases, and purchase agreements. Anyone contemplating refinancing a property for business purposes would benefit from working with us.” Refinancing always involves title insurance because this is required by the lender. 

Merger and acquisition deals often include real estate assets. Other clients are buying or selling a second home or business. For developers, Rick addresses zoning issues, getting any needed clearance for the development of a property. Rick makes sure that the transaction’s paperwork is complete and correct, and that there are no encumbrances to the title that might lead to problems with the intended use of the property.  

“We do title examinations. If the transaction involves a gas station, for example, we would go back 100 years to make sure that the title is clear and that any environmental issues have been addressed properly,” Rick said. “Survey issues can be quite involved. A person needs to be skilled in reading survey documents to interpret them correctly.” 

Rick is a licensed title insurance agent for a number of regional and national title insurance companies.  His familiarity with title insurance issues enables him to identify title problems and clear them so that the transaction can proceed. He may discover that there is an encumbrance on the property, perhaps a right of way that would affect the placement of an improvement. To resolve this problem, he might be able to determine that the right of way is no longer in existence even though it is still “of record,” or that it would not actually interfere with the construction of his client’s building.  

In other cases, Rick might seek an indemnification agreement or consents from other affected property owners that they will not object to the desired use of the property. As an insurer of title, he is assessing the percentage of risk that the issue will ever be a serious problem. 

With 24 years of experience in real estate, Rick Lolli joined Buckingham, Doolittle & Burroughs, LLP in 2000 after serving as president of a Stark County based title company for a national title insurance underwriter. His background also includes service as Assistant Law Director for the city of Alliance, Ohio. He earned his juris doctorate from Case Western Reserve University School of Law in 1976 and holds a B.S.F.S. from the School of Foreign Service, Georgetown University, in Washington, D.C. He is a member of the Board of Trustees of the Stark County Unique Club and the St. Joseph Care Center and belongs to the Ohio Land Title Association. He also serves on the Georgetown University Alumni Admissions Committee. 

Rick Lolli is a Shareholder and member of the Real Estate & Construction Law and Business Law Practice Groups.  He can be contacted at rlolli@bdblaw.com or 330.491.5249.

Buckingham, Doolittle & Burroughs, LLP regularly represents clients in a variety of real estate and construction matters, including the sale, leasing, acquisition, financing, development, subdivision, construction and zoning of residential, commercial and industrial property. 

The upcoming seminar is for everyone involved in the real estate and construction industry. 

Please join us on February 26, 2004 at the Hilton Akron/Fairlawn.  The topics and presenters will be as follows:

v     “The County Engineer's Impact on Local/Real Estate Development”- Greg Bachman, P.E., P.S.

v     “Pitfalls of Commercial Construction Financing” - Stephen M. Hammersmith, Esq.

v     “Changes in the Ohio Property Disclosure Form” - David W. Woodburn, Esq.

v     “Lease Options” - James L. Fisher, Esq.

v     “Top 10 Summary of Condominium Law” - Nicholas T. George, Esq. and David J. Lindner, Esq.

Please reference www.bdblaw.com/seminars.asp or contact Maria Denisiak at 330.258.6478 for additional information.

Out and About – Recent Presentations:

James L. Fisher (Buckingham Akron^SM) spoke on “Important Terms and Conditions of Commercial Purchase Agreements” at the Real Property Law Forum: Real Property Issues for the General Practitioner in Akron, Ohio.   

Rana M. Gorzeck (Buckingham Boca Raton^SM) gave a presentation on employment background checks at the American Woman’s Society of Certified Public Accountants Dinner.   

Robert A. Hager (Buckingham Cleveland^SM) presented “Preserving and Presenting Claims Under Payment and Performance Bonds” at the Lorman Education Services Seminar titled “Ohio Construction Lien Law.” 

Donald B. Leach, Jr. (Buckingham Columbus^SM) was a presenter at the Builders Exchange of Central Ohio, where he presented “Ohio Mechanics’ Liens.”  He also presented “The How’s and Why’s of Mechanics’ Law,” “Economic Loss Rule,” and Hot Construction topics at the Professional Education Systems Institute, LLC in Columbus, Ohio.  In addition, Mr. Leach presented “Design/Build Construction:  Contracting and Insurance Considerations” in Cleveland, Columbus, and Cincinnati.   

Richard J. Lolli (Buckingham Canton^SM) presented at the National Business Institute Seminar held in Eastlake, Ohio.  His topic was “Commercial Real Estate Leases.” 

John P. Slagter (Buckingham Cleveland^SM) spoke on “Bonding Off Liens” and “The Notice to Commence Suit on Liens” at the Lorman Education Services sponsored seminar titled “Ohio Construction Lien Law Seminar.”  He also spoke at the 2^nd Annual Land Use Law Conference on “The Legality of Impact Fees - Appointing the Cost of Development at the CLE International.”  In addition, he presented at the “Homeland Security Conference” in Sandusky, Ohio, the Ohio State Bar Association CLE Institute class - Titles to Real Estate in Ohio, and the American Society of Professional Estimators monthly meeting.  His topics were “Public Documents Request,” “Liens and Encumbrances Affecting Real Estate,” and updates on Mechanics’ Lien Law and Fairness on Contracts Law. 

David W. Woodburn (Buckingham Akron^SM) gave a presentation on “Intentional Interference with an Inheritance” at Buckingham’s Complex Probate Litigation Seminar, titled “How to Protect an Inheritance.”  In addition, he spoke on “Avoiding Pitfalls in the Probate Process,” at the New Lawyer Training Seminar sponsored by the Akron Bar Association and the University of Akron School of Law. 

 
If you are interested in obtaining information on upcoming seminars or would be interested in having speakers from Buckingham, Doolittle & Burroughs, LLP make a presentation to your organization, please contact: Lorna J. Henderson, Senior Marketing Coordinator at lhenderson@bdblaw.com or 800.686.2825 ext. 473.