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Letter: Major Mistakes with a Building Contractor

I purchased 150 acres in my chosen location and intended to have a cabin built on it with a well and septic system. I found a contractor who said he would complete a well, septic, and “dried in cabin” for me. He was making good progress and completed about 60% of the work and then just stopped working on it. He has been at it for over four years, and the wood framing is getting very old. Anyway, this was the first time I’ve ever hired a contractor to build something for me, and like a moron I gave him the final payment (over $110,000 in total) about two years ago. I now have four walls, 1/4 roof with tar paper, and a septic tank.

I am told suing him wouldn’t get me anything, since he is completely broke. I dumped much of my retirement into this and am slowly saving up again. Do you have any advise for me? I feel like such an idiot. – B.M.

HJL’s Comment: Sadly, you have now learned a lesson from the school of hard knocks that countless others have learned. It’s not necessarily that your contractor set out to defraud you either (though the industry is rife with charlatans). Many simply underbid the project, can’t pay the necessary bills, and start the dangerous practice of using your money to pay for another project’s bills. Like any “borrowing from Peter to pay Paul” situation, it usually catches up to them and they can’t continue, leaving the last few customers holding the bag. I’m skeptical of your contractor’s skills and knowledge, because two years is a very long time for a build. Six to nine months is more typical, and a well prepared contractor can move the project along in as little as four months.

In the future, here are a couple of things you can do:

  1. Make sure your contractor is licensed and bonded. While I dislike the idea of the government telling me what I can and can’t build or who I can hire, those are two things that go a long ways towards alleviating the issue. Many laborers believe that since they have the skill and knowledge to build a house that they can be a contractor, but running a business is something at a whole other level. All the building skill in the world won’t teach you good business practices. Those who make the effort to be licensed and bonded are at least trying.
  2. YouTube is your friend. There are videos on every aspect of building a home. When your contractor tells you he is doing something or describes a process to you, look it up on YouTube and see if it is standard practice.
  3. Always pay your contractor in segments and never release a payment until the agreed upon work for that particular segment is complete. The final payment should be up to 1/3 of the price of the project and should never be released until the project has your final inspection and approval. You will probably hear all manner of sad stories about why you should release a payment early, but if you do, you lose your leverage, especially that final payment.
  4. Do your due diligence on the contractor before signing a contract with him. Ask for references and projects that you can view in person. Simple background checks for criminal history are easy and inexpensive. In retrospect, the cost is well worth it when you consider how much you’ve lost. Depending on your location, you may be able to ask the county/city/state inspector for an opinion.
  5. As much as it pains me to say it, be careful about friends, family, and even fellow church members when it comes to building contracts. I’ve seen many relationships destroyed over the parties inability to separate business from personal. It would seem that those who are closest to you just expect you to release them from any responsibility when the going gets tough. I’m not suggesting that you avoid those contacts, but make sure the other person understands that it is a business contract. You should understand that saying “no” to making an early payment for these people is extra difficult and most will expect you to bend.