First rehab - contractor went MIA

Rehabbing & House Flipping
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First rehab - contractor went MIA

Jimmy Chin
Software Engineer · Houston, TX · Member since 2015 · 30 posts · 17 votes

Hey everyone,

I'm currently rehabbing a property for rental and my contractor is now MIA. I've tried calling, texting, and emailing but I'm not able to reach him at all. This has gone on for a week now and he has left a lot of work unfinished. What I'm perplexed about is that this guy was supposed to be a reputable contractor but he has disappeared on me all of a sudden. I don't have any more time to wait around and hope that he returns my attempts to reach out so, in all likelihood, I would need to find another contractor to finish off the job. Is there anything that I can do legally? I've already paid him a good amount of money for the work and he's basically only done half of what he's already cashed. Also for the HVAC system, I paid him the 50% to start the job already but he hasn't done any work at all. What are your thoughts on the next course of action? Here are the items still to be finished:

- flooring

- countertops

- bathrooms - faucets, showerheads, accessories, etc

- any other associated plumbing, electrical, or clean up work

I'd greatly appreciate any advice! If anyone knows of a fairly priced contractor for this type of work in the Houston area, then please let me know!

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Darnell Kramer
Investor · San Diego, CA · Member since 2013 · 64 posts · 25 votes
10y

@Phil Bottfeld

Agreed.. I get frustrated by contractors that want money up front... or ask for a payment because I must pay my workers... RED FLAG.

We are all in business.  We must all budget.

Okay you want an initial drawn for supplies.  Give me the list. I will buy them.

Then I own them, you are out zero, and you can get to work.

Rant off.

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  • Adam P
    Investor · Chicago, IL · Member since 2010 · 76 posts · 55 votes
    10y

    You are unlikely the only person he owes money to, so be very careful on being too nice.  It is most likely those with the smallest stick will be the last paid (if ever).

    I would start legal action, and any utilize any other ways in your state to get reimbursed.  You won't get anything back for the time he has wasted, but may be able to at least recover the money you paid.

    0Reply
  • Nghi Le
    Investor / Lender · Seattle, WA · Member since 2014 · 1k+ posts · 730 votes
    10y

    For those recommending that the investor should pay for materials, I would caution this a little. From what I've heard, you start blurring the lines between employee vs contractor when you do this, which might bring on other liabilities (including tax liabilities).

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  • Jimmy Chin
    OP
    Software Engineer · Houston, TX · Member since 2015 · 30 posts · 17 votes
    10y
    Originally posted by @Adam P:

    You are unlikely the only person he owes money to, so be very careful on being too nice.  It is most likely those with the smallest stick will be the last paid (if ever).

    I would start legal action, and any utilize any other ways in your state to get reimbursed.  You won't get anything back for the time he has wasted, but may be able to at least recover the money you paid.

     You are indeed right Adam - he actually walked out on two other investors and owes them each 3 times the amount he owes me. I've already filed my lawsuit and have a court date set. I realize my stick is much smaller but I'm hoping that since my lawsuit is first in line and involves much less money, then I hopefully can get something back.

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  • Russell Naylor
    Colorado Springs, CO · Member since 2016 · 214 posts · 58 votes
    10y

    Do you have a signed contract? Could get an attorney involved if so. 

    I will echo everyone else on here and say progressive payments are the best. As an insurance adjuster, I occasionally get customer's calling me saying they gave the money to someone and they just disappeared on them. Work, then money.

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  • Jimmy Chin
    OP
    Software Engineer · Houston, TX · Member since 2015 · 30 posts · 17 votes
    10y
    Originally posted by @Nghi Le:

    For those recommending that the investor should pay for materials, I would caution this a little. From what I've heard, you start blurring the lines between employee vs contractor when you do this, which might bring on other liabilities (including tax liabilities).

    Hey Nghi, I ended up assuming GC duties for the rest of the project and required my subcontractors to finish the work completely and to my satisfaction before paying a dime. In the case that they needed materials ahead of time (like fixtures, outlets, etc), I ended up purchasing the materials myself and asking the subcontractors to install them. If the subcontractor had to pay for materials out of their pocket, then I asked for receipts. Whenever issues came up or I wasn't satisfied with their work, they would come back out in a timely manner because they wanted to get paid. I'm not sure what liabilities I could run into but I feel like this is the best way to protect myself as an investor.

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  • Jimmy Chin
    OP
    Software Engineer · Houston, TX · Member since 2015 · 30 posts · 17 votes
    10y
    Originally posted by @Russell Naylor:

    Do you have a signed contract? Could get an attorney involved if so. 

    I will echo everyone else on here and say progressive payments are the best. As an insurance adjuster, I occasionally get customer's calling me saying they gave the money to someone and they just disappeared on them. Work, then money.

     Hey Russell, I do have a signed contract. I don't plan to hire an attorney as this will be handled in small claims court and, given that I most likely won't recover any money, might not be worth it. I will start requiring progressive payments going forward and if a contractor won't agree to that, then I will just find another one.  I've seen some GCs have an errors and omissions insurance policy as well as general liability insurance policies - is it standard practice to ask for these?

