State specific question IL :
Part of the rehab will be dealing with many trades. Some are more professional than the other. My idea is I will never pay ahead of work done – that’s my only leverage I have. If needed I will buy materials (paint, cabinets, flooring, tiles, sheetrock, mud etc and have it delivered to job site or picked up by contractor from the supplier) and pay for labor once the job is done. I am planning to set clear expectations on paper regarding quality of work. So before they start doing anything we will have a signed contract in place. I might run into the following issues : job is done, it is not to the expectation (some imperfections exists), the final or any payment is NOT done until the issue is corrected, the contractor stops responding to the calls, I wake up with mechanical lien the next day. I am not sure you can bond out of the lien for closing purposes in IL. I am not trying to screw anybody but if the electric outlets are all messed up with paint or tiles have multiple (½ or ¼) grout lines that needs to be corrected. What happens next ? I cannot close with a lien on the PIN. then ...what would be my next step if contractor refuses to cooperate ?
Hi Robert, I'm buying a property tomorrow and was recommended both by our real estate and attorney and our mentor to have a mechanics lien in place prior to buying. My wife is the buyer and I'm the contractor.
What became of your situation if you don't mind me bringing up this post from the dead?
i deal with this for a living, im an estimator/project manager for a national commercial contracting company.
dont worry about people liening your property. allot of newby contractors like to throw that word around because they have never actually been through the process.
BEFORE they lien the property, you will send them a simple one or two paragraph letter stating what work is outside of the written expectations and you will reference the agreement. You will state the amount you are holding. you dont need to state how you came up with the amount but it needs to be reflective of the incorrect work. aka: it will cost $XXX amount for me to hire another contractor to come in and fix this so I held $XXX.
IF/WHEN they lien your property: you will send them a letter demanding them to sue you. at that point the clock starts ticking, they have 30 days to sue you or you can have the lien removed AND they are responsible for any costs associated with you taking the time to write the letter, find a different contractor, waste your gas, etc... make sure you withheld enough :)
if they do sue you, as long as you sent them that letter before they file the lien then it will simply be a matter of the court agreeing that you were reasonable with the amount you withheld. by the way, if possible, make sure to hold enough that it goes above $10k. this means it cannot go to small claims court in IL, much more difficult to sue someone above that amount without having to lawyer up at which point they will likely just try to agree to an amount with you in my experience.
Simple way to avoid all of this: have your expectations clear and in writing, like you mentioned AND add in Inspections/milestones. this protects both of you from having to deal with this crap. example: scrape garage: inspection, paint coat #1: inspection, paint coat #2:inspection. agree to a basic schedule of values for each item prior to start of work, scraping is worth XXX, etc.. this allows you to pay based off of milestones/work completed.
Some items you should be around to inspect during install to catch problems while they are occuring, its good project management, like tile being installed poorly, although that does not change the responsibility for the subcontractor to install the tile per your written expectations.
if you notice in commercial construction there is an inspector onsite making daily logs every day. his logs describe what was done, and anything that was not done in accordance with the specifications. this is for a reason, they can be used in a court as a reference.
Part of the reason for inspections is to allow the contractor to receive partial payments for work accepted up to that point. most jobs its hard for small contractors to cash flow an entire project, needs to atleast be payments made every 30 days for work accepted but they can be daily if you choose as long as it is based on the schedule of values for work completed. (very common to hold retainage of 10% of every payment until all work is complete, site has been cleaned up and accepted. you would need to state the retainage in the contract.
This is why I prefer to write my own contracts. you dont have to be a lawyer to write them up, there are plenty of examples out there that can help. they dont need to be huge, even the back of a napkin can be contractually binding if enough detail is provided. just a couple pages, im sure once you read some examples you will enjoy writing it. then when you have a good one written up you can always reuse, just need to change the "Scope" section of the contract. one thing ive noticed, keep the contracts short, too many pages simply scares off small time contractors and really it only needs to be a couple pages to be covered for most residential projects.
Wow! Great information Isaac. I think my situation has more to do with protecting my interest with the title when it comes to flipping the property. I'll find out more in about an hour : )
While I would agree that your proposed business practice looks like a great way to minimize your risks, I think you're going to have a real hard time finding contractors willing to adhere to that.
If you're worried about getting taken, then buying the materials yourself is one of the better ways to mitigate the risk.
But you're going to find very few contractors willing to start working without any payment up front - even if its for labor only.
At some point, you really need to take a leap of faith when doing this.
To me, the best way to mitigage risk is to break up rehab jobs into smaller pieces and pay as you go. So if its a 50k rehab, don't pay 50% up front. Break it up into logical divisions of work effort and then pay half up front for those divisions and the remaining when the set of items are done.
If you're paying for materials, then only buy enough materials for a set group of work items. You don't need to buy them all for the entire job at once. Its call JIT (just in time) materials.
Helps to limit your risk and also helps to prevent the contractor from being tempted to doing anything silly either.
At the end of the day, I think you're going to have a very hard time getting good contractors if you tell them they're not going to get anything up front. Its just not common practice. And my guess is if you do get someone to agree to that - it may be because they're either no good or they're really expensive. Neither of which is a good combination.
Originally posted by @Mike H. :
Again, I think we're getting away from the real reason this is in play and that is for title protection when/if I flip the property. I don't mind on bit paying up front under contract.
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