If you’ve ever looked at the “Construction” or “New Construction” sections of the Oregon REALTORS® Purchase and Sale Agreement, you’ll notice that the “Form 4.1 New Construction Addendum” is required for any dwelling that was constructed within 90 days of closing or any dwelling that had $50,000 or more in improvements within 90 days before closing. This language all comes from ORS 87.007, the “Homebuyer Protection Act of 2003.” The Homebuyer Protection Act requires a “Notice of Compliance with Homebuyer Protection Act” on or before the date that a sale closes for (1) new single family residences, condos, or residential buildings, (2) existing single-family residences, condos, or residential buildings where price for original construction [e.g. an addition to the property] within the last three months before the sale was $50,000+, (3) existing single family residences, condos, or residential buildings where the contract price for improvements to the structures within the last three months was $50,000+. The $50,000 number hasn’t been updated since the original passage of the Act in 2003.
If the Homebuyer Protection Act applies, the owner of the property at the time of the sale needs to “protect the purchaser from claims of lien that arise before the date on which the sale is completed but that may become perfected under ORS 87.035 after the date on which the sale is completed.” Contractors who do work for the property owner have a right to get paid. If the Seller fails to pay the contractor, the contractor can put a lien on the property for up to 75 days after the work was completed. In practice, this can mean a Seller gets an addition done to the home, opts not to pay the contractor, sells the house, Buyer moves in, and then a few weeks after moving in, a lien is put on the Buyer’s new house for work done for the previous owner.
The Notice of Compliance form required under ORS 87.007 requires the Seller to have title insurance that covers the lien, a sum equal to 25% of the purchase price held in escrow, a bond or letter of credit, written waiver from every person who could claim a lien, or affidavit that the sale was completed more than 75 days after the work. Basically, the Seller has to prove to the Buyer that they can pay off the lien or that the lien won’t be applied. Noncompliance can result in up to 2x the actual losses to the Buyer [e.g. a lien of $10,000 placed on the property, Buyer can sue Seller for $20,000+attorney fees].