Nevertheless, it is possible for a lien claimant to lose priority by mistakenly falling into one or both of two exceptions.  The first exception involves notice to the trust deed holder, and the second exception involves the segregation of charges on the claim of lien.  Under the first exception, if a lien claimant fails to send a trust deed holder a notice of right to a lien, or similar notice, then, in accordance with ORS 87.023, the trust deed has priority over the materials portion of a construction lien.  ORS 87.025(3).  The general rule regarding construction lien priority is subject to a second exception that involves the segregation of charges on the construction lien claim.  Under that exception, if a lien claimant fails to provide the notice discussed above and fails to segregate materials charges from the other charges in its claim of lien, the entire construction lien loses priority to previously recorded mortgages and trust deeds on the improvement.  Benj. Franklin Fed. Sav. & L. Ass’n v. Hallmark, Inc., 257 Or 436, 479 P2d 740 (1971); see also Cal-Roof Wholesale, Inc. v. Contractors West, Inc., 262 Or 343, 497 P2d 1181 (1972) (applying Benj. Franklin priority rule to a trust deed).

Contractors can maintain priority of their construction liens by taking three important steps:

(1)    Perform a title search before materials are delivered to the property.  A simple title search—often provided free of charge by title companies—should reveal the identity of any mortgagees or trust deed holders.  

(2)   Send any trust deed holders and mortgagees a notice of right to a lien.  The notice of right to a lien should be sent eight days, not including Saturdays, Sundays and other legal holidays, after the date of delivery of materials or supplies for the project.

(3)   Carefully segregate materials charges from other charges (labor, equipment, etc.) in the claim of construction lien.  (This step is absolutely critical if you have failed to perform the first two steps.)

Abraham involved construction defect claims by the Abrahams, homeowners, against their contractors.  The central issue in Abraham was whether the Abrahams could recover in negligence for damage to their home even though there was a contract between the Abrahams and their contractors.  This was a significant issue for the Abrahams:  If their negligence claims were barred, they could not recover because the statute of limitations had expired on their breach of contract claims.  The Supreme Court concluded that, in the absence of contract language limiting the Abrahams’ right to assert negligence claims, their allegations of property damage stated a claim for negligence.  This meant that the Abrahams’ case against their contractors could move forward.

Still, the Oregon Supreme Court did not stop there.  The Court went on to state that that negligence claims arising out of the construction of a house must be brought within two years from the date on which the plaintiff discovers or should have discovered the injury.  While a two-year statute of limitations is generally assumed to be the applicable period for negligence claims, at least one recent case (Waxman v. Waxman & Associates) has, for some lawyers, cast doubt on that assumption.  Indeed, those same lawyers have contended that rather than two years from discovery, the applicable limitations period for negligence claims is six years from the date of the injury.  This apparent conflict has, in some cases, allowed lawyers to argue one of two potentially applicable statutes of limitations, depending on which party they represent and when it appears the injury occurred or was discovered.

By filing their petition for reconsideration, the Abrahams sought to have the Oregon Supreme Court modify its opinion and omit the reference to a two-year statute of limitations for negligence claims.  The Abrahams argued that, among other things, they did not ask the Oregon Supreme Court to decide any statute of limitations issues.  While it is true that the Court’s reference to a two-year statute of limitation was not essential to the holding in Abraham, it certainly indicates how the Oregon Supreme Court might rule.  As a result, Abraham provides some measure of guidance on the issue of which statute of limitations should apply in construction defect cases.  However, because Abraham did not decide any statute of limitations issues, it is likely that the two-year versus six-year dispute will continue until Oregon’s appellate courts address it directly.

Unhappy with the result in the Court of Appeals, Lucas and Mayo petitioned the Oregon Supreme Court seeking review on several questions that are described in the Court’s media release.  Because the case involved several issues frequently litigated in construction defect cases (economic loss rule, statutes of limitation, building codes as the basis for a negligence claim, etc.), the Oregon Trial Lawyers Association (“OTLA”) and Oregon Home Builders Association (“OHBA”) weighed in and filed amicus curiae (literally, “friend of the court”) briefs.  These briefs followed predictable lines of argument.  Among other things, OTLA urged the Court to decide in favor of the plaintiffs and hold that, among other things, a discovery rule applies to breach of contract actions.  For its part, OHBA suggested that the Court find that, absent a special relationship, one party to a contract (such the plaintiff project owner) should not be permitted to assert a negligence claim against the other party (such as the project’s general contractor). 

Whether the Court will take up these important issues remains to be seen.  However, until they are addressed by Oregon’s highest court (or legislature), these controversial issues will continue to be the source of much legal wrangling and uncertainty for both plaintiffs and defendants alike.

Based on this initial information, the CPSC has confirmed that suspect Chinese drywall contains elevated levels of sulfur compounds in comparison to non-Chinese drywall. According to Mr. Wolfson, the measured levels do not pose a human health risk to homeowners. Still, the CPSC has received more than 1,900 complaints about drywall-related health symptoms and other problems. In addition, the CPSC is continuing to work on a 50-home study with the Lawrence Berkeley Livermore Laboratory, and this report may provide the scientific evidence necessary to connect Chinese drywall to the symptoms homeowners have been experiencing.

