[Wcceric]

We are currently bidding a project that will run into the million dollar range for a remodel, addition, and barn. What extra precautions can we take to ensure the homeowner has the funding? We have never had to do this before and I dont know if we will do it now but I would like to know if anyone else does this or if there is someway to check the persons finances before the job begins. I know we can lien the home but that doesnt help us until they move or refinance.
Thanks
Eric

 

[TxElectrician]

Deposit, and stay ahead on the draws.

 

[SectorSecurity]

You could always ask that x amount of the total cost be held in trust in good faith, to be used for draws.

 

[NDW]

A couple things.

You can ask for proof of funds. Considering the size of the job, they should understand. It's pretty common for businesses to have things in place to ensure they get paid. For example:

Most realtors will not work with a buyer until he/she has been pre-approved for a mortagage.

Attorneys require cash retainers.

I have been asked for proof of funds when making a cash offer on a house. It's one page that shows bank balance.


Here in Minnesota a mechanic's lien holder can force foreclosure. Check your state and make sure you are using documents drafted by an attorney from your state. Generic online forms can be worthless.

Escrow seems like a good idea, but if the HO tried to fight a withdraw from the escrow account it would probably end up in court anyways.

 

[Wcceric]

I know nothing is a 100% guarantee in the contractors favor just looking for the best way to secure the funds before the job starts. I have a meeting with the architect today. Anyone ever use a construction lawyer to draft a contract?

 

[EthanB]

If you stay ahead of your draw schedule then you can't get burned too badly. Obviously, having to stop and scramble for another project will cost, but how much it hurts depends on your overhead.

 

[NDW]

I know nothing is a 100% guarantee in the contractors favor just looking for the best way to secure the funds before the job starts. I have a meeting with the architect today. Anyone ever use a construction lawyer to draft a contract?

I have never had an attorney draft a custom contract just for one specific job. However, every form I use was drafted by a construction attorney.

Home owner contract

Sub contract

Lien Waiver

Change Order etc.

He told me stories about how contractors get screwed out of hundreds of thousands of dollars because they got forms off the internet or from Office Max or something.

Some contractors think that just because they are licensed and are performing work they are entitled to place liens if they don't get paid. Here in Minnesota if you dont have pre-lien notice in the contract you cannot file a lien period.

 

[wiley42]

An escrow account works great! You need to break the project down into specific phases and have the money deposited before you begin the next phase. One of the most important things that you need to do is have a 3rd party inspector (this could be the city inspector if a permit is needed) sign to trigger the pay request for the escrow company. The 3rd party inspector should be an independent party! The inspection trigger is important in case of a disagreement.