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  • Russell Naylor
    Colorado Springs, CO · Member since 2016 · 214 posts · 58 votes
    10y

    @Jimmy ChinI'm not sure about the E&O honestly. we don't enforce anything in those regards as an insurance company due to them being a third party and we have no leverage. We leave that to the customers to pursue if they wish.

    I would assume they would have some liability though, if they are remotely legit and smart. Couldn't hurt to ask though. 

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  • Account Closed
    Insurance Agent · Member since 2015 · 191 posts · 124 votes
    10y
    Originally posted by @Jimmy Chin:
    Originally posted by @Russell Naylor:

     Hey Russell, I do have a signed contract. I don't plan to hire an attorney as this will be handled in small claims court and, given that I most likely won't recover any money, might not be worth it. I will start requiring progressive payments going forward and if a contractor won't agree to that, then I will just find another one.  I've seen some GCs have an errors and omissions insurance policy as well as general liability insurance policies - is it standard practice to ask for these?

     Jimmy, 

    In my experience contractors errors and omissions "E&O" insurance is not something regularly held and in my opinion would not add much value to a typical residential rehab project. E&O insurance is generally held by large HVAC or electrical contracts and covers situations where there is no bodily injury or property damage. ie. If the lights in the building do not turn on because the electrical contractor installed something improperly that contractors E&O insurance would likely pay for him to go back in and redo the work.

    In my opinion Builders Risk insurance is the best way to protect against damage to your property during construction and general liability is the best way to protect against damage or injury to others as a result of one of your contractors negligence. Please note this is a general opinion and does necessarily apply to your specific circumstance.

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  • Gino BarbaroPro Member
    Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    @Jimmy Chin

    HI Jimmy

    You can send a threatening certified letter from your attorney telling him you are going to seek someone else to finish job and he will be billed for work.

    You are in a tough spot, and I bet most people on BP have been in the same predicament, including me.  I now only pay a small deposit to begin work, and pay as you go.  I know this is useless for this job, but a great lesson for the future.

    Where did you find him?  Maybe you can track him down from wherever it is you found him.

    Gino

    Podcast Guest on Show The “Conveyor Belt” System That’ll Build You a BIG Rental Portfolio Quickly
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  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Jimmy Chin E&O are for professional companies, architectural/engineering companies, etc. Commercial Gen Lia is common, Contractor Bond (which actually the one who will pay you). Remember that insurance is "if this happens then I pay", something like if there is an accident an insurance policy pays for it. No insurance is going to cover if the contractor does not perform except for Contractor Bonds, not that I know of, also technically a bond is not an insurance policy anyways. Nghi Le I don't see the implications, but I have a reseller permit for me to resell anything. There are tax liabilities if you waive the sales tax on a product, which doesn't happen if you don't do selling. Like if I buy an equipment at 100k as shelf price (ie the number you see at homedepot above/below the product) by the time I pay it, it will be 8-10k more (8-10% sales tax), so I am supposed to pay 110k out the door, but with the reseller, I can buy them at 100k out the door, mark-up 20k, and sell it to my client 120k and then charge them 132k (10% sales tax on 120k), then my checks will be distributed like 100k to supplier, 20k to myself, 12k to the city/county/state.
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  • Nghi Le
    Investor / Lender · Seattle, WA · Member since 2014 · 1k+ posts · 730 votes
    10y

    @Jimmy Chin@Manolo D.

    This is something that I heard from Labor & Industries (L&I) from my state after I went to their contractor training day (when I was contemplating getting my GC license).  If you do things that an employer normally does, such as purchase materials/equipment for its employees, telling them when to work, where to work, what to do, etc., the "independent contractor" may actually be seen as a "covered worker" and you'll have to do things like pay their worker's compensation premiums and follow state employment laws, maybe even providing payroll and pay FICA taxes.

    Remember that lawsuit against Microsoft where its contractors/temp workers claimed that they were basically treated as employees and should therefore get the same benefits?

    It could just be a thing within my state, but you might want to check yours too. Most people want more control over their contractors (and their money), but it's that "control" that may cause them to get in trouble with L&I.

    Then again, my state has other weird rules too, such as every flip requiring a licensed GC to do it the work.  And if you do a lot of subcontracting/coordination and act like a GC without having a license, you get fined too...

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  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Nghi Le I will agree with it is state based. Nothing like that here in CA, logically it is correct that if you get more control you're making them as employees, but that is what T&M is, you pay by the hour. It is still a grey area, the safe bet is, you give them an HD reloadable card and track what they spend by registering as PRO account user, or have an envelope to put all receipts as part of payment requirement. Telling them what to do is a deep legal battle which noone wants to touch, you can't really prove it, if you're not monitoring them by the minute/hour, then I don't believe it is solid, safe bet on that is give them a clear and detailed scope as part of the contract (no employer-employee engagement there yet), and then monitor progress, everything you don't like, you issue a correction notice.
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  • Account Closed
    Dayton, OH · Member since 2015 · 8 posts · 2 votes
    10y

    i am just getting in to real estate and i know first hand to never give money up front if they need money up front you dont need them. i have a background in construction and have owned a roofing business for the last 5 years i always offer no money up front payment upon completion

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