203k hell - Contractor Talk - Professional Construction and Remodeling Forum

mikec · 10-27-2009, 05:37 PM

I have a 203k job that has finally closed, and we are ready to proceed.
But things are not looking good.
First the HO got a draw check for 50% ( I put in a draw for 25% at closing).

The check is made out to her and my company, she says she was told by the mortgage company to deposit it in her account, give me my deposit, then pay me as we progress. Ok no big deal, as long as I get paid as we progress, and I get my deposit.

Now she calls tonight, and says she wants to use another contractor to replace the windows. Some window salesman is there with her now. He will take what I allotted for windows, and finance her the difference.
Now a little background, when I spec'd the windows budget was a huge concern, so we went with Harvey slimeline replacements.(low end).

I have a bad feeling about this window switch, and quite honestly since the closing I have gotten a bad feeling about the HO. Seems like she said/did what she had to to get this through, and now she thinks she's Miss GC.

I do not think I am going to allow the window switch. And am wondering if it is possible for me to get out of the whole deal.
Anyone ever gotten out of a 203k?
We have not started anything on this job to date.

NormW · 10-27-2009, 07:24 PM

Wow! problems already? Wonder if its easier to have problems at the very beginning, or at the final payment (that is when my customers morph into hyde). Think Ill follow this thread... good luck, and yeah! your customer sounds like a potential headache. If you force her into following the contract at the beginning, Id be willing to bet that she will make life miserable through out the job. Since she is changing her mind on the windows, maybe she will let you drop out...

samccard · 10-27-2009, 07:34 PM

Does your contract allow her to specify which subs to use? I would have her sign a change order regarding the window change, if you allow it.

mikec · 10-27-2009, 07:48 PM

I offered to upgrade her windows, but I don't offer financing.
Also for me to upgrade her windows, was much cheaper than the cost this other company wants to charge. Basically, she is upgrading to tax credit eligible windows. I can upgrade her Harvey windows for about $42 each my cost. I would do this at cost to keep everyone happy, and things moving, but this sales man has her convinced his windows are far superior.

According to the 203k agreement I have 30 days to start the job after closing, and 90 to finish. The mort lady screwed things up, and I was never made aware of the closing date by anyone, until 3 days after it happened, despite several requests to be notified of a closing date in order to set my schedule.
Now after it has closed(last week), she says " I want to be done by Nov 30".

I am booked until mid December.
Due to periods of rain tomorrow the guys won't be siding on our current job so,I was going to go in there , and start some demo we need to do, and meet the electrician to go over a service upgrade.
Now I am thinking I may not start anything until I consult an attorney.
I have that feeling in my stomach that this is going to go bad if I have to proceed.

mikec · 10-27-2009, 07:49 PM

Quote:

Originally Posted by samccard

Does your contract allow her to specify which subs to use? I would have her sign a change order regarding the window change, if you allow it.

No my contract doesn't allow her to choose any subs, and it clearly states which windows I am installing.

samccard · 10-27-2009, 07:57 PM

Better follow your gut!

kevjob · 10-27-2009, 08:04 PM

Go meet her ASAP, discuss your concerns with her and see how she reacts, total time 15-30 mins. might be she was seduced by the young sales man smuggling a squirel in his ultra tight pants.

mikec · 10-27-2009, 08:07 PM

Quote:

Originally Posted by kevjob

Go meet her ASAP, discuss your concerns with her and see how she reacts, total time 15-30 mins. might be she was seduced by the young sales man smuggling a squirel in his ultra tight pants.

thats the impression I was getting.

RizzoMaryland · 10-27-2009, 10:20 PM

This may be a little off topic but is the HO young?

For the past year or so I have dealt with more young folks (25-late 30s) and this seems to be their nature.

mikec · 10-28-2009, 04:36 AM

Quote:

Originally Posted by RizzoMaryland

This may be a little off topic but is the HO young?

For the past year or so I have dealt with more young folks (25-late 30s) and this seems to be their nature.

yes, that is about her age range, late 20's-early 30's. To much HGTV.

Bill Z · 10-28-2009, 06:24 AM

You might want to check with the financial institution that wrote her AND YOU the check. In some cases the bank considers who is doing the work, their reputation, and quality when figuring the completed value of the project. Obviously, the upgraded window has a huge commission included in the price that will not contribute to the appraised value of the property. Whoever wrote the check in both names, did it for a reason.

Personally, I would not endorse a check like that so the homeowner can have the funds. The loan was made based on certain improvements to the property by YOU, if she takes the money to Vegas and stiffs you, how will you get paid. Maybe a call to your attorney is not a bad idea.

tgeb · 10-28-2009, 07:00 AM

Quote:

Originally Posted by Bill Z

You might want to check with the financial institution that wrote her AND YOU the check. In some cases the bank considers who is doing the work, their reputation, and quality when figuring the completed value of the project. Obviously, the upgraded window has a huge commission included in the price that will not contribute to the appraised value of the property. Whoever wrote the check in both names, did it for a reason.

Personally, I would not endorse a check like that so the homeowner can have the funds. The loan was made based on certain improvements to the property by YOU, if she takes the money to Vegas and stiffs you, how will you get paid. Maybe a call to your attorney is not a bad idea.

I agree, I would not allow her control of the money. It should have been put into a joint escrow account that requires both signatures to make pay outs.

