Customer Won't Pay

SMKFULLER

Need help!! We have been in business as remodelers/contractors for about 6 years now and this is the first time a customer will not finish paying.
We did a 80,000.00 remodel job that took approx. 5 months to complete. We did recieve draws from the customer throughout the job and they paid with no problem. The job consisted of adding new rooms and interior remodel. The homeowner has us complete the job to a certain point then they were going to do the rest of the work themselves. For example, We had the entire inside of the home sheetrocked and textured, and the homeowner is going to paint all the walls and trim themselves. Same for the exterior, new soffit, siding exterior trim they will paint themselves. Okay so our part of the job is complete a final invoice is submitted to the customer and they say more touchup is needed. We then complete a lengthy punch list provided by the homeowner. We then request payment. Homeowner refuses to pay final bill (5800.00) until they are completely finished with their part of the work (painting, etc.) They state that any imperfections in the texture cannot be noticed until painting is done. This has dragged on now about one month, they are no where near finishing to paint. They still refuse to pay final payment till they are finished inside. I have sent them a demand letter stating a FINAL punch list is required (again) and payment need to be rendered within 10 days or legal action will be taken.
Can anyone please suggest a way to handle this? We understand that their will be touchups that need to be fixed and we want to fix them all, however how do we get this to come to a conclusion? We cannot afford to keep going to the job and fixing problems on a weekly basis. How do we make them get a final punch list and pay us? WE have gotten suggestions of putting a lein on their home or getting an attorney. HELP Please anyone?

oldgoat

The contract didn't say that you were to wait until they finished their painting so I don't see where they have any standing to delay paying you. I admit my first thought was a lien, but I think that a letter from a lawyer might get their attention better and give a change of attitude. If you were to take them to court would they also be liable for the lawyer expenses?

Glasshousebltr

Drink a pot of coffee, drive over, look them right in the face with the lien papers in your hand, tell them your going to the courthouse to file and refuse to do more work.

However, in the case of touch up work needed, offer to take care of that on trust. Also you better hurry, the longer it takes to collect, a lot of the time, the less likely.

Another option is to let them hold a little of it to cover the touch up.

Bob

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Bob

kenvest

I don't know how it works in your state, but here in NC the lein would do nothing in the short run. Only when the house is sold would the lein come into play and for all you know, they're probably very happy now that you've tricked the place out for them...

sounds like they have the money. maybe they've heard a few too many contractor horror stories from all their buddies who invariably take the lowest bid and get screwed. your dealing with the ultra conservative here and a lawyer may help, but it might also enforce their contractor bias.....

i agree with glasshouse, 5800 is way to much to keep for touchups....a grand should be all thats needed.

park the nastiest old work truck you can find out in front of their house with a sign on it saying "so and so refuses to pay their bill". find out what church they go to and do the same thing on sunday morning.....

there are no good solutinos to your problem other than better contact writing from the beginning...good luck!

PipeGuy

Ask them to write you a postdated check - 14 days maybe. That puts them on the hook to get the list done and gives you an idea of when you'll have the money in your account.

Mike Finley

My only question is what does your contract say? Amend it if it doesn't say something about final payment due immediately upon completion of work by you. Then define completion of work specifically, define it as with or without a punch list, however you want to do it, but define it so you don't run into this again.

As for where you are at now, I wouldn't have demaded another final punch list, you already did that. The punch list should have been done already, once its done its done! What they are trying to do is hold you ransom to their desires and protect themselves. It's a nice thought on their part but it isn't realistic. If the punch list is done, you are done and payment is due. Where does it end? How about holding the final payment for 1 year just to see if anything cracks or comes up?

I think Bob has it right, at the very worst I would negotiate a small hold out of say $300 out of the $5800 for touch ups even though this is uncalled for, it might be worth it just to be done with it.

King of Crown

yeah, thats what we do here in az too. lein the property. it could be a long time before the house is sold, but it could end up being one of the best investments you have made. 1 because the house should apreciate, and 2 because you will end up screwing up their final transaction. Also, i think the lein is a one of the first ones to get paid off.

red_cedar

Does anyone know if a copy of the lien can be sent to the various credit reporting agencies.
This could be a monkey wrench in disquise.

NHCharger

Leins work the same way here in New Hampshire. You might want to check into it as a last resort. Here if you don't file a lien with-in 90 days of the last day you completed work you can't file. As mentioned you have to wait until they sell the house. I've had a lein on a house since 1992. Only time in 15 years someone stiffed me.
As mentioned above what does your contract say about final payment/punch list.
I agree with the others that you should try to get them to agree to hold a small amount for the final touch ups.

Grumpy

I am in a similiar situation here but slightly different circumstances. We did a job about $4,500 in value, partial cedar roof. It came time to pay, and my foreman told the customer "We're cleaning up and will be done in about 15 minutes." The customer knew he was to pay upon completion, and I informed him that morning to have a check ready and do a final inspection with my crew foreman. My foreman went to speak with the customer and that dissapeared, the baby sitter said they left 5 minutes ago.

Long story short that was 2 months ago and every time we called or showed up at their house there was always an excuse or the message was never returned. Needless to say they put ALOT of effeort into not paying us.

