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Builder Problems

Ask the Real Estate Lawyer: Real Estate Law Q&A

REM #LAW 657

By Ilyce R. Glink and Samuel J. Tamkin

Summary: When a builder won't make repairs, is it OK to hold back the last payment? Will the builder then be able to put a lien on the homeowner's new house? It all depends on the contract.

Q: I was reading some of your articles on new home construction and discovered I was not the only one out there dealing with a bad builder.
(article continues below useful links)

Our builder has spent a year building our home. He is supposedly reputable and has won awards at various home shows.

Anyhow, it was a horrendous year with everything going wrong. Unfortunately, because of pressure from the bank we closed on the home in last December. It has now been months since our closing and our list of things that needed to be have not been fixed.

The builder has been very slow to send people to fix things. He even gave me the list of subcontractors to call directly, but they always say that they need to talk to the builder before they come out. We’re still holding back $2,300 from the closing until he completes the work, but the builder has become nasty and has told us that he will not complete the rest of the work until we pay him.

Our purchase contract indicates that we have a one year warranty with his subcontractors, and if they do not comply, then any problems will be covered by the builder.

Can we continue to hold back the money? Can he sue us for the money or put a lien on the house? What I would like to do is call an attorney, and get the ok to hire other subs to fix the work, and deduct from what we owe him, but I think that the amount we owe him will not cover the cost to make the repairs. What should we do?

A: You are on the right track. Unless your requests for repairs are unreasonable, you have already seen that your builder hasn’t responded to your request to make repairs. You know that if you give him the money, you will have lost all leverage to get him to make the repairs. Perhaps the builder knows that the cost of making the repairs exceeds the amount held back and once you pay him he won’t finish them anyway.

But first you have to determine if you have the legal right to hold back the money. Your purchase or construction contract should detail when and how money gets paid to the builder.

If the contract permits a holdback until all the work is complete, you are in your legal rights to continue to hold back the money until the work is performed. The contract should also indicate what happens if the work is never completed by the builder. If the contract allows you to get your own subcontractors to finish the work, you might have to do that.

It would be at this point that a good real estate attorney could help you out in navigating the waters of your contract and tell you what additional legal remedies you may have against the builder.

When you talk to your attorney, you should discuss what rights you may have against the subcontractors. If there is work that still needs to be done, the attorney may want to give them a call and remind them that if they were paid in full, they need to make sure their workmanship is up to the standards of the industry.

You may have a right to sue the subcontractors directly for the work they did or failed to do at your home.

The builder may be able to lien your home for work that was performed but not paid for. But you in turn would be able to sue the builder for breach of contract. You would then have to battle it out to determine who would prevail. In the end both of you might end up spending more money litigating than what it would have cost to fix the items.

Let’s hope you don’t have to go down the litigation path. Instead, try appealing directly to the tradespeople. If they’re honorable, they’ll eventually come back and finish the work.

If you need to encourage them, you should know that many states have regulatory agencies for certain types of contractors. If any one of your tradespeople is regulated by your state, you can file a complaint with that agency about the trades’ failure to perform work.

Tread carefully here -- you don’t know what has gone on between the builder and his subcontractors. If the subs have not been paid in full by the builder, they aren’t likely to want to do more work for nothing. You will need to get more information about each trade and assess the current situation with them.

If you can’t find a way to talk through the issues with the builder and get him to finish the work he promised to complete, you might try hiring a handyman.

If you find out that completing all the work is going to be a ton of money, and if your contract permits you to sue the builder and recover your attorneys’ fees in case you win, you may decide to go that route. You and your attorney can discuss the options and how best you should proceed and even whether you can file a complaint against the builder with the Better Business Bureau, any state agency that regulates your builder or with your village or city hall.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website




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