Issues with General Contractor

27 Replies

Hi All,

I am hoping I can get some advice regarding my situation with the general contractor I hired.

My husband and I are doing our first flip and we took 3 months vetting general contractors to make sure we end up with the right one. We spoke to 13 contractors and finally found one who seemed to be perfect. He came highly recommended by a very experienced flipper at our REIA, is licensed and insured, very experienced and professional. I looked up as much as I could online and found nothing negative about him. Unfortunately, something happened along the way and we don't know what to do.

We are currently a month over schedule, he says he'll do x,y and z in a given week and it doesn't get done. Then, he doesn't respond to phone calls and texts until days later. He always has some excuse: phone isn't working, family emergency, etc. Then, when he does work he'll say such & such item will be done tomorrow and wants payment. In the beginning, since things were good and he started out strong, we paid him a day or two before that work item was done. Now, however, there are several things he's been fully paid for but are only partially done. Recently we found out from one of the subs that he hasn't gotten paid for the work we paid the GC for. I don't know what the payment status is for the other subs he used. 

The investor who recommended him called recently and told us this contractor didn't pay his electrician for her job and the electrician put a lien on the house so she had to pay twice to be able to sell it. When she confronted him and withheld payment for the next work item until he pays the electrician, he walked off her job. She said he told her he would pay her back but hasn't done so yet and it has been a few weeks. 

I'm not sure what to do here. We made a lot of mistakes since this is our first flip and we trusted him. Our contract with him does not have a termination clause so I don't know if that means we're stuck with him. I have a call in to our attorney but I'm hoping the BiggerPockets community may have some ideas on how to deal with this.

Thanks in advance for any suggestions you can offer. 

Senta

I hope that he has not been paid in full. Usually the best way to work with contractors is to not pay until the job is complete or segments of the job is complete to your satisfaction.

You are in a tough situation because the contractor doesn't care if you report him or sue him, you, I am sure are not the first to be taken advantage by this person. Go on line and report him to every site you can think of.

You can also file your own law suit, it is easy to do without a lawyer. You can always have a lawyer represent you when it is time to go to court if you are not comfortable doing it your self. You should find out if he has assets you can attach.

You need to finish the work; try this, run an ad Wanted part-time, evenings and weekends, maintenance person, $25.00 an hour to work on (plumbing, heating, carpentry....what ever you need done).

You are looking for the mechanic who can complete your work. When you get calls, meet them at the job, ask how long it will take to complete, if you trust them, let him start but watch that he is doing right.

There are lots of folks looking for part time work to earn extra money (cash).

Alternative you can go to Home Depot 6 am and talk to those folks picking up material for their job.

Good luck.

Did you use your own contract or his?  Did the contract lay out specific milestones and a payment schedule for each of those milestones?  Did you verify that he was licensed, insured and pulled permits as promised?

Unfortunately, unless you are protected by your contract, you may just have to fire him and eat the loss.  You should certainly talk to your attorney and find out if you have additional recourse, but again, that will be contract dependent.

Feel free to send me an email with the name of the contractor...not sure I can do anything, but if I know of him, I may be able to help or know someone who can...

First question is what state is this taking place in. Before suing you can call the licensing division and file a complaint. In Virginia you can actually recoup portions of money as well. J Scott also notes the next point which is whose contract did you use? 

Another question is did you get lien waivers (I assume not). If you had him sign a lien waiver for payment then that would protect you from having to pay twice. One carrot to dangle to him is to have him come back to finish an item, pay him but tell him you will only pay him after he signs the lien waiver (which basically states that he got paid for the work and is responsible for paying all subcontractors). 

When I general contracted my house one of my contractors stiffed a sub out of $15k, but fortunately I had the lien waiver executed and when the sub filed the lien I showed the court the waiver and they dissolved the lien and told the subcontractor he had to sue the contractor he was working for.

Whatever you do, if you do terminate for him, make sure to put it in writing and mail it certified, also state the reasons for it. Any correspondence you have also should be followed up in writing, such as if he says he will have X,Y,Z done tomorrow, after he says it send him an email noting "confirming our conversation, X,Y, Z will be 100% complete on XYZ date. That way when termination occurs you have a paper history of the facts as in court he will say you made changes etc. then its your word vs. his. ALWAYS DOCUMENT.

Lastly I cannot express enough to people NEVER pay upfront. Contractors (and I am one) are not your friends, this is a business and many are extremely good at the work they do but horrible at managing money. There are reasons for contracts and outlining when to pay someone. If anyone wants a sample contract or scope I would be happy to send to them. The benefits of it too are contractors who see this who may not be the most honest look at it and would never sign it in a million years. Its another way of confirming you are getting a decent contractor.

@Chris Seveney your post on this was topic is very informative. I never thought of having the contractor sign a lien waiver. Do you have a sample contract you normally use for GC's that you do not mind sharing? I hope Senta (the original poster) finds a better contractor in the future.