Yesterday I think they got the message "We are not going away!" when we called at 7 am, showed up at their house unexpected at 9am, called again at 9:30 am and then again at noon. Each time we called we called from different numbers. Again long story short, the customer FINALLY called us back and explained his situation "I got blind sided by something and have to sell my house. When I sell my house I will be able to pay you. I will be selling my house HOPEFULLY within 2 weeks."

Here is my dilema. Once he sells his house, I really lose any power I have to force him to pay. If I file a mechanics lien he will be unable to sell his house, so if it's true he can't pay until he sells I will be shooting my own foot. He also did drop the mention that he "has a line of creditor's waiting to be paid" so I want to be the first liener (sp?) on record.

Here is what I am doing: Today I send out his 10 day notice of filing of the mechanics lien (required by law). In 9 days I call him and ask for my money and inform him if not paid I have no choice but to file the lien which will prevent him from selling his home. In 10 days I call him from my car with the "Ding Ding Ding" being audible and tell him "Last chance I am in my car and about to leave the office. I will either be driving to your county courthouse to file the lien or I will be driving to your house/work to pick up a check. What's it going to be?"

Tom R

Yeah, I would just go ahead with the lien, - - who's to say if they're really even selling the house, - - my policy is "never trust a known liar"!!

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Mike Finley

Yep, file the lein, then negotiate in a position of power.

You really have no choice if you think about it. If he actually does sell the house and doesn't pay you then you are stuck. But if you file the lein you have a much better chance of being paid.

Odds are if the guy really needs to sell his house to pay you, you most likely are probably the smallest of his debts and the least of his worries. But leining him you become his biggest worry because you are stopping him from fixing his other debts.

Do the lein and negotiate from a position of power. You've always got small claims to fall back on.

Also, sorry to hear about something like this, it sucks to have to deal with it.

kenvest

filing a lein won't neccessarily stop them from selling the house. if it isn't paid after the closing funds are transfered, they won't be able to record the new deed.

any idea if there will be any money left over after the house is sold to even pay you?
if there isn't enough cash to pay all the leins after the house is sold, it will force them into some from of foreclosure or force them to come out of pocket to pay any outstanding obligations that can't be covered by the closing proceeds. we already know they don't have any money.

In NC, taxes get paid first, then the first mortgage gets paid. after that, mechanics liens are taken care of in the order they are recorded at the register of deeds. lucky for you second mortgages come after mechanics liens. the only way they'll actually get funds in their hands is if they pay all leins, judgements and deeds of trust that are on record.

it costs $70 to record a lein here. before you waste your money, you may want to trott over to your local register of deeds and see how many hands are out before the funds get down to you. if there are 10 or more leins, which i've seen, and the house appears to be mortgaged to the hilt, you may not want to even waste your time with a lein and try taking them to small claims instead.......

if there's any equity in the house, whats stopping them from refianancing or getting an equity line of credit...in other words, they're probably isn't anything left to get out of the house....its sell and break even if they're lucky or go into foreclosure.

a lein follows the property only, a judgement from small claims follows the person.....

good luck!

Mike Finley

It's my understanding that the buyer won't be able to get a mortgage on the home because the new mortgage would be 2nd in position to the lein and no mortgage company will lend a mortgage without being in first position.

kenvest

getting the buyers mortgage in a place of first position would be conditioned on the fact that the lein would be paid at closing. the closing attorney would be responsible for paying the lein before the homeowner recieves any funds from the sale. the buyers mortgage would actually state something to that affect.

if there aren't enough funds in the deal to pay all the obligations of the previous owner, then there would be no way for the buyers mortgage to take a first position and therefore would be no deal.

cdac

Forgive my ignorance, as I have never had to file a lein YET, But how would a homes appreciation and screwing up their final transaction be an "investment" ???

kenvest

basically, all it means is if the owner sells the house, you'll get your money before they'll get any of theirs but you won't get it until they sell the house.

PipeGuy

File it now Grumpy! Waiting doesn't help you, only the folks screwing you. I'd also try and find out who the buyer/buyer's agent is and put a bug in their ear.

cdac

Ken, I know what a lein is and how it works, what I don't understand is what a homes appreciation and screwing up their transaction is of any investment value if and when the home sells...

Grumpy

Wow all this talk on liens. After I posted that above message of mine I did some research. A lawyer will charge me anywhere from $500-$1,000 to file a lien. The county will charge me $40 to do it myself.

I spoke for about a half hour with one of the clerks at the county courthouse and she basically ran down what I need to do step by step. It really seams like I can do it in a matter of 15 minutes and there aren't any questions I can't answer.

For my personal situation, the customer already has two mortgages on this property. He has no mechanic's liens however, which means I will be the first. In addition, the house has a "for sale" sign on the front lawn, with his wife's name listed as the realtor and it is listed as being for sales on the internet so I would suppose it is indeed up for sale. Like Mike said if he sells the house I lose most of my power to collect. Like TomR said never trust a liar, in this case I have no loyalty to him. He has done me no favors, why should I do him any favors by waiting? The decision was simple really.

I am booked for today but tomorrow I am taking a trip to the court house to file this lien. They open their doors at 9am. I will arrive promptly with coffee in hand and smile on face.