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Home Builder Steals Money, Files Bankrupty

23,604 Views | 125 Replies | Last: 8 mo ago by agracer
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10:10a, 9/30/21
AG
Anyone have experience with a home builder filing bankruptcy in the middle of a project after stealing a life changing amount of money from your family?

Is it true, that I have basically no recourse?
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TMoney2007
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11:27a, 9/30/21
AG
Is that what an attorney told you? I'd listen to them before some rando on the internet.
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1:55p, 9/30/21
AG
I'm talking to an attorney. I'm an optimist, but it doesn't sound good. Just curious if anyone has experienced anything similar.
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MAS444
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3:07p, 9/30/21
AG
Get in line in bankruptcy court and/or go after him personally if he's incorporated and fraudulently transferred/hid assets. Neither are typically very fruitful ventures but good luck. Hire an attorney immediately.
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YellAgs
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3:34p, 9/30/21
AG
Hire the mob
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dubi
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In reply to arrow • 3:43p, 9/30/21
AG
I have a cousin that had that happen to him and I believe that he never got it back.

$400k was gone and he had a house that was 30% built. He was a San Antonio police office and knew lots of lawyers; the builder had just spent all the money so their was nothing to recover.
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TMoney2007
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In reply to dubi • 4:54p, 9/30/21
AG
dubi said:
I have a cousin that had that happen to him and I believe that he never got it back.

$400k was gone and he had a house that was 30% built. He was a San Antonio police office and knew lots of lawyers; the builder had just spent all the money so their was nothing to recover.
Construction companies tend to fail this way and its sort of because of the nature of their business.

It's easy to think that you can work your way out of a hole by selling more business and robbing Peter to pay Paul. It's also one of the downsides of lax/non-existent licensing requirements for general contractors in Texas. It doesn't excuse anything, but there's a reason it happens as often as it does.

Another greatest hit is ending up with a lien on your property because your general contractor didn't pay a sub or a material supplier...

I'm hoping for the best, but general contractors that are in the process of failing tend to carry a lot of debt without many assets and it's hard to recognize them from the outside.
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In reply to dubi • 5:14p, 9/30/21
AG
dubi said:
I have a cousin that had that happen to him and I believe that he never got it back.

$400k was gone and he had a house that was 30% built. He was a San Antonio police office and knew lots of lawyers; the builder had just spent all the money so their was nothing to recover.
This is where I'm at. And yes the liens are coming in. It's a nightmare scenario. This is land that I currently live on (barndo) and owed $0.00 on it just a few months ago. Now I've got significant debt, liens, and stolen money.

I've been working with a real estate attorney for a few weeks now. We have a plan, but everyone I talk to, everything sounds so bleak. Again, just wondering if anyone had a positive outcome for these scenarios.

It's unbelievable that I'm not somehow protected.
Some people go to jail for a lot less.
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dubi
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In reply to arrow • 6:21p, 9/30/21
AG
Shouldn't your contract with the builder have them responsible for funds owed to the subcontractors?

Have you filed a case with the police for theft? Is this more than civil? Do you need to talk to a criminal attorney?

I realize that is lots of questions but you certainly need some answers really quickly!
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MAS444
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In reply to dubi • 6:31p, 9/30/21
AG
Quote:
Shouldn't your contract with the builder have them responsible for funds owed to the subcontractors?
Of course. But that doesn't help if the builder doesn't pay em. The subs can then file a lien on property.
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dubi
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In reply to MAS444 • 6:39p, 9/30/21
AG
MAS444 said:
Quote:
Shouldn't your contract with the builder have them responsible for funds owed to the subcontractors?
Of course. But that doesn't help if the builder doesn't pay em. The subs can then file a lien on property.


Yikes. Did not know that!

Can they file a lien against the builder too!
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In reply to MAS444 • 6:49p, 9/30/21
AG
MAS444 said:
Quote:
Shouldn't your contract with the builder have them responsible for funds owed to the subcontractors?
Of course. But that doesn't help if the builder doesn't pay em. The subs can then file a lien on property.


Pretty much this. The contract also stipulated that the contractor had to maintain at least 10% of the total contract estimate in cash up to 30 days after completion of the build. Obviously this was violated too.

