HomeStyle Renovation Nightmare

7 Replies

Hello! We are new homeowners, new to this site and have just started on the path of REI. We bought a house in Mt. Washington (Pittsburgh) in June 2017 through a Fannie Mae HomeStyle Renovation Loan. We first made an offer in January of 2017. We had some delays in closing (husband got laid off, but all is well now) and we overcame them. We submitted our contractor for approval (that we found on BuildZoom) near the onset of the process. After months of having their information, 2 weeks before closing, the bank (Union Home Mortgage) finally vetted our contractor and told us that he was denied. We barely had any time to now find a contractor that would be able to do the scope within the allotted renovation budget that is also approved for this kind of loan and would even be willing to work with this kind of loan. On top of that, the bank said that "We will only vet one contractor because it takes too many resources to investigate a bunch and if it doesn't work out then it's over." Terrified we would lose out on the house after 6 months of fighting tooth and nail for it, I asked if they had a list of contractors that have worked with this kind of loan before to eliminate the risk of our contractor not being approved. They would not tell me why they denied our contractor due to 'privacy reasons' and would not tell me the eligibility requirements either of a contractor so I couldn't even do a preliminary filtering. They suggested "You Name It Contracting" based out of Butler PA. They were not our top choice, not the best bid and we really wanted to use someone else but was it worth risking losing the house all together? So we went with their contractor. (I later found out its against Fannie Mae's Lender Guidelines for them to have suggested a contractor). Work started, already behind schedule, but things are seemingly ok. Fast forward a few months.

There are 4 draws on the loan. The contractor would work with the bank directly on the draws and we had to sign the checks. The bank would require an inspection report by the Appraiser to show how much work was done as you only get paid for work completed, no advances. We did not get to see these reports prior to signing the check. They received about 70% of the funds and had only completed about 30% of the work. We honestly didn't anticipate our contractor screwing us and frankly don't care when they get the draws as long as they finish but in hindsight, we should have been much stricter. Upon receiving the third draw, they let us know that they would not be finishing the project because they think by the end of it we will be way over budget (there was still a large contingency they were aware of) and therefore just quit. They claimed it was due to material escalation (no escalation clause in contract therefore risk borne by contractor in a fixed price contract) and frankly, incompetence, mismanagement and greed. 

We let the bank know and tried to compromise with the contractor in spite of not wanting to. After digging, turns out "You Name It Contracting" is not even a registered entity and both owners are convicted felons with jail time for theft, burglary and forgery by deception. How did the bank reject our contractor but allow these two morons on our property??? Contractor would not budge in spite of bank's counsel calling them and saying it's really in your best interest to compromise with them. The bank has fingerprints all over this mess. Now we are hoping to go to the bank and say, either you refund us some money, or sue the contractor (they are insolvent and judgment proof but still) or basically, how are you going to help us? They're just as screwed too. We are continuing to make payments on a house that is not being worked on with no end resolution in sight. Any tips? Lots more details to give but hopefully you're still reading this. We REALLY appreciate it. 

@Naina Green - so sorry to hear you are in this mess. In situations like these, I would skip online advice and just go talk directly to lawyer. Talk to the lawyer as soon as possible and make sure to save all the communication pieces you have with the contractor and bank.

Thank you Andrew! Yes, the minute we got the initial communication from the contractor letting us know they wouldn't be finishing the project, we hired counsel. I'm coming here as a supplement of sorts or a resource for anecdotal advice or heck, what do I have to lose by tapping into the community that knows these waters much better than me. 

Thank you for your well wishes!

Originally posted by @Andrew Kerr :

@Naina Green - so sorry to hear you are in this mess. In situations like these, I would skip online advice and just go talk directly to lawyer. Talk to the lawyer as soon as possible and make sure to save all the communication pieces you have with the contractor and bank.

You absolutely have an incompetent, horrible, suck lender.

Truer words have never been spoken Wayne!
Originally posted by @Wayne Brooks :

You absolutely have an incompetent, horrible, suck lender.

@Naina Green Just so there is no confusion on what the guidelines are: 

"The lender may not choose the contractor or refer the borrower to any one specific contractor. However, the lender may require the borrower to obtain a completed Contractor Profile Report (Form 1202) from the contractor that is selected to ensure that the lender has sufficient information available to make a determination about the contractor’s qualifications." https://www.fanniemae.com/content/guide/selling/b5...

The lender can absolutely assist in references as long as there is not a single one.  There is also a vetting process that you can go through (you can actually look up open records with the civil court in your particular county) to see if any of the contractors have open cases against them. 

The lender should require very specific items from your contractor. (License, Bond, Insurance, W-9, $1M in liability insurance, contractor profile report) They also typically want some sort of financials. 

Deciding a contractor is what can make or break these deals.  Obviously, the lender is a key piece too.  With these loans there are a lot of horror stories but they do have tremendous upside if you are able to put the right team together. 

@Naina Green Just so there is no confusion on what the guidelines are: 

"The lender may not choose the contractor or refer the borrower to any one specific contractor. However, the lender may require the borrower to obtain a completed Contractor Profile Report (Form 1202) from the contractor that is selected to ensure that the lender has sufficient information available to make a determination about the contractor’s qualifications." https://www.fanniemae.com/content/guide/selling/b5...

The lender can absolutely assist in references as long as there is not a single one.  There is also a vetting process that you can go through (you can actually look up records with the civil court in your particular county) to see if any of the contractors have open cases against them and sometimes you can find if they have had previous cases as well. 

The lender should require very specific items from your contractor. (License, Bond, Insurance, W-9, $1M in liability insurance, contractor profile report) They also typically want some sort of financials. This is the lender's vetting process of the contractor. 

Deciding a contractor is what can make or break these deals.  Obviously, the lender is a key piece too.  With these loans there are a lot of horror stories but they do have tremendous upside if you are able to put the right team together. 

@Matt Mounier Thanks Matt. Some of that I recognize from Fannie Mae's site...what is your source? Thanks!!!

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