I Gambled And Got Bit

Pete. · 02-08-2009, 08:46 AM

I did an addition several months ago for a family who toward the end of construction fell on some hard times. Since I was near completing the job I did some checking to make sure they were not just trying to screw me out of the final payment. They weren't so I agreed to finish the job and set them up on a payment plan, figuring something was better than nothing.

I happened to be in the neighborhood yesterday and drove by to mention they were 2 weeks late on their payment. Instead, I saw a foreclosure sign in the front yard and the house was empty. I plan of filing a lien on Monday, but in the mean time I was wondering if any of you have had to fight a bank to get your money on a maybe similar situation, and how ugly or drawn out was?

**KentWhitten** · 02-08-2009, 09:09 AM

Ugly. Go get a lawyer if it's over 10K. Under 10K may not even be worth it.

Sorry for your misfortune.

Mike Finley · 02-08-2009, 09:21 AM

Actually I think you hit the jackpot, the house is for sale which is the process that gets you paid. Your lein will have to be paid off in order for someone to buy the house, no title insurance company will issue a clean bill of health with your lean on it.

Pete. · 02-08-2009, 09:22 AM

The total is down to just over 6k, am I sure that you are right that lawyer fees would end up eating most of it. Was not really looking for a tax write off this early in the year, I guess I should be happy I'm not in their situation.

IHI · 02-08-2009, 09:26 AM

You cna file the lein yourself, at the very LEAST get that submittied tomorrow!!!!! then call a lawyer just to check and see, if he can offer services for $1K, i think recouping $5K would be worth the effort...

Pete. · 02-08-2009, 09:27 AM

Quote:

Originally Posted by Mike Finley

Actually I think you hit the jackpot, the house is for sale which is the process that gets you paid. Your lein will have to be paid off in order for someone to buy the house, no title insurance company will issue a clean bill of health with your lean on it.

Really? I figured the bank would get theirs first and if nothing was left over after their 2nd mortgage the court would tell me so sorry. Never had to file a lien before, that is good to know.

Oh yeah, if I get 5k I will be happy...Thanks!

PA woodbutcher · 02-08-2009, 09:30 AM

I think we are going to see more of this in the coming months. I understand hard times and have seen my fair share. Unless it's an essential when the payments stop so does the work. Doesn't mean its the HO's fault and don't want to be a dick, but also don't want to be put in the same predicament they're in.

Heritage · 02-08-2009, 09:33 AM

Don't sleep on this. If you're still within your deadline (60-90 days), then get this done YESTERDAY!!! Consider this a blessing and get on it! GL.

Mike Finley · 02-08-2009, 09:47 AM

Crap you might be right, it might come down to the equity in the house and you might get wiped out.

You might have to purchase the 1st lein holders debt (and the house) in order to protect your lein.

Sounds like you file the lein then do some research and see what the circumstances are.

Worst case you might get a house at a bargin.

Quote:

How does Lien Priority affect me?

To explain this as simple as possible, when you buy a home and get a loan for the home, the lender puts a lien on the property. By doing so, the property becomes collateral for the loan. So, in the event the homeowner is unable to make payments, the lender can force the sale of the home to get paid. There can be several liens at one time on a single property?
Lien priority is based on when things get recorded. So let me give you an extreme example to illustrate lien priority.
Here is an example situation with about everything that you could possibly come by. We have a 1st mortgage for $250,000 with $15,000 in arrears. This would include all back payments, late fees, attorney fees and all the other fees they tack on. This was recorded 6-20-1999. We have a 2nd for $60,000 with $5000 in arrears. Again this includes the back payments and fees. This was recorded 7-21-1999. We have two judgments. One for $2000 recorded 3-2-03, and one for $4000 recorded 4-2-03. We have $3000 in state income tax recorded 5-5-04. We have a $6000 IRS tax lien recorded 10-20-04. And finally we have $5000 in property taxes recorded 2-11-05. Believe it or not all of these are different which we will talk about.
If we take a look at this example, we have a 1st mortgage and we can clearly see it was recorded first in 1999. We also have a 2nd who is clearly in 2nd position. Then we have a couple of judgments. The judgment for $2000 is in 3rd position because it was recorded before the $4000 judgment. So the $4000 judgment is in 4th position. Then we have state income tax for $3000 which is in 5th position.
Here is a simple version.

