Court Opinion

ID: 6758144
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:29:09.5393+00
Date Added: 2024-06-11T16:02:30.799520
License: Public Domain

William B. Brown, J.,
dissenting. Because I believe that the lender’s duty under R.C. 1311.011 (B)(4) relates solely to transactions in which the lender pays the contractor-builder with funds borrowed by the homeowner or home purchaser, or pays the funds to the homeowner or home purchaser himself, I must respectfully dissent.
R.C. 1311.011 is the homeowner’s amendment to the mechanics’ lien statute. Its purpose is to protect home purchasers from paying the contract price for their homes and then having to contend with mechanics’ liens which remain on their property. Appellees argue, and the majority so holds, that this statute places an affirmative duty on a lending institution to protect the interests of home purchasers and prohibits lenders from making any payments to contractors prior to receiving a required affidavit. In reaching this conclusion the majority relies on R.C. 1311.011 (B)(4) which reads as follows:
“No lending institution shall make any payment to any original contractor until the original contractor has given the lending institution his affidavit stating:
“(a) That the original contractor has paid in full for all work performed * * * by * * * all subcontractors, materialmen, and laborers prior to the date of the closing of the purchase * * * except such unpaid claims as the original contractor shall specifically set forth and identify both by claimant and by amount claimed;
“(b) That no claims exist other than those claims so set forth and identified in the affidavit * *
However, the majority’s interpretation would impose liability upon a lender for mechanics’ liens on property despite the fact that the purchaser has no obligation to pay those debts and no need to suffer any resulting liens on the property. This result could not have been what the General Assembly intended when it enacted this statutory provision.
In the first place, R.C. 1311.011 (B)(4) applies only to “lending institutions” which are defined in R.C. 1311.011 (A)(3) as: “* * * [A]ny person that enters into a contract with the owner, part owner, purchaser, or lessee to provide financing for a home construction contract or a home purchase contract
* * * and that makes direct disbursements under the contract to any original contractor. ” (Emphasis added.) In the present case, the bank was not a lending institution for purposes of R.C. 1311.011. The contract to provide construction financing was between the lender and the contractor and did not mention appellees at all. There was a separate contract for the bank to pro*362vide a purchase money mortgage loan to appellees but it appears this loan was not for home construction and thus does not fit the definition. In addition, it is undisputed that these latter funds were properly paid. The funds under this second contract were to be used to purchase the home after construction was completed.
R.C. 1311.011 (B)(4) mandates that the lender has a duty to the borrower in certain circumstances to protect his interests by withholding payment of the borrower’s funds until the contractor-builder demonstrates by affidavit that all subcontractors and materialmen have been paid. Those circumstances exist when the lender is disbursing the borrower’s funds to the borrower himself or to a builder-contractor on the borrower’s behalf. The facts of the case at hand demonstrate that those circumstances are not present. R.C. 1311.011 does not require a lender to protect the interests of a non-borrower while dispensing a borrower’s loan funds. While the lender may choose to safeguard against mechanics’ liens in order to protect its own security interests in the property, it has no statutory duty to do so on behalf of a stranger to that transaction. In the present case, none of the funds paid by the lender were supplied by or on behalf of appellees. Instead they were paid from the builder’s line of credit.
In the second place, even if appellant did owe a duty, appellees suffered no damage as a result of the manner in which the construction funds were disbursed but were themselves the cause of any loss sustained. Part of the purpose of the statute is to force mechanics’ lienors to obtain payment from the contractor-builder rather than the home purchaser who has already paid the builder for those goods and services. The statute provides complete protection to purchasers by establishing procedures whereby the home purchaser may limit all known perfected liens to the unpaid balance of the contract price, R.C. 1311.011 (B)(2), and to eliminate completely all liens for which the purchaser did not obtain actual notice by receiving a copy of the lien affidavit before making payment to the builder of the full contract price. R.C. 1311.011 (B)(1) and (3).
R.C. 1311.011 (B)(1) deals with protecting purchasers against liens which might otherwise be perfected after the closing. “No subcontractor, materialman, or laborer has a lien to secure payment for work done * * * if the owner * * * paid the original contractor in full or if the purchaser has paid in full for the amount of the home construction or home purchase contract price, and the payment was made prior to the owner’s * * * receipt of a copy of an affidavit of mechanic’s lien * * In other words, if appellees in the present case had closed on the house and paid the contractor the full contract price before receiving notice of any mechanics’ liens, those mechanics’ liens could not have attached to the property.
Subdivision (B)(2) protects the purchaser against liens which are perfected before he has paid the full contract price. “If the original contractor has not been paid in full * * * no subcontractor, materialman, or laborer has a lien to secure payment for work done * * * for an amount greater than *363the amount due under the home construction contract that has not been paid to the original contractor * * * or for an amount greater than the amount of the home purchase contract price that has not been paid to the original contractor. The total amount of all liens * * * that may be enforced in lien foreclosure proceedings shall not exceed the amount due under the home construction contract that has not been paid to the original contractor or the amount due under the home purchase contract that has not been paid to the original contractor.” Mechanics’ liens claimants are entitled only to share pro rata in the unpaid balance of the contract price.
In the present case, if appellees had knowledge of the existence of mechanics’ liens prior to closing and paying the balance of the contract price, appellees could simply have paid the mechanics’ lienors on a pro rata basis up to the unpaid amount of the contract price and avoided the controversy. The existence of these provisions demonstrates that the lender’s making payments, without receiving affidavits, did not impair appellees’ new statutory rights to limit all known perfected liens or all liens after the contract price was paid. Appellees had complete protection against double payment.
In conclusion, appellees did not pursue the remedies available to them under the statute. Thus, even if R.C. 1311.011 created a duty on the part of the lender to appellees, a breach of that duty would not have been the cause of appellees’ losses. However, I would conclude that in the circumstances of the present case the statute imposed no duty upon appellant to protect appellees’ interests. Similarly, I find no authority which would require imposition of a common-law duty by the lender to a non-borrower in these circumstances.
For the foregoing reasons, I would reverse the judgment of the court of appeals.