Maryland's Construction Trust Laws Limited by Court of Special Appeals

Maryland's Court of Special Appeals limited the breadth of Maryland's Construction Trust laws. This Statute states in relevant part:

"Any officer, director, or managing agent of any contractor or subcontractor, who knowingly retains or uses the moneys held in trust under §§ 9-201 of this subtitle, or any part thereof, for
any purpose other than to pay those subcontractors for whom the moneys are held in trust, shall be personally liable to any person damaged by the action."

Thus, this statute imposes personal liability on someone who uses money held for the benefit of subcontractors for some other purpose.

The Court of Special Appeals reversed a finding of personal liability on behalf of a managing agent who received money from a general contractor but failed to pay his supplier. The Court reasoned that the Construction Trust laws were not drafted to impose a higher standard or degree of liability upon officers of a construction company than those of any other type of business. Furthermore, the court concluded that because the contractor's payment requisitions did not identify for which sub-contractor or supplier payment was sought, then money was never ear-marked or held in trust for the benefit of any other party. Further, the mere insufficiency of funds is not a sufficient basis to impose liability under the Trust. Instead, "Where funds paid by contractors to subcontractors are earmarked for payment to a specific payee, but payment is not made, and those funds can be tracked, personal liability may be imposed."

For further questions, contact Matt Hjortsberg at 410-583-2400 or at hjortsberg@bowie-jensen.com

Maryland Expands Scope of Mechanic's Lien

This year, the Maryland legislature passed a new law that expands the definition of work or materials furnished “for or about the building” to include interior design services provided by a certified interior designer. This new legislation takes effect on October 1, 2008. This expands the scope of Maryland Mechanic’s Lien, because Maryland courts have previously held that work done or materials furnished that are not specifically listed in the Maryland Mechanic’s Lien statute cannot be the subject of a mechanic’s lien.

For example, in Maryland, the court held in 1962 that a swimming pool is not a lienable item because the Mechanics’ Lien law restricts lienable items to buildings or other stated items. However, in 1966, the Maryland legislature changed the law to specifically include swimming pools, which are now considered lienable items for the purposes of mechanics' liens.

If you have any questions regarding mechanic's lien or construction law, contact Michael W. Siri at 410-583-2400 or via email at siri@bowie-jensen.com.

Legislative Update for Residential Construction

The Maryland Legislature passed several bills affecting residential construction.

House Bill 409 increased the limit from $15,000 to $20,000 on an award to a single claimant making a claim on the Home Improvement Guaranty Fund.

House Bill 1309 requires the Maryland Home Improvement Commission to establish a licensing program for companies providing mold remediation on residential properties.

Senate Bill 1008/House Bill 1557 double the initial registration fee for home builders to $600. It also doubles the renewal fee to $300 for a builder who has issued building permits for fewer than 11 homes in the preceding year. The fee for a builder who has issued building permits for 11 or more homes is doubled to $600.

The Consumer Protection Division is required to establish a Home Builder Guaranty Fund to compensate claimants for an actual loss that results from an act or omission by a registrant. A home builder must pay the Guaranty Fund a fee of up to $50 with each application for a new home construction permit. The Consumer Protection Division may award up to $50,000 to one claimant for acts or omissions of one builder, the division may not award more than $300,000 to all claimants for acts or omissions of a single builder unless the builder reimburses the fund for all of or a portion of these claims. A claim against the Guaranty Fund must be filed within two years of discovering any damage or defect. A builder whose act or omission gave rise to a claim against the Guaranty Fund must reimburse the fund. The failure to do so may result in referral to the Central Collection Unit, a lien on the builder's real property and suspension of the builder's registration until the claims are paid in full.

For further information contact Matt Hjortsberg at (410) 583-2400 or at Hjortsberg@bowie-jensen.com