Get out of hard money loan but not complete yet! Please help!

2 Replies

Hi everyone,

I am in a bit of a situation here and would appreciate all the help.

Me and my two partners found a great property that needed about 100k worth of work. Our ARV was about 300k-315k. Bought it at a good price with a hard money loan.

Started work on it with a contractor we thought we trusted and was good. At the beginning things went well but then the contractor stopped doing quality work and pushing back timelines and deadlines. We have paid a substantial amount already and the contractor is trying to double the budget. They had stated they have completed items and we went to check and they were not completed even though we paid for them. I got another contractor in to look at it and said a majority of the work was done wrong and would have to be redone. We will have to go into litigation and sue the contractor for over 50k of work not done. Please does any one have any advice on how this went.

2nd, We need to get out of this hard money loan. We are trying to figure our options. 1 option is to sell it as is to another flipper and have them complete it. We take a large loss though. 2 option is what I need your help on. I was thinking of having one of our partners buy the property from ourselves in possibly a 203k loan or some sort to get out of the hard money loan. Then finish the property in a longer timeline with a new contractor. Does anyone know if this is possible at all or have another solution? Thank you so much all the help is appreciated.

Did you have a scope of work contract including schedules, milestones, and payments?  Is the contractor licensed? If items were not completed why were they paid for? There should be a verified milestone in the SOW well before the half-way point of a $100,000 budget. 

You can sue, but if the contractor is unlicensed he may disappear or go BK. Some states have a recovery fund for licensed contractors but may not cover non-owner occupied or commercial entities. Even if you are successful, lawsuits take time and if you are waiting for the money to finish the project the carry cost will eat you up. A refi might be the answer, but remember, time is not on your side during a flip. 

Personally, I would be honest and upfront with my hard money lender about the situation. They might want to work with you on extending terms. If they first find out there are problems through a missed payment the lender will be most unhappy.

I'm sorry this happened, contractors are the hardest part of flipping. I have had my share of nightmare experiences with contractors who lie, cheat, and/or are incompetent. I would STRONGLY suggest you talk with your real estate attorney before doing anything. Good luck.

Talk to a lender but you’ll likely have an issue with a non arms length transaction trying to go 203k, and of course the individual would have to occupy as an owner occupant for a year.