1st Mortgage -$250,000 recorded 6-20-1999
-arrears $15,000
2nd Mortgage - $60,000 recorded 7-21-1999
-arrears $5000
Judgment 1 - $2000 recorded 3-2-2003
Judgment 2 - $4000 recorded 4-2-2003
State Income Tax $3000 recorded 5-5-2004
IRS Tax Lien - $6000 recorded 10-20-2004
Property Taxes - $5000 recorded 2-11-2005

Are you starting to see the pattern? It's all based upon when you record. Whoever records before another would be in "Senior" position and the other would be "Junior". Hence the terms senior or junior lien holders.
Now we get down to the last 2. These last two have rules which we need to discuss. If we look at when these were recorded, the good ole IRS tax lien would be in 6th position. Now even though the IRS is in 6th position, they have what's called redemption rights. So here is the rule for IRS. It doesn't matter what position they are in, they could be in last position. If there is still equity in the property, they have 120 days to redeem the property. Why would they want to redeem the property? If there is a great deal of equity in the property and they know it, they can use that money to satisfy any tax liens. It is very rare the IRS does this, but it can happen.
Then we finally get down to the state property taxes. All of you need to remember this. This is very important. Here is the rule for property taxes. State property taxes have priority over EVERYTHING. It does not matter when it was recorded. If you look at this example, there is $5000 of unpaid property taxes that was recorded after everything else. It was recorded 6 years after the first mortgage. Guess what? It does not matter. Property taxes always get paid first.
So if we take a look at this example from what we just discussed, and the first is foreclosing - what is the opening bid at the auction? $250,000 + $15,000 + $5000(property taxes) = $270,000. All the other junior lien holders are wiped out if they don't protect their position except for... the IRS tax lien. Remember, they have their redemption period. Now here is something else you need to understand. Even though everyone was wiped out, the junior lien holders can still go after the borrower. This is called a deficiency judgment. Again this does not happen very often but it does happen. A deficiency judgment is an unsecured debt and does not attach to any property. Then depending on your states laws they can collect this debt.
If the 2nd is foreclosing - what is the opening bid? $60,000 + $5,000(arrears) = $65,000 and you are responsible for anyone senior, in this case the 1st of $270,000 for a grand total of $335,000. And everyone junior to the 2nd lien holder is wiped out except for IRS. See why it's so important to know who is foreclosing?

neolitic · 02-08-2009, 09:58 AM

If they were upside down in
the mortgage....good luck.
File the lien and call a lawyer,
but in these deals you are likely
at the end of the line to get paid.
Hope you come out with something.

Mike(VA) · 02-08-2009, 11:10 AM

The OP said he saw a foreclosure sign in the front yard. If the bank NOW owns the property, you are probably out of luck filing a lien. Also, if there are liens on a property, a foreclosure by a bank pretty much wipes them out, I believe since they are usually in first chair.

rbsremodeling · 02-08-2009, 11:16 AM

This is first hand personal experience. I started a house got my 1st draw. Finished all the work for my second draw about 40K , bank inspects signs off but no check.

Call the bank the homeowners are behind on the mortgage. I file lien. House gets short sale for 300K They were mortgaged for 600K. plus the construction loan

I got $0

The 300K did not even satisfy the first lien. The bank had the first and second positions

Bodger · 02-08-2009, 11:20 AM

Quote:

Originally Posted by rbsremodeling

This is first hand personal experience. I started a house got my 1st draw. Finished all the work for my second draw about 40K , bank inspects signs off but no check.