The snowball effect is crazy. By having liens, even if I was able to complete the build, I don't think I could refinance from construction loan to mortgage. So there's potentially another few hundred grand in interest (if the loan went full term).

I'm not even sure I can get a contractor substitution with liens on the property. If I pay the liens, combined with the money stolen, I don't know how to complete the project without another loan (or worse, retirement funds).
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6:51p, 9/30/21
AG
I guess I can just be those people you see that take 10 years to build their house with cash.
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jja79
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7:41p, 9/30/21
AG
Is the construction financing in your name? If so did the lender not require lien waivers when paying the draws?
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7:53p, 9/30/21
AG
Construction loan in my and my wife's name. Builder would send itemized draw request to me. I would then request the bank wire the funds to builder's account.

I would verify what work was getting done. The bank came out maybe twice to look around. I had no idea the workers weren't getting paid until about a week after they walked off the job site. I had no reason to believe material vendors weren't getting paid until the first lien notice.

This all went down hill fast. Had a marketing team at our house filming my family at the job site to first lien warning in about 4 weeks.
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SW AG80
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8:06p, 9/30/21
AG
Call the local police. Tell them up front you really need to talk to a detective in CID (Criminal Investigation Division). That is your only recourse with a guy like this.

I'll be up front with you. Many--most--prosecutors will say it is a civil case and they will not even try. But it is criminal and depending on where you live you might have some luck. I am a retired District Attorney and don't know as many DAs as I used to. But I still know a few so maybe this will be in a jurisdiction where I can call someone.

If you want to discuss this further, send me a message through TexAgs.
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CS78
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8:12p, 9/30/21
I'm sorry to hear that. Can you at least tell us who it is?

As someone who might build a house in the coming years, how do you protect against this?
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MAS444
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8:19p, 9/30/21
AG
I know a home builder in my hometown was prosecuted criminally for a similar deal. Problem is do you want them locked up/spending $ on criminal attorneys or working to pay creditors/you. Those 2 things may be in conflict to some extent. Just a real bad situation all the way around.
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8:19p, 9/30/21
AG
RiverAg, I'll PM you tomorrow morning when I can sit at a real keyboard. Very interested in your take.

I will certainly be posting all information regarding the builder soon as well as details about my attorney's approach.
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ThreatLevel: Midnight
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8:33p, 9/30/21
AG
Man I hate to hear about these type of things. Can't begin to imagine what a nightmare it is.

Now, A few thoughts that may be varying degrees of useless to you:

1) if you make it out to the other side of this and start again with a new contractor: in addition to paying progress payments/draws you would likely be better protected by issuing payment via joint checking or requiring the contractor to provide partial lien releases from all material/labor suppliers
Also, have the bank hold back 5% minimum ( preferably 10%) of each draw in a retain age account to be paid ~90 days after completion upon receipt of final lien releases from all labor and material suppliers.

2) for your current lien situation you could explore the option to bond around the liens

3) if you were planning on living here for the extended future (not selling anytime soon) you may only have to worry about the liens creating issues with future financing or generating interest from the replacement contractor/trades

Best of luck. Hope this all resolves for you.
Thanks & Gig 'Em
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Redstone
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8:34p, 9/30/21
AG
Whoa.
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TxAG#2011
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9:08p, 9/30/21
There has to be some logic behind allowing someone to file a lien on a property all because some other entity didn't pay them. That sounds really dumb.
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aggiepaintrain
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In reply to jja79 • 9:29p, 9/30/21
AG
jja79 said:
Is the construction financing in your name? If so did the lender not require lien waivers when paying the draws?


ask your bank this exact question and what is their plan, they have a legal team.

Perhaps their negligence in protecting their customer is something to talk to your attorney about.



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Keeper of The Spirits
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9:58p, 9/30/21
AG
Our bank required inspection and verified payment with the subs before payment to builder. The builder whined non stop about it, I pretend to care
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In reply to aggiepaintrain • 10:16p, 9/30/21
AG
Good questions I'll bring up. I'm actually surprised the bank isn't helping me more in this situation.

