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Need to terminate a new construction contract, any advice?

2 years ago

last modified: 2 years ago

We are about a month from closing on a custom new construction home. The home/lot belongs to the builder so nothing is in our name yet. In the course of our build, the company has started developed a reputation of not paying their subcontractors, high turnover, not paying their suppliers (liens have been put on their company as well as their current builds), etc. It's all hearse that we don't care about... But it is now starting to effect us.

They have started sending random invoices that we constantly have to show proof that we've paid or that their calculations are wrong. The finish work is getting completed and the materials don't match or not the upgraded materials we selected (but they have insisted they are). They have lied about where they were purchasing certain items only came clean when we tried to pay a vendor for additional items and it came to light.

We are worried that they are throwing this house together with used/leftover materials, trying to pass a cheaper product for what we paid for, etc. Needless to say, we have no faith in their work or word. We have tried to ask them about some of the quality of the work and they brush it off like it's the norm. We are so exhausted dealing with them, we are considering trying to get out of this purchase. This is not what we want to do (it's in a great neighborhood and we are getting a steal of a deal on the price) but want to be prepared if it comes to this. We have a good friend who is a real estate attorney and have read the contract, not ready to contact him just yet.

Has anyone had success terminating a new construction contract or know what legally binding laws or ethics he could be violating?

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PRO

Charles Ross Homes

2 years ago

Hi, KS,

I'm sorry for your experience. The builder's behavior is typical of one who is having financial difficulties.

I suggest your goal is to get this home completed and to minimize the potential for cost overruns including claims by subs and suppliers after closing. Terminating the contract and starting over will obviously take more time, and it will cost a lot more given current pricing and supply logistics issues. Seek the guidance of an attorney licensed in your state whose practice includes residential construction law.

Best wishes for a successful outcome.

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Comments (10)

jmm1837
2 years ago
You need to invest a few hundred bucks in talking to a construction lawyer. You need to understand your contract and your legal options before you make any sort of a move.
K S thanked jmm1837
Elmer J Fudd
2 years ago
I think you need to talk to a real estate lawyer.

I wonder if the title search done before closing is clean, if an unpaid sub could file a lien sometime later if unpaid. Put that question to the lawyer.

.
K S thanked Elmer J Fudd
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So just my 2 cents... A contract is never more valuable than the steps you will take to enforce it. It is just an agreement between two people and that agreement has two sides. Frankly, timelines are incredibly difficult to enforce in non-commercial settings and there is no guarantee that a new timeline would be any more enforceable than the last. Furthermore, I am not sure that a time is of the essence clause would be enforceable without additional consideration. You can't add liquidated damages or a new breach condition to an existing contract without offering additional consideration. Now you might offer that not suing the contractor for breach is consideration and that might work but if he calls your bluff there is little you can do. Furthermore, the problem with liquidated damages clauses is that if you have made any change to the contract then they are largely out the window. This is why they work well in commercial contracts that are fully specified and less well in contracts that are not. You note that you owe the contractor $30,000 above the original contract price for other improvements, if any of those constitute a change in the contract he is going to argue that you caused the delay. Contractors are generally given a wide berth on those delays. A 48 hour delay in a selection that the owner chose could easily justify a much longer delay in the project. The idea being that the subcontractor is scheduled on your job on X day and would have to be rescheduled when available, which could be weeks later. The problem with construction contracts is that you and the contractor are largely over the same barrel. You can either choose to stop work and act on his breach, which will delay the project for many more months or maybe even years. Or you can choose ignore the breach which largely means the rest of the contract is enforceable in full. If you ignore the breach now and try to collect in court later on, it is unlikely that you will collect more than your attorney fees. My advice is that you set aside strict enforcement of the contract and instead focus on your goal. That goal should be getting the best house you can get for an amount of money you can live with. Whether that amount is more than you originally intended is really immaterial, the questions really become (1) which option get you a nicer home? and (2) can you afford that option? There might be cases where terminating the contract is the best answer to those questions and there might be cases where making nice and figuring out how to pay for it is the best option. Best of luck to you.
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PRO
Joseph Corlett, LLC
2 years ago
The'd probably love for you to walk. They'll probably make more money selling it to someone else. At this point, you'd probably be best to get lien waivers from all subs and suppliers and close.
bry911
2 years ago
First, I would think about this rationally to decide if termination is the best option. You note that you are getting a "steal of a deal on the price." If the home will sell for more than you are paying, then consider listing the house immediately after purchasing it rather than backing out of the contract. In our current situation, you may be able to profit from selling the house and not have to deal with the problems.