Call the bank the homeowners are behind on the mortgage. I file lien. House gets short sale for 300K They were mortgaged for 600K. plus the construction loan

I got $0

The 300K did not even satisfy the first lien. The bank had the first and second positions

How can we avoid this? Is there anyway for a contractor to limit the exposure on this kind of thing?
I fear we'll be hearing more about these instances.
Times being what they are, a loss like Rory describes would all but wipe me out right now. And there's not enough work coming in so I could re-bound on the next one.
Tax write-offs be damned, I need income first.

precisionbuild · 02-08-2009, 11:22 AM

Quote:

Originally Posted by Bodger

How can we avoid this? Is there anyway for a contractor to limit the exposure on this kind of thing?
I fear we'll be hearing more about these instances.

Yea. Stay ahead on your draws. Make the person use the downpayment they would have to make for the loan anyhow to finance the stages and then they get reimbursed by the bank with each draw.

rbsremodeling · 02-08-2009, 11:26 AM

Get your money up front period or enough of it not to hurt. I stayed away from bank jobs for years.

Most of my clients have money to pay for 10-50k jobs out of their pockets. I started to grow and the bank jobs got hard to resist. 100-300K 3-6 months of work. I could not resist.

Leave them alone. If I can't get my draws up front or most of my money it ain't a job for me. No 40% on the back end jobs for me

I will not do a job with out money up front. I have never stiffed a customer but I have been stiffed. The odds are in my favor I want my money up front

Brock · 02-08-2009, 11:32 AM

Quote:

Originally Posted by precisionbuild

Yea. Stay ahead on your draws. Make the person use the downpayment they would have to make for the loan anyhow to finance the stages and then they get reimbursed by the bank with each draw.

I don't feel sorry for you guys that finance part of your jobs then complain.

It's like soaking your face in gasoline and wondering why your face get hot when you light your cig.

I can guarantee you I would be about a mill short right now if the cust had that leverage on me. Commercial is different. Homewoner will stick it in ya and break it off. Liens don't work, according to the dozens of CT users in here that said they tried it.

rbsremodeling · 02-08-2009, 11:34 AM

Quote:

Originally Posted by Brock

I don't feel sorry for you guys that finance part of your jobs then complain.

It's like soaking your face in gasoline and wondering why your face get hot when you light your cig.

I can guarantee you I would be about a mill short right now if the cust had that leverage on me. Commercial is different. Homewoner will stick it in ya and break it off. Liens don't work, according to the dozens of CT users in here that said they tried it.

Agreed. I broke one of my oldest rules and it came back to bite me.

Bodger · 02-08-2009, 11:39 AM

Quote:

Originally Posted by Brock

I don't feel sorry for you guys that finance part of your jobs then complain.

It's like soaking your face in gasoline and wondering why your face get hot when you light your cig.

I can guarantee you I would be about a mill short right now if the cust had that leverage on me. Commercial is different. Homewoner will stick it in ya and break it off. Liens don't work, according to the dozens of CT users in here that said they tried it.

Aren't liens better than nothing though, outside of the foreclosure scenario I mean.
I sent an intent to lien to an HO last year and had my five grand in less than a week. Of course, apart from that, you're waiting until they sell, if ever, to collect.
Not letting them get top-heavy on the back end is the best way obviously.

Brock · 02-08-2009, 11:41 AM

Quote:

Originally Posted by rbsremodeling

Agreed. I broke one of my oldest rules and it came back to bit me.

It was the first thing I learned when I started out. I was pay 100% on completion! Stupid. I deserved an unreasonable cust. at the end.

Like touching the baked potato without a hotpad. You know it's going to be painful but for some reason you think this time it wont hurt.

AutumnWood Inc. · 02-08-2009, 11:41 AM

Ask for the full amount to be put in a escrow account, In both parties names, And a detailed contract/draw schedules...

