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Topic: OT: A warning about contractors and payment

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Subject: OT: A warning about contractors and payment
Date Posted: 9/27/2011 4:34 PM ET
Member Since: 7/15/2008
Posts: 4,035
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I thought this might be worth a mention to save anyone else from making this mistake, and please note that contractor licensing/regulations/lien rights vary from state to state. ABC builder has two business entities ABC & ABC LLC and ABC Homes LLC. ABC builder and his wife have filed Chapter 7 bankruptcy (they usually end up keeping the home/mortgage and personal property and everyone else is screwed). ABC & ABC LLC owes the company I work for about $4K and we’re suing the contractor bond and should get that payment. However, since there’s a bankruptcy we’re getting notices from the court about other activity and what I got today is the reason for this post – when paying your contractor make damn sure they really are paying the others down the food chain.

So there’s this homeowner who contracted ABC Homes LLC to build their home. Homeowner has been paying ABC Homes out of the construction loan to pay off the electrical, plumbers, AC/heating folks to the tune of about $44K. Turns out all of that money didn’t get to those folks and now that ABC Homes has tanked and filed bankruptcy liens were filed and these poor homeowners who really really should have paid attention to those lien notices all the subs sent out have had to belly up over $26K to those folks to satisfy their liens, let alone pay an attorney to petition the bankruptcy trustee to give them permission to file suit against the contractor bond (and only against the contractor bond) and hopefully get back $12K of that $26K.

OUCH!

 I know this is an extreme case, but stuff like this happens all the time and it really is important to follow up and get lien releases before just handing someone the money and trust they’ll do the right thing. Just sayin’.

Date Posted: 9/27/2011 9:20 PM ET
Member Since: 7/22/2009
Posts: 2,617
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Thanks for the warning. Next time I have to deal with contractors, I'm calling you first!

Date Posted: 9/28/2011 11:37 AM ET
Member Since: 6/21/2008
Posts: 6,536
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You are absolutely right about this type of thing happening all the time.  It is stunning to me how many people have no idea how to reach the electrician, plumber or low voltage sub-contractor on their house.  Get your information up front from the General Contractor/Builder before you sign the documents.   The crooks are depending on your ignorance about these things.

Date Posted: 9/28/2011 12:04 PM ET
Member Since: 7/15/2008
Posts: 4,035
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Let's not even go into making sure that the sub contractor's employees are legal or not, and whether or not they are paying into L&I (in Washington) in case some one gets hurt. An illegal employee falling off a scaffold could get kind of expensive. Something else not many people know but in Washington state if a contractor does fall behind on their quarterly taxes to L&I (unemployment, etc.) they can and will go after the GC and/or the property owner to get their money. No advance notice required.

BTW, it was a slow day at work and I was feeling snoopy so I went online to look up the bankruptcy petition of my debtor (yes, it is public record and available to anyone). His biggest creditor outside his mortage is a debt of $300K to his father (yes, that is three HUNDRED THOUSAND DOLLARS). Ouch.

Date Posted: 9/28/2011 2:17 PM ET
Member Since: 7/22/2009
Posts: 2,617
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His biggest creditor outside his mortage is a debt of $300K to his father (yes, that is three HUNDRED THOUSAND DOLLARS). Ouch.

That should make family get-togethers interesting!

Date Posted: 9/28/2011 2:22 PM ET
Member Since: 1/12/2008
Posts: 1,356
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Cathy, a good PSA and a life lesson---the law says that the property owner is responsible for paying any 'mechanicsman'--ie, contractor or subcontractor who works on a house/site--and those mechanicsmen, when they are unpaid by the general contractor, have a legal lien on the dwelling that must be paid in order for ownership of the building to transfer. Well-intentioned laws that are a bit outdated given modern construction customs, but they can take a big bite....I'm a lawyer and have known this but I  too have had friends get bitten.

Date Posted: 9/28/2011 2:54 PM ET
Member Since: 7/15/2008
Posts: 4,035
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There is so much shenanigans going on out there you'd have no idea. I'm glad the state finally changed the resale certificate (completed by the purchaser and taken by seller in good faith) to a state issued permit that they have to apply for. A lot of people were going around trying to buy with no sales tax when they weren't even in business anymore. We're collecting a lot more tax on our cash sales than ever before.

It never hurts to call the supplier directly about a contractor and don't just talk to the sales guy talk to the credit folks. There's a lot of things I can't say, but I can tell you if they've ever had a charge account, and I'd sure as heck be able to tell you if they've never missed a payment.

Deb, the boss made the same comment. Should be a lively Thanksgiving dinner this year.