If you decide to purchase the home, either to live in or sell, you should speak to an attorney with some residential construction experience, to identify and mitigate the risk of mechanic's liens on the property from unpaid suppliers. Since there is significant evidence your contractor is having financial problems, don't be tempted to DIY the releases, get an attorney to help you with it.

In my experience, production contracts are somewhat easy to terminate, but it is difficult (if not impossible) to get a return of monies paid. I would be prepared to walk away from all the money you have paid thus far if you terminate, especially given that there are signs the builder is having financial problems. A judgment against him may be uncollectible, so even if he has materially breached the contract, you likely risk the money you paid. The only termination deal I would feel comfortable with would be a certified check or transfer of funds to your account at termination.

Please remember, at this point it really doesn't matter who is right and who is wrong. You are attempting to find an outcome that you find beneficial and the builder is doing the same.
K S thanked bry911
kevin9408
2 years ago
last modified: 2 years ago
I'm in agreement with Bry911, if he's having financial problems getting any money you paid will be a challenge. I don't know why you'd get invoices from any vendor or sub contractor and hope you haven't paid them, It's the contractor's house and land. There is little to none you could recoup anything you did pay a vendor or sub if you back out. How much do you have invested into this house so far?

The rules to attach a lien on real estate is governed by the state you live in. You didn't mention your location, but the contract should mention or give notice in the contract pertaining to lien by vendors and subs. In many cases a lean by a sub contractor also requires notice before work has begun but again based on your state laws, but the house isn't in your name so any lien would be against the contractor. If his house is sold to you any lien will come with the house if a search didn't find them so you really do need help from a professional on this issue before trying to close, or back out.

Have you locked in on a mortgage or paying cash? If your going with a mortgage the rates are climbing and will continue to rise so don't drag this out if you plan on buying the house, I believe rates may hit 6% by the end of the year.
K S thanked kevin9408
millworkman
2 years ago
"lien"...........
Louise Smith
2 years ago
"This is not what we want to do (it's in a great neighborhood and we are getting a steal of a deal on the price)",

Now you know how you got your great deal.

Guess that "steal of a deal, " is not such a great deal right now.

If it's too good to be true . . .
cpartist
2 years ago
You need to talk to a CONSTRUCTION lawyer, NOT a real estate lawyer.
bry911
2 years ago
last modified: 2 years ago
@cpartist said, "You need to talk to a CONSTRUCTION lawyer, NOT a real estate lawyer."

Only two states (Florida and Texas) have a construction specialization. In most states an attorney whose practice focuses on construction is likely to have no certification or be certified as a real estate specialist.

When you pick an attorney it is always preferable to pick one with some experience in cases similar to yours. In the OP's situation this is not really a construction contract, it is a residential purchase agreement for a yet completed home. Limiting your search to a "construction attorney" may eliminate real estate attorneys with significant experience terminating production home contracts and land you squarely on the door step of someone who specializes in commercial construction and has no significant experience in residential and no relevant experience to production type contracts.

In my opinion, the OP is more likely to get better assistance terminating a purchase agreement from someone who would be considered a "real estate lawyer," rather than someone who would be termed a "construction lawyer." Statistically speaking, the attorney who specializes in real estate transactions is simply more likely to have experience terminating purchase agreements for production builds. However, your mileage may vary.

ETA: I will note that I often tell people to find an attorney with experience in residential construction.

Need to terminate a new construction contract, any advice?

Charles Ross Homes

Comments (10)

jmm1837

Elmer J Fudd

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