@Andre Martin - I will send you some of the forms i used later in the evening. I worked 15 years for one of the largest GC's in the US and now work on the development/construction side for a local developer, so as it relates to contracts/questions, while I am not a lawyer, I can provide some sound advice that should be followed up by the consultation of a lawyer. 

Thanks to all for the good advice. This rehab is being done in Baltimore, MD and he is licensed and insured.

No, we did not have lien waivers. We didn't know about them until we already started having problems with him. We've had pretty good experiences with contractors on smaller projects on our personal residence until now and didn't really know how bad it could get.

We have a contract that pays by the job item (it was his contract). So, we put down a deposit of 15%, then another 15% after the demo was done. That was supposed to be his working capital fund. Then, we just paid for each component thereafter but some components are not quiet done because he would give us assurances they'll be done soon. We have all the proper permits and passed all the rough-in inspections - I pulled the reports from the city government.

In the last few hours since I posted the original post, I found out one of the subs called my husband and said they're owed over $3k and they will be placing a mechanic's lien on the property. 

At this point I'm considering filing felony theft charges against him along with the civil suit and complaint to the Home Improvement Commission. I was thinking of giving him a week to rectify the situation and then letting him know I will press criminal charges. 

Any thoughts on that course of action?

Thanks again,

Senta

Senta, a few things. For your first few projects you should always JV with an experienced rehabber. You won't make as much, but you'll learn a lot and limit your risk. That's what I did and it worked. Just my opinion. Also, if a contractor says they will get something done in 60 days, add 30 days to the project, it'll end up being somewhere in the middle if the GC is decent, none are perfect. I don't see how you'll be able to get this guy on felony theft charges, this is a civil matter, you signed a contract. Also, it depends on how much your suing someone for, but if its over 5K, you'll probably end up spending more on a lawyer than what you'll get in return, unless you use a contingency lawyer. GC's are for the most part not liquid and there's probably not a lot to go after. This is all a part of the education of being in a highly speculative business.

@Senta J. So much for the high recommendation of the "very experienced flipper".   Stay focused, cut your losses and try to get your project finished, preferably by someone else.  I hope he has at least done quality work because if he hasn't, you may have trouble finding another contractor to take over, as no one likes to inherit a mess.  Good luck.

@Ian Barnes Thanks for the advice. We would've liked to JV with someone starting out but the person we were going to partner with was moving in a different direction than we were looking to go so we took a chance at doing it ourselves. Do you have any suggestions on how to find the right person to JV with on future projects?

Also, I'm not an attorney but I did spend 4 years working for the Judiciary. Using deception to get money is a crime and contractors have gone to prison for doing so. While there can also be civil suits brought based on the contract, that's not the only option. Generally when a person has been found guilty of using deception to get money, the judge will order restitution be paid to the victims for the amount they were defrauded as well as a prison term, depending on the amount stolen. If we took this route, it wouldn't cost us much because the state would prosecute him. I would prefer not to do it this way because I wanted to give him the opportunity to make this right & it would take years to play out. 

He's been in business for 8 years, a search of court records shows he's never been sued, never had criminal charges against him and has a clean history. I don't see how a person just wakes up one day and starts stealing from his clients.  

Senta, again, good luck getting a Maryland criminal court to put a contractor in jail over a couple of thousand dollars from newbie flippers, when said contractor probably can state 20 things you told him to do that were unreasonable(whether they were lies or not).  Real Estate is not easy, and most people lose money in it, Cut your losses and move onto another project, or give up on flipping. Best advice you'll get.

Do not forget that there are 4 types of lien waivers, the most stringent is unconditional release on final.

@Senta J. Your criminal case will not fly, there was no deception done, a contractor  will say that he only is late on delivering but the motive is there to complete it. Since you said you know judicial, I'll be brief, I'll assume if I say judicial things, you'll be able to figure it out. You can try going for contractor board consumer route, next contractor bonds, next civil court, maybe criminal. Don't expect you'll get anything, here are the facts, it is his contract, he has favors, you don't have clear draws or scope of work with prices, you don't have lien waivers, you dont have daily timesheets, supplier/subcontractor registry, pretty much you don't have anything but he said i said. You have some recourse, but I think your contractor will prefer to simply go to jail by the number of people he stiffed. He probably stiffed his suppliers also, and they could also put a lien on your property, they habe 20 days to do a prelim.

No legal advice intended.

@Andre Martin  I have uploaded a couple of forms under fileplace here in bp, you might find them useful.

Thanks again to everyone who responded. It sounds like I don't have a whole lot of options at this point other than to cut loses and keep moving forward. Lessons learned for next time. 

I'll update the discussion if anything that could be useful to others comes of this. 

Originally posted by @Senta J. :

It sounds like I don't have a whole lot of options at this point other than to cut loses and keep moving forward. Lessons learned for next time.  

Senta - if the contractor is properly licensed in the State of Maryland, they will have a state-issued, "Maryland Home Improvement Commission" (MHIC) Contractor number (not just a salesperson or sub-contractor number).  A MHIC is not the same as having a General Contractor's license issued by the various counties or a state issued Home Builder's license (neither of which allows for home improvement work - the former is for commercial work and the latter is for the new home construction), so don't be fooled it they say they are properly licensed but don't have a MHIC number.

