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Builder Trouble Response

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By leighsah
July 26, 2002

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[Note: The following is in response to several posts, and contains a wealth of great information about home construction contractors and subcontractors. The original thread is located here.]

2. Ask your attorney to require a Builder's affidavit from "Fred". Fred has 30 days to provide a list of all contractors who have done ANY work on your property....

Ummm...Fred hasn't completed ANYTHING with a deadline. I surely doubt he would do this. I mean, what is going to happen to him if he doesn't? Except for the contesting of escrow, he has failed to respond to all other requests, calls, letters (taped to his pickup truck), and other forms of communication.

Duck,

If "Fred" doesn't respond to this information within 30 days, his claims for money go out the window. He has no claim.

Please keep in mind this is Florida law, but the Home Builders Association is VERY politically active everywhere. They are commonly the ones who draft this legislation. Keep in mind this protects legitimate builders as well.

4. Pull the Notice of Commencement originally filed by the builder. Since it's not likely he's paying for this out of pocket, the lender will be listed..... If the Notice to Owner wasn't filed correctly, the lien rights are gone forever in most states.

I have no idea what you're talking about here.

A Notice of Commencement is filed by the builder. (For anyone contemplating a home improvement project, if a contractor asks you to pull this, thank them for their time and escort them off your property. They are scammers.) A NOC lists GENERALLY what is to be done to the house. It will list a legal description of the property, the legal owner, any lender (think construction loans), possibly a registered alternate contact (this is generally for commercial projects, but I've seen it for vacation homes when the homeowner isn't local) and most importantly the registered owner of the property. The NOC is what subcontractors use to prepare the Notice to Owner. A Notice to Owner is just that.

Say you contract with Fred the Schmuck Builder. FTS contracts with Can You Say Clear Cut site prep, Pumpers are Us Concrete, Man These Blocks are Heavy Masonry and Butt Crack Plumbing. Everything is fine except when its time to plumb your house, BCP discovers they are out of labors. Rather than lose the job completely, they sub out the plumbing to Vent Pipes Unlimited. Because FTS was the original contractor and he hired these contractors to begin with, a Notice to Owner isn't required for him. But if these contractors are smart, they will have filed a Notice to Owner with the lender (and anyone else listed on the Notice of Commencement) to let the lender know they did work on the job and haven't been paid yet.

ALL construction works on a draw system. FTS will have begun building. In 20 days he'll go to the Bank and say I've gotten the site cleared and the slab/foundation poured. The bank will tell Fred he's wonderful, but before they can pay him any money, he has to get progress lien releases through the 20th day. The subs and suppliers will know about this at the beginning and will have made very sure they bill Fred through that 20th day. Fred will then cut checks to the subs and suppliers. If Fred is really small, he'll ask the subs and suppliers to hold those checks for a day until he gets the money from the bank. In exchange for these checks, Fred will get progress lien releases from the subs. These lien releases say something like Pumpers are Us Concrete has been paid through the 20th day. Not that they have been paid in full or that they are done just that for the work they have completed THROUGH the 20th has been paid. The bank will then give FTS the check and Fred races to the bank. This continues through the project.

Think how a construction projects works. The site prep guys are done months before the finish carpenters. And the finish carpenters are done months before the painters. One of the down sides about subcontracting is a little thing called retention. Retention is leverage over subcontractors. Generally it is 10% in residential. I've seen it go to 2.5% on HUGE commercial jobs. Retention is money the subcontractor has earned. This really comes into play with SMALL builders. The job is done, but the builder holds out 10% until the job is complete. This means that even if the site guys finished up in February and the house isn't done until December, they don't get that last 10% until December. When the job is complete, now Fred the Schmuck has to do some scrambling. He needs FINAL lien releases from every subcontractor and supplier. If Fred was smart, he would have been getting final lien releases from the subs as he went. This Fred obviously wasn't doing this. The opposite side of this is what is required of the subs.

