What to do about a non payment from contractor

[JStructsteel]

Got a contractor that didnt pay. What are my recourses? Lien on the property? (seems punishing the owner a bad thing)
Contact building department, would they do anything
Small claims?

I doubt I will see the money, but would like it to sting a bit for them

 

[dik]

Put the contractor on written notice that he is in default and give him a short period of time to correct. After that, in some jurisdictions you can file a lien and/or take him to small claims court. If there are ongoing financial issues the contractor has with the project. Filing a lien will be extremely effective. It generally puts the brakes on most financial matters until the lien is cleared.

-----*****-----
So strange to see the singularity approaching while the entire planet is rapidly turning into a hellscape. -John Coates

-Dik

 

[LOTE]

If a lien is something you are willing to do, you need to start with a formal "notice to lien" to the contractor and owner, and GC if separate from this contractor. Preferably with certified mail so you know everyone received it. That puts everyone on notice. If the owner knows you have not been paid, then can stop additional payments to the contractor. This turns you from annoying fly on the wall to the contractor to the problem the contractor needs to get resolved ASAP.

I started this process after a subcontractor went silent on me. Come to find out the GC threw them off the project and were working to make everyone whole, and they were unaware I hadn't been paid. The GC quickly paid me after just the formal notice to lien.

I have also looked into collection agencies for situations where there wasn't a property to lien. PSI-Prestige Services, Inc. had the smallest fee for small claims, in the $5,000 range (I think it was still like 22% of the owed amount , plus a fee if they had to use an attorney).

 

[JStructsteel]

Thanks,
Its a small amount, only $2200. Its a residential project, and think the project is done. I will put him on notice though anyway.

 

[XR250]

If it is worth your time, small claims court. You could also threaten a lien against the owner and see if he will pay some or all of it.

 

[Brad805]

Slap a lien on the property and be done with it. We are too nice.

 

[JStructsteel]

Brad805, I agree, but isnt that now punishing the home owner for something out of their control?

 

[LOTE]

More like incentivising the home owner to go after the contractor for you. Legally, it is the owner who is ultimately responsibility to make sure everyone gets paid for services on their property.

Also, you performed work that the homeowner is benefiting from. You should get paid, or void your design and remove all liability. If the structure you designed fails, the homeowner will come after you even if the contractor failed to pay you.

Also, failing to get paid for work performed can increase your insurance costs.

 

[Brad805]

Unless they are your friends, that is out of your control. That makes the contractor look bad for not paying the people he hires. They will think twice about whom they hire next time. Its one thing if he tries to pay, or has some valid explanation. Ghosting is another matter entirely.

 

[dik]

This depends on the jurisdiction. Even the threat of a lien may be sufficient to have him pay... a lien really messes with the finances of a project and can cause lending agencies to withhold all funds. The lien generally goes against the property and is generally filed with the property record. If there is a disagreement with the contractor he may put the claimed amount in trust to cause the lien to be withdrawn (depends on the jurisdiction). Liens can be powerful items. Liens in most jurisdictions are very time sensitive and only a small amount of time may be available to file one.

-----*****-----
So strange to see the singularity approaching while the entire planet is rapidly turning into a hellscape. -John Coates

-Dik

 

[gte447f]

Start with a notice of intent to lien, then actually lien the property. Don't worry about the home owner. That's what they get for using shady contractors in my opinion.

Make a final demand for payment to the contractor, then sue them in small claims court (just for fun).

In my state, I believe you have to sue within 1 year of filing a lien anyway.

I personally just had a project where the client didn't pay final invoice (only #1,350). I had made a final demand for payment and was about to file suit in small claims court when I received a chapter 7 bankruptcy notice about the client. Now I can't sue and will probably not get any payment.

 

[dik]

a lien may be far more effective.

-----*****-----
So strange to see the singularity approaching while the entire planet is rapidly turning into a hellscape. -John Coates

-Dik

 

[XR250]

Also, failing to get paid for work performed can increase your insurance costs.

How does that work? Do you report that to your insurance company everytime that happens?

 

[JStructsteel]

The project is 99% complete, all that is left is the certificate of occupancy, and the building department wont hold on that for someone to be paid. I am not sure what voiding my design will do, will a building department let me do that? Will it void the permit?

 

[phamENG]

Were there special inspections? If so, did you already submit your final report? If not, then the CO won't be issued.

As for 'voiding your design' - it depends on the jurisdiction. I'd first contact your lawyer to see what, if anything, this might expose you to (I could see a scenario where they might turn around and sue you for damages for delaying the project - but that's a question for your lawyer), then reach out to your state board and the local building official to see what procedures, if any, they have for an EOR removing themselves from a project for reasons of breach of contract. It's one thing to do it because they didn't build what you told them to build, but they're less likely to care about breach of contract.

XR250 - I don't think it was on this year's, but I do remember a question on an insurance renewal application asking for 'bad debts' - the stuff I couldn't collect. Just guessing here, but they might use it as a means of judging the kind of clients you have, and what kind of risks you may be taking as a result. I'd be willing to bet there's a pretty solid correlation between clients that refuse to pay and clients that sue.

 

[LOTE]

XR250, this is something that is included on my yearly E&O insurance renewal application:
During the past 12 months, did you:
a) Have unresolved fee disputes? If yes, please describe the date, circumstances and amount below.
b) Bring suits, including placement of liens, against clients to collect fees? If yes, please describe the date, circumstances and amount below.

I don't have any proof that answering yes to the above questions increases your insurance cost, but I doubt they ask these questions to see if you qualify for a discount.

 

[JStructsteel]

No special inspections.

Should I contact the home owner and see what the relationship is with the contractor, perhaps they holding payment for some reason.

 

[phamENG]

Contact the homeowner? Only if your contract is with them. If they are withholding payment, that's the contractor's problem. The contractor is withholding payment from you, and that's your problem - with the contractor. Start formal lien proceedings if you can - that will be enough notice to the owner to get things straight. Here in Virginia, the homeowner can't be forced to pay for the project more than once. So the lien will only work if they haven't paid the contractor. Not sure about where you are, but it won't hurt an innocent homeowner here.

 

[JStructsteel]

Ohio.
Contract is with contractor.

 

[phamENG]

Is your first project with this contractor, or are they a frequent client?

If you have a good history with them, then a frank conversation is probably best. If this is the first project, I'd set fire to that bridge in an instant and file the lien and/or send it to a lawyer or collection agency with the invoice marked up to cover the cost of the agency so you still get your full payment (assuming, of course, your contract allows you to do that - if it doesn't, fix that going forward).