I am not familiar with the 203K program, but I get the impression that you are on the hook in some way that what is being paid for is completed. What happens if the window co. takes the $ and runs? You still have to provide some new windows I'd bet.

Don't let you're self get shafted, I am sure you could find a way to help her get financing for a window upgrade.

Get control of this before it is too late.

RizzoMaryland · 10-28-2009, 07:35 AM

Quote:

Originally Posted by mikec

yes, that is about her age range, late 20's-early 30's. To much HGTV.

I thought this smelled familiar. This age demographic often does not value anything more than the bottom line. This issue is a red flag and a sign of things to come.

Like the others have said, take control now and don't enforce or encourage these "ideas" on the HO's behalf by agreeing to them.

oldfrt · 10-28-2009, 08:11 AM

Since the funds were made out to your Co.also,you have a paper trail to the intended use of the $'s from the lender.
All subs would have to be paid through your Co.to validate proper use of the funds,and obtain lein wavers for work done.

Up graded windows were not included in the original contract,so this would come out of your pocket in the end.

Getting the upgrade to become elligible for the tax credit would probably be a wash to her total costs,but I'm really surprised that they weren't speced by the 203k Institution as being required for energy conservation.
INMO,I would think that a change order would have to be approved by the lender,and the added costs have to be paid by them or her.
You got the contract with the lower grade windows so why should you eat the difference?

Who does the inspections for the work completed?
Does the lender do their own inspections?

Sometimes the HO's need a little educating in what their role is once the contract is sighned.
You got the contract,so she's hired you,not the ambulance chasing salesman who walks in off the street to steal your work/money!

It would be interesting to find out where this "salesman" came from all of a sudden.

bwalley · 10-28-2009, 08:19 AM

Quote:

Originally Posted by mikec

I have a 203k job that has finally closed, and we are ready to proceed.
But things are not looking good.
First the HO got a draw check for 50% ( I put in a draw for 25% at closing).

The check is made out to her and my company, she says she was told by the mortgage company to deposit it in her account, give me my deposit, then pay me as we progress. Ok no big deal, as long as I get paid as we progress, and I get my deposit.

Now she calls tonight, and says she wants to use another contractor to replace the windows. Some window salesman is there with her now. He will take what I allotted for windows, and finance her the difference.
Now a little background, when I spec'd the windows budget was a huge concern, so we went with Harvey slimeline replacements.(low end).

I have a bad feeling about this window switch, and quite honestly since the closing I have gotten a bad feeling about the HO. Seems like she said/did what she had to to get this through, and now she thinks she's Miss GC.

I do not think I am going to allow the window switch. And am wondering if it is possible for me to get out of the whole deal.
Anyone ever gotten out of a 203k?
We have not started anything on this job to date.

You will most likely get a 1099 for the full amount of the check made out to you and the home owner, the reason the check is made out to the contractor and the HO is to make sure the work is done by the contractor the HO has a contract with.

You both signed a contract and you need to comply with all the terms and conditions, and so does the HO, do not allow her to to start acting as the GC and taking part of your work from you.

mikec · 10-28-2009, 08:57 PM

I talked to her this morning.
She says she doesn't want to use the other contractor for windows, but she does want to find a contractor to finance her windows, so "we" can use the window money to do other things.
We started demo today(it was raining like hell), and discovered a roof leak.
The first time i was there it was raining heavy to, but no leaks.

She is kind of freaking out now about her roof. We have a meeting planned for Sat. morning to decide what "we" are going to do.

We'll see. She seems to be finally showing her cards, and telling me what her true plans are, but like someone above said, the funds are designated for the work scoped in the contract.

But most of that work can't be done until this roof is addressed.

bwalley · 10-28-2009, 10:00 PM

Quote:

Originally Posted by mikec

I talked to her this morning.
She says she doesn't want to use the other contractor for windows, but she does want to find a contractor to finance her windows, so "we" can use the window money to do other things.
We started demo today(it was raining like hell), and discovered a roof leak.
The first time i was there it was raining heavy to, but no leaks.

She is kind of freaking out now about her roof. We have a meeting planned for Sat. morning to decide what "we" are going to do.

We'll see. She seems to be finally showing her cards, and telling me what her true plans are, but like someone above said, the funds are designated for the work scoped in the contract.

But most of that work can't be done until this roof is addressed.

I wouldn't start playing games with the government loans, they loaned money based on the contract, you start altering the contract, you are looking for problems.

mikec · 10-29-2009, 05:57 AM

Quote:

Originally Posted by bwalley

I wouldn't start playing games with the government loans, they loaned money based on the contract, you start altering the contract, you are looking for problems.

I agree.

Rio · 10-29-2009, 08:45 AM

A lot of good advice above, especially the part of not messing with government contracts. If you're not entirely clear on the scope of your responsibility and your rights as well as your obligations invest a little money and talk with a competent construction law attorney, preferably one who is experienced with 203K loans.

mikec · 10-29-2009, 04:01 PM

Quote:

Originally Posted by Rio

A lot of good advice above, especially the part of not messing with government contracts. If you're not entirely clear on the scope of your responsibility and your rights as well as your obligations invest a little money and talk with a competent construction law attorney, preferably one who is experienced with 203K loans.

I am entirely sure of my scope, and how and when I get paid. Trouble is the HO wants to play the shell game with the $.