Obviously, you nor Fred's lender were onsite everyday. That means you don't have any idea who installed the shower surround nor who supplied the framing timbers. To protect the subs, the Notice to Owner was invented. This is a notice to the Owner/Lender that tells everybody that Butt Crack Plumbing DIDN'T install the surround. Instead $100 Service Calls after Five installed the bath surround. Now if $100 didn't file a TIMELY Notice to Owner (here in Florida, that is 44 days from the time $100 first set foot on the property), they have NO lien rights.

Here in Florida, a contractor has to file the Notice to Owner within 44 days of setting foot on the property or if an item is custom-made and is manufactured off-site or a special-order item (think custom cabinetry or counter-tops), then the clock begins at order or manufacture. After the job is done, the sub/supplier has to be paid within 60 days of finishing the job. If not, then BEFORE that 60 days, they have to file a lien. If this isn't done, the sub is out of luck. There isn't a second chance to get these lien rights.

If a sub has filed a lien, then FTS has to pay these subs, get them to sign a final lien release and a release of lien. FTS will then take these to the courthouse, get them recorded and then the bank will let Fred have his final draw. I've seen it twice that banks weren't on top of this and paid the Freds of the world their money before all the subs were paid. One worked out in favor of the homeowner because of the way he had drawn up the construction loan. The other homeowner got screwed and ended up paying another $140K to get his house.

The things that are left to do on the house are:
1) Getting the permanent Certificate of Occupancy. This just has to pass inspection by the county. There may not be anything needed, financially, for this except that we do not know if the stair rail (1st to 2nd floor) will pass or not, the recently added back door has not been inspected, as neither has the two sets of steps added to the back doors.


None of these things are awful. The hardest is going to be the railing. Stairs are really hard. For those of you with stairs, thank a stair builder. That is truly a craftsman that builds staircases. If the railing doesn't pass, it is generally a fairly easy fix to put something up temporarily until you can get someone who knows what they are doing. The stairs outside I would think would only be three or four risers at most. I don't know what your codes are, but this would not require a brain surgeon to install. I am assuming you still only have a temporary power pole without the permanent CO.

2) Getting a "punch list" of items finished before he can start work on the basement, including some trim and finish items. One is a humidifier and wall control that has not been installed yet and we believe is probably not paid for. We're working with the HVAC contractor on this along with the non-payment for the AC unit I described.

A punch list is huge. This is where that inspector is going to come into play. You can also ask other contractors for things they notice, but primarily this is the inspector's role. The humidifier and wall control will be up to the HVAC guy. Even if these guys are your best friends, please, please, please talk to their former customers. Talk to their suppliers. Do they subcontract out? Do they pay their bills on time? Are they licensed? Often there is only one person who holds the required license. That is fine, but how often is the license holder actually on your job? The vast majority of contractors are very nice and honest, but that doesn't mean they have a clue about what they are doing. They want to help you. Just human nature, but they aren't helping you if the only time they did this type of installation was two summers ago at their cousin Lenny's house.

3) Getting the basement rough-in inspection completed and the walls and ceilings built. This is the bulk of the escrow. However, one big part of that is that non-standard egress window. Fred said he was going to talk to the "main" inspector and try to have it grandfathered or passed. But until he gets that passed or fixed, he can't work on the rest of the basement. But Fred wants to keep the project "open" so he can go in and finish it and get his escrow. We're stopping him and have 3 other contractors interested in finishing our basement, including rectifying the window situation.

Your attorney is leading you on this one. I wouldn't allow Fred anywhere near your house. Not anywhere. I don't know if someone is there all the time, but if not, make it look like someone is. Fred may get desperate about his tools. I'd treat them as abandoned property.

Let the contractors massage the inspector. Preferably a contractor who does ALOT of work in your town. An out of code egress is a BIG screw up. I mean HUGE. Was this on the plans? Anyway, let the contractor take a stab at the inspector. If no progress, re-do it and move on.

Sorry for the delay. School is winding down and the projects are piling up. HTH.

Leighsah


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