Bank won't finance our home builder, can he win if he sues us?

June 9, 2011 11:43 AM

We have begun building a house, we have the plans, the lot and the builder. No ground broken yet. We signed the contract with the builder. When securing the financing, we were told that the builder has several liens and they will not finance us if we use him. Based on the title search, they said no bank would give us money if he is involve. Could he win if he sues for breach of contract? Can we legally back out of this contract in light of these circumstances?

The builder we contracted to build our new house has several state and federal liens against him. The bank absolutely refuses to do business with him. In addition, several title companies in town will not work with him based on his history. It also turns out that his LLC was involuntarily dissolved by the state. We signed a contract to build the house however, there was no clause dealing with this. He is very upset about this development as he has put a lot of work into this as far as designing the house as well as finding the right place for us to build. He hasn't come right out and said he is going to sue us however he is upset at this development.

If he decided to sue us, could he win for breach of contract? It's not our fault that he has all of these liens. We have not broken the contract but it's going to be very hard if no bank in town will finance him and no title company will work with him. Not to mention we run the risk of having a lien against our new house because he doesn't pay his bills.

posted by bodgy to law & government (19 answers total)

These are excellent questions for a lawyer with relevant experience. Retain one ASAP. The local bar association can provide you with information about lawyers who work on these matters.
posted by Inspector.Gadget at 11:48 AM on June 9, 2011 [2 favorites]

I would run from this guy. If he can't pay his bills, he won't pay his subs and suppliers, and they will lien your house. That's not a guess, that is what will happen. He may not intend that this happen, but it will. It doesn't matter how good his heart is. This will happen.

Did he reveal any of this (liens, dissolution of LLC (presumably for not paying taxes) to you before the contract was signed? I presume that he did not. I don't know what state you're in, but I'd think you'd have an excuse to get out of the contract if this information wasn't disclosed/known to you. You might have some liability in equity for the value of his services to date, though. That all assumes he actually sues you, which is unlikely if he's broke.

By the way, don't know your state, but at least in my state, you've got to have a pretty bad reputation for a title company (let alone multiple title companies) to do no business with you. My guess is the title company's reluctance comes from liens that were discovered right before (or worse, after) closing.

Don't rely upon advice in this thread except to give you an idea of the potential issues. Pay for an hour of a real estate/contract lawyer's time anyway. The lawyer may advise you to pay some amount for the services received thus far and get a release. If the contractor doesn't have any money, he's probably not going to turn his nose up at those funds, either.

But whatever you do, don't work with this guy. You will regret it, and soon.
posted by seventyfour at 11:53 AM on June 9, 2011 [7 favorites]

Other worry is that he would try and lien the lot, which would make it impossible for you to build until the lien was taken care of. See a lawyer.
posted by seventyfour at 11:54 AM on June 9, 2011 [1 favorite]

These questions are great ones for your lawyer.
posted by smorange at 12:02 PM on June 9, 2011

Yes, please see a lawyer, don't rely upon anything in this thread (and I realize that I wrote in this thread, but the situation you're describing just screams DANGER).
posted by seventyfour at 12:08 PM on June 9, 2011

You need a lawyer now. A little amount of money now will save you a lot of money later.
posted by Ironmouth at 12:10 PM on June 9, 2011

To put this another way, this is a fact specific question and a jurisdiction and case law specific question that cannot even be answered by a lawyer without full access to the facts and the case law. You are literally asking what your prospects are in litigation. This is a question only a lawyer hired by you could even begin to answer.

I'd not listen to anything specific anyone has to say on this question other than get a lawyer.
posted by Ironmouth at 12:13 PM on June 9, 2011 [2 favorites]

Talk to a lawyer. It seems scary and you probably can't believe it's all come to this. Odds are you have so much money already tied up in trying to build a house you're not sure you can afford an attorney's time. You can, and you need to.

I was in a similar position once with a real estate transaction that just went to hell. I was terrified. I found and retained a very good attorney. It was the smartest thing I ever did.

You need a lawyer.
posted by phelixshu at 12:16 PM on June 9, 2011 [1 favorite]

It also turns out that his LLC was involuntarily dissolved by the state. We signed a contract to build the house however, there was no clause dealing with this.

Um. The LLC that you contracted with has been dissolved? As in, no longer legally exists?