What is more, the reports due later this month may also answer the question about whether the CPSC will seek a recall of Chinese drywall. So far, the drywall manufacturers have not voluntarily agreed to recall their product, which means that the CPSC will need to clearly establish a link between Chinese drywall and the problems it is believed to have caused. Although the CPSC declined to comment about whether a recall action was imminent, Mr. Wolfson did say that the CPSC is “continuing to try to gather that proof” and that “rigorous scientific evidence is needed” to link the tainted drywall to health problems and excessive corrosion.

Finally, the CPSC recently launched a new website, www.drywallresponse.gov, and a hotline, 1-800-638-2772, to help consumers affected by this issue.

Because the CPSC investigation is ongoing, we do not know whether the imported drywall will be recalled. While waiting for the CPSC to complete this report, if you suspect that a building that you occupy was built with defective drywall, you should:

• Investigate whether your building contains drywall from China. Chinese drywall may have “MADE IN CHINA” printed on its back side (the side facing the studs). In addition, the inner core of Chinese drywall may appear gray in color in comparison to the white inner core of domestically manufactured drywall.
• Look for corroded metal components throughout the building. Examples include door hardware, fixtures, pipes, wires and other exposed metal throughout the building. Corroded copper piping and copper wires may appear blackened from exposure to sulfur in the drywall.

If you believe that your building contains defective drywall, generally you should:

• Determine whether the drywall may be affecting your health. The CPSC has reported that the most commonly reported symptoms include irritated and itchy eyes and skin, difficulty in breathing, persistent cough, bloody noses, runny noses, recurrent headaches, sinus infection, and asthma attacks. Symptoms that may be related to something in a building may present themselves when you are inside but go away after you leave. If you are suffering from any of these or other symptoms, consult a physician immediately.
• Inspect the metal components in your building. In Oregon, a certified home inspector may be able to help you conduct an investigation. Of critical importance are components related your building’s electrical and gas systems. Because these systems have the potential to be hazardous to your health or property, they should be routinely inspected and repaired to decrease any risk of failure. Alert your local gas supplier if you believe your gas system has been affected. Likewise, consult a licensed electrical contractor for any issues related to your electrical system. Any inspections or repairs should be thoroughly documented to increase your ability to recover repair costs from those responsible.
• Submit a Consumer Product Incident Report to the CPSC, either through the CPSC website or by calling the CPSC toll-free at 1-800-638-2772.
• Contact your state and local authorities to report your concerns and get direction on any help or resources in your area.
• Contact your insurance company and contractor to report your concerns.
• Consult with an attorney regarding your legal rights and remedies.

Although we do not yet know whether the CPSC will require a recall of imported drywall, if it does, the repair costs and inconvenience to building owners and occupants will be significant. By taking appropriate steps, building owners may avoid potential hazards and place themselves in a position to recover repair costs should they be necessary.

• Project Labor Agreements on Federally Funded Construction Projects
• Executive Orders Affecting Federal Contractors

Stay tuned for more changes as the new administration implements its policy goals.

Late last year, U.S. Consumer Product Safety Commission (CPSC) began receiving complaints about damage to homes constructed with drywall manufactured in China. The drywall reportedly contains elevated sulfur levels, which have been linked to corrosion and other damage. To address this growing problem, the CPSC established a Drywall Information Center to address consumer concerns about sulfur-tainted drywall. According to the CPSC, 419 reports have been filed. Homeowners commonly complained of a “rotten egg” smell, health concerns, and corroded and damaged metal components in their homes.

On May 21st, the U.S. Senate held hearings on the topic. Louisiana Senator Mary L. Landrieu stated that 550 million pounds of drywall have been imported to the United States from China. She also speculated that more than 100,000 homes could be affected nationwide. In response, Senator Landrieu sponsored the “Drywall Safety Act of 2009,” a bill aimed at banning Chinese drywall imports until the government promulgates appropriate standards.

As Senator Landrieu said during the hearing, “this defective product is not just a concern for homebuilders or homeowners, but is a concern for many other professions in both the public and private sectors.”
 

So far, South Florida is the only area where homeowners are complaining in significant numbers.

Gypsum, a key component of drywall, is a mineral compound commonly mined from underground deposits or produced as a chemical by-product. In response to the complaints, the manufacturer, Knauf , is purchasing its gypsum from another mine and has begun to test for sulfur. Although sulfur can be harmful to humans, the emission levels reportedly do not exceed the threshold set by the Florida Department of Health. They have, however, been blamed for heating and cooling system failures.

Like the widely-publicized Chinese dog food and baby formula scandals, the sulfur-containing drywall is likely to spawn litigation as homeowners undertake costly repairs to address the corrosion problem and its cause. Hopefully, the tainted drywall continues to distinguish itself from prior defective product scandals in one important respect—no deaths or injuries have been reported.