Potential Recovery Source for Sureties in Utah -The Residence Lien Restriction and Lien Recovery Fund Act.


Potential Recovery Source for Sureties in Utah – The Residence Lien Restriction and Lien Recovery Fund Act. 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 expensesprovided the homeowner complies with certain requirements. Second, the Act creates the Residence Lien Recovery Fund (“Fund”). The Fund serves as an alternate payment source for contractors, laborers, or suppliers whose liens are voided because the homeowner is protected under the Act so long as the qualified payment complies with all the conditions and claim requirements.

Is a surety who pays a contractor, laborer or supplier subrogated to the rights to recover this payment from the Fund? In CCAM Enterprises, LLC v. Dep’t of Commerce, Div. of Occupational & Prof’l Licensing, 324 P.3d 648 (Ut.App. 2014), the court held that the assignee of a subcontractor was permitted to make a claim on the Fund. The court held that because the Act does not specifically bar assignment, qualified beneficiaries are free to assign their claims. Although this case does not squarely address a surety’s subrogation rights, it presents an opportunity for the surety to explore recovery of funds paid to subcontractors, suppliers and laborers on residential projects.