02-08-2009, 08:46 AM	#1
Pete. View Profile Pete. Registered User Send Message Follow Blogs (0) Threads (4) Photos (0) Reviews (0) Projects (0) Toolbox (0) View All Activity Registered User Trade: Trim Carpenter; Remodeling Contractor Join Date: Jan 2009 Location: Knoxville, TN Posts: 4	I Gambled And Got Bit I did an addition several months ago for a family who toward the end of construction fell on some hard times. Since I was near completing the job I did some checking to make sure they were not just trying to screw me out of the final payment. They weren't so I agreed to finish the job and set them up on a payment plan, figuring something was better than nothing. I happened to be in the neighborhood yesterday and drove by to mention they were 2 weeks late on their payment. Instead, I saw a foreclosure sign in the front yard and the house was empty. I plan of filing a lien on Monday, but in the mean time I was wondering if any of you have had to fight a bank to get your money on a maybe similar situation, and how ugly or drawn out was?

02-08-2009, 09:09 AM	#2
KentWhitten View Profile KentWhitten The Duke Send Message Follow Blogs (0) Threads (10,098) Photos (11) Reviews (4) Projects (2) Toolbox (6) View All Activity The Duke Trade: Cabinet Maker Join Date: Mar 2006 Location: Portland, Maine Posts: 10,098	Re: I Gambled And Got Bit Ugly. Go get a lawyer if it's over 10K. Under 10K may not even be worth it. Sorry for your misfortune. __________________ If you correct your mind, the rest of your life will fall into place ~Lao Tzu Custom Cabinetry - Portland, Cape Elizabeth, Scarborough, Kennebunkport, Yarmouth, Falmouth, Cumberland, Ogunquit, Maine Salmon Falls Cabinetry

02-08-2009, 09:21 AM	#3
Mike Finley View Profile Mike Finley Chief Toilet Mover Send Message Follow Blogs (0) Threads (14,078) Photos (0) Reviews (0) Projects (0) Toolbox (0) View All Activity Chief Toilet Mover Trade: Bathroom Remodeling Join Date: Apr 2004 Location: Littleton, Colorado Posts: 14,078	Re: I Gambled And Got Bit Actually I think you hit the jackpot, the house is for sale which is the process that gets you paid. Your lein will have to be paid off in order for someone to buy the house, no title insurance company will issue a clean bill of health with your lean on it.

02-08-2009, 09:22 AM	#4
Pete. View Profile Pete. Registered User Send Message Follow Blogs (0) Threads (4) Photos (0) Reviews (0) Projects (0) Toolbox (0) View All Activity Registered User Trade: Trim Carpenter; Remodeling Contractor Join Date: Jan 2009 Location: Knoxville, TN Posts: 4	Re: I Gambled And Got Bit The total is down to just over 6k, am I sure that you are right that lawyer fees would end up eating most of it. Was not really looking for a tax write off this early in the year, I guess I should be happy I'm not in their situation.

02-08-2009, 09:26 AM	#5
IHI View Profile IHI Pro Send Message Follow Blogs (0) Threads (2,302) Photos (0) Reviews (0) Projects (0) Toolbox (0) View All Activity Pro Trade: General construction and remodeling Join Date: Dec 2004 Location: Waterloo, IA. Posts: 2,302	Re: I Gambled And Got Bit You cna file the lein yourself, at the very LEAST get that submittied tomorrow!!!!! then call a lawyer just to check and see, if he can offer services for $1K, i think recouping $5K would be worth the effort... __________________ Hot Rod Work Van Car video clip Web The Photo Gear- Type Josh into Contact name when ordering

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02-08-2009, 09:30 AM	#7
PA woodbutcher View Profile PA woodbutcher Pro Send Message Follow Blogs (0) Threads (1,907) Photos (15) Reviews (0) Projects (0) Toolbox (0) View All Activity Pro Trade: Remodeling Join Date: Mar 2007 Location: Northeast, Pa Posts: 1,907	Re: I Gambled And Got Bit I think we are going to see more of this in the coming months. I understand hard times and have seen my fair share. Unless it's an essential when the payments stop so does the work. Doesn't mean its the HO's fault and don't want to be a dick, but also don't want to be put in the same predicament they're in. __________________ 'The trouble with our liberal friends is not that they're ignorant; it's just that they know so much that isn't so.' - Ronald Reagan

