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. 

You should have lawyered up long ago actually, but now you have no other option. You have no leverage and you're an outsider on this type of process, you need a lawyer.

I don't know this bank program very well, but I would look for someone that does to help walk you through the details. Lending is easy on paper, and brutal in the U/W intricacies. The devil is in the details, you need a friend who knows the details and can guide you through bank expectations to better prepare you for these messes.  

other advice - The way this story reads makes it seem like it's all the bank and contractor fault. However true, it doesn't come across well. This is a PEOPLE business (aren't they all though) and it doesn't' work well when it's very transactional. You didn't find a great contractor, you didn't care about the draw schedule, you ask the bank for recommendations then say "it's against their guidelines". These people are the partners you chose to help you, this blame shifting is not good for your cause.

Good luck, hopefully more people will give you advise!

Thanks for the comment Alexander! We do have one of the states best construction attorneys and they've been involved since the initial breach, my husband is the architect and I'm a contracts professional. So with that said, I appreciate your viewpoint that this may be perceived as 'blame shifting'. I need as many brutally honest opinions as possible. The truth is, it really is one of those freak cases in which honest, trusting people are victimized and left holding the bag. Also, we failed to do a lot of due diligence due to the frantic positions of scrambling with days in hand to try to remedy a situation. A situation we were put in due to incompetence on our bank's part. Had they vetted our contractor a lot earlier, allowed us to submit more than one, not suggested their contractor (the collective impetus), we probably wouldn't be in this situation. The leverage we do have is the the remainder on the loan, the fact that the house isn't finished and Fannie Mae requires a certificate of completion soon so there is always that pressure. Essentially the bank and I our interests are aligned somewhat and that is our next strategy. 

We did find a great contractor(s) but were essentially cornered to not be able to use them. We absolutely cared about the draw schedule but we should not have been so trusting and we should have been more strict. Lesson learned on our first investment property. Some of the banks only responsibility post closing is to manage the draw funds and timing otherwise they would have just given it all upfront. We did not know it was against the guidelines for them to suggest a contractor until we were forced to verify guidelines which its reasonable to assume you wouldn't check to see if the bank is complying with Fannie Mae unless prompted to. And as much as they are partners that we chose to "help us", we are their client at the end of the day. They work for us. They are providing a service that they are profiting from. They didn't do us any favors. They have an obligation of customer care and transparency and advocacy on our behalf when the contractor, regardless of who's contractor it is, breached a contract.

I'm hoping others can provide strategies, resources, anecdotes, other avenues of recourse that could shed some light on this horrific situation. 

Originally posted by @Alexander Felice :

You should have lawyered up long ago actually, but now you have no other option. You have no leverage and you're an outsider on this type of process, you need a lawyer.

I don't know this bank program very well, but I would look for someone that does to help walk you through the details. Lending is easy on paper, and brutal in the U/W intricacies. The devil is in the details, you need a friend who knows the details and can guide you through bank expectations to better prepare you for these messes.  

other advice - The way this story reads makes it seem like it's all the bank and contractor fault. However true, it doesn't come across well. This is a PEOPLE business (aren't they all though) and it doesn't' work well when it's very transactional. You didn't find a great contractor, you didn't care about the draw schedule, you ask the bank for recommendations then say "it's against their guidelines". These people are the partners you chose to help you, this blame shifting is not good for your cause.

Good luck, hopefully more people will give you advise!

Hey Naina, bummer you're having so many issues with your project. I just finished up a HomeStyle loan in October and it really is a great program. You mention the bank works with the contractor directly for the draws. Were you not the one submitting the draw? The bank should have only been accepting the draw requests from you, at least that was my understanding of how it's supposed to work

Quick question: did the contractor recommendation from the bank come in writing? There must be U/W documents vetting both contractors. They should have been vetted via identical criteria.