If they have a MHIC license in good standing (you can check that here: http://www.dllr.state.md.us/cgi-bin/electroniclice...) and the property is also located in the State of Maryland, then you may have recourse through the MHIC Guaranty Fund. The caveat however, is that if you own more than three properties, the MHIC may find you ineligible to make a claim against the fund (I'll refrain from getting on my soapbox about that silliness for now).

In short, the fund is something every licensee pays into as a means of consumer protection.  If a claim is made, and the commission finds the contractor to be in violation of the home improvement laws, the commission may pursue regulatory or criminal charges. Maryland has very strict laws about compliance, not the least of which are some very explicit contract requirements, and there are some real penalties involved with non-compliance (given the extent of the laws, even the best contractors may likely to be in violation of at least something).

For more information about the Guaranty Fund, see: http://www.dllr.state.md.us/license/mhic/mhiccomp.....

Best of luck to you and should you need more information, feel free to reach out.

@Michael Paris Thank you for the information. He does have an active MHIC license, I checked on that before hiring him although I didn't check to see if he had any complaints against him with the MHIC, which I should've done.  He doesn't have any complaints against him on any website I can find, though, and no pending or past court cases, which tells me this may be a new behavior for him.

I also checked on the Guaranty Fund and, you're right, I'm not eligible because I have more than 3 properties. 

I sent the MHIC a general email asking for guidance in my situation and am awaiting a response. I didn't give his license number yet because I am waiting on my attorney to give me his thoughts. 

You're also right about the required clauses in the contract - he doesn't have those either. Another thing I didn't know about.

Apparently no one is really is really around during the holidays so I'll probably know more next week.

@Senta J. , I'm curious, how do you feel about hiring a licensed contractor but being ineligible for protection from the Guaranty Fund on the basis that you own more than three properties?

@Michael Paris I think it's ridiculous. I don't know what the number of properties I own has to do with being taken advantage of by someone who is licensed and pays into the fund. I don't understand the reason for it. 

It sounds like the properties have to be in your own name, though, right? If they're under a LLC, does it still count?

Originally posted by @Senta J. :

@Michael Paris I think it's ridiculous. I don't know what the number of properties I own has to do with being taken advantage of by someone who is licensed and pays into the fund. I don't understand the reason for it. 

It sounds like the properties have to be in your own name, though, right? If they're under a LLC, does it still count?

I couldn't agree more... it seems to me that it only encourages those who own more than three properties to be indifferent about using licensed contractors.  I feel that's prejudicial and that folks like you are denied protection without just cause.  As well, as a licensed contractor paying into the fund, we don't receive value from our contributions to the fund since our clients are disregarded.

Having contacted the director of the MHIC asking for some light to be shed on this subject, my request was wasn't responded to until I reached out a second time several weeks later. The response ultimately received was:

"Thank you for your inquiry regarding the claims against the Maryland Home Improvement Commission Guaranty Fund. You have asked for some information that may explain the reasoning behind the enactment of Maryland Business Regulation Code Annotated § 8-405. The 3 residence limitation on Guaranty Fund claimants was established by the Legislature, not by the Commission, and that it is not within the authority of the Commission to change this provision of the law. I cannot tell you the arguments presented to the legislature when they adopted this regulation. I can tell you that the Maryland Home Improvement Commission's mission is to regulate home improvement contractors and protect and safeguard the homeowners of Maryland. Therefore, it was the Legislature's intent not to extend the coverage of the Guaranty Fund to those who are engaged in the real estate investment business on a large scale. This was a policy decision made by the Legislature concerning the appropriate scope of the Guaranty Fund."

As for your question about the personal name vs. LLC, to that I cannot answer, but have asked the same question. I don't know if the Code defines what constitutes an "owner". A question best posed to an attorney (to which I will post such in another thread).

@Michael Paris Thanks so much for the information, Michael. That's very disappointing. 

I spoke to an investigator at the MHIC office and he said they may not even investigate a complaint from someone with more than 3 properties. He said it's a gray area and their office is intended to look out for home owners. So, even if you are not seeking reimbursement from the Fund, they still may not take action against a contractor known to be defrauding people.

Originally posted by @Senta J. :

@Michael Paris Thanks so much for the information, Michael. That's very disappointing. 

I spoke to an investigator at the MHIC office and he said they may not even investigate a complaint from someone with more than 3 properties. He said it's a gray area and their office is intended to look out for home owners. So, even if you are not seeking reimbursement from the Fund, they still may not take action against a contractor known to be defrauding people.

You're quite welcome! And it's good to hear that they may pursue action despite the Fund's gray area.  It's interesting though, because if you as an owner of more than three properties file a complaint that the MHIC pursues, and as a result, the contractor "fixes" their way, have you not then helped to protect the "home owners" and yet you're not afforded protection?  Yes, it is disappointing.

Anyway, you may be interested in following this post: https://www.biggerpockets.com/forums/51/topics/260...