Homebuyer Protection Act (HB 3689 modifying ORS 87.007 and .091)
The legislature has eliminated the option of obtaining a waiver from a buyer of a new home for compliance with the Homebuyer Protection Act ("HPA"), effective January 1, 2011. Now, purchasing early issue title insurance will be the most practical choice for most residential sellers. The HPA does not expressly require that the seller pay the premium for the early issue insurance, so arguably the cost for the early issue premium could be passed through to the purchaser. Most lenders require early issue insurance if closing occurs within the construction lien window, and all of the major title insurance companies provide this coverage to buyers without additional charge in any case in which the title company is issuing early issue construction lien coverage for the buyer's lender.
The HPA applies to all new homes and condominiums selling for more than $50,000, and to an existing home or condominium that has had more than $50,000 of improvements during the three months prior to the date of the sale. In each of those transactions, the seller must provide the buyer with a form of protection selected from five alternatives set out in the HPA. The five alternatives are as follows:
- Title insurance coverage against recorded constructions liens. If the sale is closing within 90 days following completion of construction, this is called "early issue" coverage. The cost of this coverage is normally 20% to 25% of the standard premium plus $2.00 to $2.50 per thousand dollars of the purchase price. Fortunately, all of the major title insurance companies have now agreed to provide this coverage to buyers without additional charge in any case in which the title company is issuing early issue construction lien coverage for the buyer's lender. If the buyer is paying cash or is otherwise not obtaining early issue title insurance coverage for the buyer's lender, the seller will have to pay the substantial additional premium referred to above unless the sales agreement passes the cost to the buyer.
- Escrow deposit or holdback of at least 25% of the sales price to cover possible liens. This would not be attractive to most sellers.
- Bond or letter of credit for at least 25% of the sales price to cover possible liens. Again, this is not workable for most sellers.
- Written waivers from every potential lien claimant with a lien claim in excess of $5,000. Again, this alternative is not practical for most sellers.
- Postpone closing of the sale until after expiration of the statutory period for effecting a lien (75 days following completion of construction). This will work if the lien period has, in fact, expired, or if it is about to expire around the date of closing. Otherwise, most sellers and buyers would not be happy about delaying the closing date.
The HPA further provides that not later than the date of closing the seller must complete, sign and deliver to the purchaser a form specifying the method that the owner has selected to comply with the requirements regarding protection against construction liens. The new form of notice reflecting the 2011 change is not yet available from the Construction Contractors Board. We expect that after the first of the year, a copy of the Notice of Compliance, together with instructions for its completion and Frequently Asked Questions, will be available from the CCB website at www.ccb.state.or.us.
Violation of the HPA is a Class A violation, which means a fine of $720 for an individual or $1,440 for a corporation. In addition, a violation may constitute an unlawful trade practice and expose the seller for a claim up to twice the amount of actual damages, plus costs and reasonable attorneys' fees, or a $100 fine from the Construction Contractors Board. It is a defense to any claimed violation if there is no enforcement or attempted enforcement of any valid lien against the property.
The change to the HPA applies to all sales that occur on or after January 1, 2011.
For additional information on this or any related topic, please contact your Stoel Rives attorney.