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Louisiana Residential Truth In Construction Act “All Bark & No Bite!”

August 23, 2018

The Louisiana Legislature enacted broad protections for homeowners by way of the Residential Truth in Construction Act ("Act").  The coverage is broad, requirements on contractors are tough, but the recourse for a homeowner is minimal.

What is a Residential Home Improvement?

Every type of remodeling to an occupied single family residence is governed by this Act. Its requirements cannot be waived. The Act governs driveways, additions, separate shops or garages, interior gutting, cabinet replacement and countertops. By definition, it also includes painting, flooring, carpeting and window replacements. Exterior work such as pools, landscaping, sodding and fencing also fall within its jurisdiction.

Is a Contract Required?

The Act requires a contract to exist between the homeowner(s) and any hired contractor. However, that contract does not have to be in writing. Louisiana recognizes and will enforce a proven verbal contract. With an agreed upon contract, the contractor must then provide requisite notice.

What is the Requisite Notice?

The Act provides the specific form (“Notice”) that must be used to comply with the Notice requirements. The owner and contractor must sign it and if a home is owned by a married couple or multiple owners, all must sign.

The Notice advises homeowner(s) that certain persons are entitled to file a lien against the property if not properly paid in a timely manner. Those persons include the contractor, subcontractors, material suppliers, equipment lessors, architects, engineers, and laborers. The lien can be for the amount of what is owed, interest at the legal rate (currently 5% in 2018) and the costs of filing the lien. Legal fees are not normally recoverable except in rare circumstances.

The Notice not only advises the homeowner(s) that a lien be filed against the property, but also that the homeowner(s) are personally liable to the entity filing the lien. Even if the homeowner(s) did not directly contract with the lienholder, such as a subcontractor or supplier, homeowner(s) are nevertheless personally liable to the lienholder.

What if There is Compliance?

If Notice is presented by the contractor, in compliance with the Act and signed by the homeowner(s), there is no provision restricting liens from being filed against the homeowner(s). As such, the homeowner(s) will be subject to a lien filed against their property and face personal liability. At this stage, the homeowner(s) can only seek indemnification from the contractor/builder through legal action, which is expensive and time consuming.

What is the Penalty for Violation of the Act?

If a lien is filed against the homeowner(s) and the Notice was not provided by the contractor, the homeowner is entitled to reasonable damages and legal fees. Upon closer inspection, this sounds a lot better than the protection it actually provides the homeowner(s).

First, legal fees awarded by a court may not equal the actual amount spent on attorneys' fees by the homeowner(s). The amount of “reasonable” fees is determined by the judge, and he/she is not bound to award what was actually incurred by the homeowner(s). It could be higher but is usually lower.

Second, do not be fooled by the entitlement to “reasonable damages”. Under this Act, the damages are extinguished if the lien is paid in full by the contractor. While payment of the lien in full is the desired result, other damages sustained by the homeowner(s) is not provided for. For example, the inability of the homeowner to sell the property with a lien, a delayed closing that results in increased mortgage interest rates, the negative effects to credit scores, or the embarrassment and hardship are not recoverable unless the lien is not paid in full.

What if the Homeowner has Already Paid the Original Contractor in Full?

Even if the homeowner(s) have already paid the original contractor all that was agreed upon and that contractor failed to pay the invoices, workers, lessors etc., the Notice stipulates that the homeowner(s) are still liable to the lienholder. The homeowner(s) are now stuck having to pay twice!

What is in the Act/Notice to Prevent this Nightmare Scenario?

The Notice dictates that a written contract needs to be in place and recorded with the Clerk of Court in the parish of the residence. Additionally, the homeowner(s)should verify that their contractor is bonded. Unfortunately, most surety companies are reluctant to issue bonds for residential construction projects because they too have been burned in similar scenarios. The best protection available to a homeowner is a consultation with an experienced construction attorney before signing a contract to ensure every protection is in place before committing.

What Other Recourse is Available?

Homeowners do have possible recourse for the failure of the hired contractor to pay someone who filed a lien. Under Louisiana’s Unfair Trade Practices Act, a claim can be asserted by the homeowner(s). If proven, the homeowner MAY be entitled to recover legal fees, damages and possible treble damages if bad faith is shown.

Unfortunately, even if a court sides with the homeowner(s) and provides a judgement against the contractor, that doesn't guarantee the homeowner(s) will ever receive their compensation. If the contractor is not paying the suppliers or subcontractors, then it is highly likely that the contractor does not have sufficient resources to compensate the homeowner in accordance with the court's judgement.

How Can You Protect Yourself as a Homeowner?

Before you break ground on a new pool, gut your kitchen or renovate the master bathroom, consult with an experienced construction attorney to advise you on the steps to take to minimize your exposure to liens and liability. After 40 years representing homeowners, lenders, sureties, insurers, architects, engineers, general contractors, subcontractors, and suppliers in all aspects of construction law, the firm of Hayter|Reynolds has worked with the majority of reputable contractors and can advise you on how best to protect yourself and avoid costly pitfalls.  An ounce of prevention is a lot less expensive than a pound of cure!

Hayter|Reynolds, LLC

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