02-08-2009, 09:58 AM	#10
neolitic View Profile neolitic Curmudgeon Send Message Follow Blogs (0) Threads (11,707) Photos (0) Reviews (0) Projects (0) Toolbox (0) View All Activity Curmudgeon Trade: carpentry/remodeling/"Yes M'am we do" Join Date: Apr 2006 Location: Beech Grove, Indiana, Birthplace of the "King of Cool" Posts: 11,707	Re: I Gambled And Got Bit If they were upside down in the mortgage....good luck. File the lien and call a lawyer, but in these deals you are likely at the end of the line to get paid. Hope you come out with something. __________________ Put your location in your profile! (Sorry....it seems there really are dumb questions)

02-08-2009, 11:10 AM	#11
Mike(VA) View Profile Mike(VA) Custom Stuff Send Message Follow Blogs (0) Threads (859) Photos (0) Reviews (0) Projects (0) Toolbox (0) View All Activity Custom Stuff Trade: General Contractor - Custom Renovations Join Date: Jan 2008 Location: Manassas, VA Posts: 859	Re: I Gambled And Got Bit The OP said he saw a foreclosure sign in the front yard. If the bank NOW owns the property, you are probably out of luck filing a lien. Also, if there are liens on a property, a foreclosure by a bank pretty much wipes them out, I believe since they are usually in first chair. __________________ __________________________________________________ ___________ I EXPECT THAT SOMEDAY I WILL SEE THE FRUITS OF MY LABOR. IS IT SOMEDAY YET? Clifton, Great Falls, McLean, Fairfax Station, Manassas, Virginia Renovation Contractor

02-08-2009, 11:16 AM	#12
rbsremodeling View Profile rbsremodeling Professional Instigator Send Message Follow Blogs (0) Threads (6,872) Photos (0) Reviews (0) Projects (0) Toolbox (0) View All Activity Professional Instigator Trade: Design Build Remodeling Contractor DC MD Join Date: Nov 2007 Location: Washington, DC/ Maryland Posts: 6,872	Re: I Gambled And Got Bit This is first hand personal experience. I started a house got my 1st draw. Finished all the work for my second draw about 40K , bank inspects signs off but no check. Call the bank the homeowners are behind on the mortgage. I file lien. House gets short sale for 300K They were mortgaged for 600K. plus the construction loan I got $0 The 300K did not even satisfy the first lien. The bank had the first and second positions __________________

02-08-2009, 11:26 AM	#15
rbsremodeling View Profile rbsremodeling Professional Instigator Send Message Follow Blogs (0) Threads (6,872) Photos (0) Reviews (0) Projects (0) Toolbox (0) View All Activity Professional Instigator Trade: Design Build Remodeling Contractor DC MD Join Date: Nov 2007 Location: Washington, DC/ Maryland Posts: 6,872	Re: I Gambled And Got Bit Get your money up front period or enough of it not to hurt. I stayed away from bank jobs for years. Most of my clients have money to pay for 10-50k jobs out of their pockets. I started to grow and the bank jobs got hard to resist. 100-300K 3-6 months of work. I could not resist. Leave them alone. If I can't get my draws up front or most of my money it ain't a job for me. No 40% on the back end jobs for me I will not do a job with out money up front. I have never stiffed a customer but I have been stiffed. The odds are in my favor I want my money up front __________________

02-08-2009, 11:41 AM	#20
AutumnWood Inc. View Profile AutumnWood Inc. Pro Deck Builder Send Message Follow Blogs (0) Threads (508) Photos (0) Reviews (0) Projects (0) Toolbox (0) View All Activity Pro Deck Builder Trade: Deck Builder Join Date: Aug 2007 Location: Metro Detroit Posts: 508	Re: I Gambled And Got Bit Ask for the full amount to be put in a escrow account, In both parties names, And a detailed contract/draw schedules... __________________ michigan deck builders\| oakland county michigan deck builders \| macomb county michigan deck builders \| michigan deck contractor \|

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