Definitely talk to a lawyer, but that sounds like a pretty easy get-out-of-contract fact right there.
posted by rokusan at 12:17 PM on June 9, 2011 [1 favorite]

When speaking with your lawyer ask about offering the contractor a fair sum to compensate him for the work he has completed.

If he has indeed already done significant work for you, he does deserve to be compensated. He will likely be less upset when you make it clear that you are not trying to get out of paying him altogether.
posted by oddman at 12:28 PM on June 9, 2011

He is very upset about this development as he has put a lot of work into this as far as designing the house as well as finding the right place for us to build.

you should be the one that's pissed off, not him. his actions have led to this stalemate, not yours.

Also, what rokusan said was right along the lines I was thinking: did you sign a contract with him or his LLC? If you signed it with him then you might be SOL, but if you signed with the LLC then you could probably tell him to piss off (or whatever your lawyer says is the correct terminology).

This is also a great learning experience to try to check on these things for the next time. Ask those questions:
1) Do you have any liens against you?
yes? then I'm going to have to pass on business with you.
posted by zombieApoc at 12:29 PM on June 9, 2011

Not a lawyer. But in many states builder licensed by the state and sounds as though he might no longer be licensed.
posted by Postroad at 12:32 PM on June 9, 2011

Can I mark these all as best answer? We are lawyering up!
posted by bodgy at 12:38 PM on June 9, 2011 [1 favorite]

If this guy's reputation is as bad as it appears, I'd bet your lawyer already knows him well.
posted by seventyfour at 12:49 PM on June 9, 2011 [2 favorites]

Seconding the idea to compensate him for the work done via a lawyer.. Also don't hesitate to spend money to make this go away. It could easily cause you much more stress and money if this guy skips town or something when the project is 80% done and all his subs have leins against your unfinished house.

bodgy writes "Can I mark these all as best answer? We are lawyering up!"

Yes. Best really means Good or helpful.
posted by Mitheral at 12:53 PM on June 9, 2011 [1 favorite]

Find a good attorney with experience specifically in construction law and contracts. We found ours via a construction expert witness.

He is very upset about this development as he has put a lot of work into this as far as designing the house as well as finding the right place for us to build. He hasn't come right out and said he is going to sue us however he is upset at this development.

I recommend you stop communicating with him except the bare minimum. Turn it all over to the attorney.

Ditto this: "you should be the one that's pissed off, not him. his actions have led to this stalemate, not yours." This person is not someone you need to feel guilty toward. This person is someone who might make several years of your life hell.

Also ditto this: "don't hesitate to spend money to make this go away. It could easily cause you much more stress and money."
posted by slidell at 1:24 PM on June 9, 2011 [1 favorite]

the builder should have signed a contract with you before commencing any design services at all, such as an AIA Document A141, Agreement Between Owner and Design-Builder. any work that he has done before signing of the contract is his loss and you should not feel bad about that. you should have consulted with a lawyer to look over the paperwork before signing the contract, but that's hindsight for you!

what type of contract did you sign and what are the stipulations for withdrawing from said contract? what verbage is in the contract regarding his professional/financial responsibilities and what are your rights covered in said contract? as an architect in training i'm curious as to how this unfolds but i understand that legal issues are sometimes best not discussed on the internet until after litigation/arbitation/mediation is resolved.
posted by cristinacristinacristina at 3:03 PM on June 9, 2011 [1 favorite]

He is very upset about this development as he has put a lot of work into this as far as designing the house as well as finding the right place for us to build.

you should be the one that's pissed off, not him. his actions have led to this stalemate, not yours.

Everyone deserves to be pissed off, but that isn't an excuse to not pay someone. Someone else's lack of ethics is not an excuse to treat them similarly.

This is what the lawyer is for. To balance what you already owe this guy with what his lack of honesty will cost you.
posted by gjc at 4:15 PM on June 9, 2011

We have consulted out attorney who stated our contract was null and void as this business didn't exist (not registered/licensed). He suggested we offer to pay for services rendered to the tune of $1000 (house plans completed, bids completed, etc) if he agrees to sign a legal document (drawn by our lawyer) releasing us from the contract. He did agree to it.

The lawyer had done his investigating and found that there were at least 20 liens/lawsuits against the guy. He even went so far as to say that he wouldn't trust anyone this guy is associated with.

We are looking for a new builder and before we sign the contract, it will be reviewed by our lawyer.

Thank you!
posted by bodgy at 12:41 PM on June 10, 2011 [3 favorites]