That the bank had knowledge that the contractor existed suggests that there may have been a prior relationship between the bank and the contractor. (E.g., does the contractor have a loan with the bank?) In other words is there a conflict of interest? And can this be demonstrated by non-identical vetting criteria for the two contractors?

Confusion: the draws are approved by the lender after a bank-appointed assessor determines the defined work has satisfactorily been completed. Why was the bank approving the draws even though the presumed milestones were not achieved?

Hi Alex! Thanks for the comment! No, the contractor was working with our Senior Loan Officer directly (we also have texts from our contractor saying our Senior Loan Officer is 'under his belt') and we suspect some type of collusion there. The problem here is I don't know the rules the bank is supposed to have followed. Fannie Mae was not very transparent with their lender guidelines and it seems the bank is the only one determining their own rules that they are supposed to follow. I would still use the program, just not Union Home Mortgage. 
Originally posted by @Alex Johnson :

Hey Naina, bummer you're having so many issues with your project. I just finished up a HomeStyle loan in October and it really is a great program. You mention the bank works with the contractor directly for the draws. Were you not the one submitting the draw? The bank should have only been accepting the draw requests from you, at least that was my understanding of how it's supposed to work

Yes it did, via email so at least we have solid proof of that. I don't know if the contractor has a loan with the bank but the bank told us they use him for this loan product all the time. Discovery, and hopefully it doesn't get to that point, will indicate if there is a conflict of interest. UHM is notorious for clogging up the discovery process though. I want to see their due diligence for both contractors but have a feeling they would destroy or manipulate evidence.

EXACTLY. I don't know. Technically we signed them as well so there is joint liability. We signed them because honestly, we didn't care how they got the money, just as long as they finished but we will NEVER make that mistake again. 

Originally posted by @Blaise P. :

Quick question: did the contractor recommendation from the bank come in writing? There must be U/W documents vetting both contractors. They should have been vetted via identical criteria.

That the bank had knowledge that the contractor existed suggests that there may have been a prior relationship between the bank and the contractor. (E.g., does the contractor have a loan with the bank?) In other words is there a conflict of interest? And can this be demonstrated by non-identical vetting criteria for the two contractors?

Confusion: the draws are approved by the lender after a bank-appointed assessor determines the defined work has satisfactorily been completed. Why was the bank approving the draws even though the presumed milestones were not achieved?

Hi! @Naina Green So sorry to hear about the mess you are dealing with. Seems to me that its pure incompetence. I see red flags all over.

* The bank has to tell you why they were denying a contractor.

* The bank should have never recommended someone. That is a sure fire way to get sued. (This is good for you). I hope they did this via email.

I would recommend the following (this is not legal advise).

* Hire a lawyer and have them inform the bank that you need to be made whole by the bank paying for the shortage to get the pre-approved work completed.

* Ask the lawyer to have the bank turn over their decision documents on why your selected contractor for denied and the other one approved.

* Also ask the lawyer to have the bank disclose any pre-existing relationship with the bank and/or its employees.

* File a complaint with CFBP.

* File a complaint with Fannie Mae

Hope this get fixed for you.

Thanks Upen-ji! 
Will definitely suggest the below to our attorney.
Originally posted by @Upen Patel :

Hi! @Naina Green So sorry to hear about the mess you are dealing with. Seems to me that its pure incompetence. I see red flags all over.

* The bank has to tell you why they were denying a contractor.

* The bank should have never recommended someone. That is a sure fire way to get sued. (This is good for you). I hope they did this via email.

I would recommend the following (this is not legal advise).

* Hire a lawyer and have them inform the bank that you need to be made whole by the bank paying for the shortage to get the pre-approved work completed.

* Ask the lawyer to have the bank turn over their decision documents on why your selected contractor for denied and the other one approved.

* Also ask the lawyer to have the bank disclose any pre-existing relationship with the bank and/or its employees.

* File a complaint with CFBP.

* File a complaint with Fannie Mae

Hope this get fixed for you.