Obviously too much trust going around by all parties. Again this all happened pretty fast. It's bad. But it could be worse I suppose. We are about 35% through our const-loan.
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Mas89
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In reply to arrow • 7:22a, 10/1/21
AG
Is the builder a company or and individual? If a company is it owned by a family? Have you met the owner?
I would have a meeting in person and get some answers. And let him know the potential consequences of his actions.
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MAS444
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7:38a, 10/1/21
AG
If the dude has stolen money, lawyered up and already filed bankruptcy, I think they're long past the point of a good talking to.
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Mas89
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In reply to MAS444 • 7:47a, 10/1/21
AG
Maybe so. But I would find out. And so would the dude.
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Agilaw
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8:43a, 10/1/21
AG
Agree with RiverAg. The bankruptcy filing will create some legal obstacles, but contacting the DA's office for a sit down meeting with the DA (Asst. DA likely) may help you get some traction. The lender may not be assisting much at this point as they could be in fear of civil liability for letting it get to this point with their client. I would seek help in pursing this angle as well. As for the liens, they must be properly prepared and filed to be effective. I would have someone review the liens in detail and not just assume they have been properly placed against the property. Hate to see situations like this one.
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dubi
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In reply to Agilaw • 8:48a, 10/1/21
AG
Agilaw said:
Agree with RiverAg. The bankruptcy filing will create some legal obstacles, but contacting the DA's office for a sit down meeting with the DA (Asst. DA likely) may help you get some traction. The lender may not be assisting much at this point as they could be in fear of civil liability for letting it get to this point with their client. I would seek help in pursing this angle as well. As for the liens, they must be properly prepared and filed to be effective. I would have someone review the liens in detail and not just assume they have been properly placed against the property. Hate to see situations like this one.
Would bankruptcy filing create obstacles for a criminal "theft" charge?
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In reply to Agilaw • 8:50a, 10/1/21
AG
The largest lien is valid.

I have no intentions to sell this property. This was supposed to be our "forever home".
I'm investigating lien foreclosure now and if homestead exemption would protect us from losing our property.
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In reply to Mas89 • 8:52a, 10/1/21
AG
Mas89 said:
Is the builder a company or and individual? If a company is it owned by a family? Have you met the owner?
I would have a meeting in person and get some answers. And let him know the potential consequences of his actions.
Small company under an LLC. Yes I know the owner.
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In reply to ThreatLevel: Midnight • 8:57a, 10/1/21
AG
ThreatLevel: Midnight said:
Man I hate to hear about these type of things. Can't begin to imagine what a nightmare it is.

Now, A few thoughts that may be varying degrees of useless to you:

1) if you make it out to the other side of this and start again with a new contractor: in addition to paying progress payments/draws you would likely be better protected by issuing payment via joint checking or requiring the contractor to provide partial lien releases from all material/labor suppliers
Also, have the bank hold back 5% minimum ( preferably 10%) of each draw in a retain age account to be paid ~90 days after completion upon receipt of final lien releases from all labor and material suppliers.

2) for your current lien situation you could explore the option to bond around the liens

3) if you were planning on living here for the extended future (not selling anytime soon) you may only have to worry about the liens creating issues with future financing or generating interest from the replacement contractor/trades

Best of luck. Hope this all resolves for you.
1.I will use a better system with the new contractor. They are Cost Plus with contractor fee. They are good people, neighbors and friends wanting to help us out. I should've went with them in the first place. Hindsight 20/20. They are ready to get started next week. I just have to get everything squared away with the bank. I may have to pay out of pocket to get "in the dry". But I can't let what is out there turn into an expensive pile of rubble.

2. This has been mentioned and one I may need to explore. Without significant help from family or tapping into retirement (both things I'm trying to avoid), I'm not sure how I can eat the liens and stolen funds and still finish the project.

3. This is supposed to be our "forever home". I'm worried about lien foreclosure though.
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jja79
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In reply to aggiepaintrain • 9:02a, 10/1/21
AG
aggiepaintrain said:
jja79 said:
Is the construction financing in your name? If so did the lender not require lien waivers when paying the draws?


ask your bank this exact question and what is their plan, they have a legal team.

Perhaps their negligence in protecting their customer is something to talk to your attorney about.





I would be talking to my attorney and the bank. They have a problem here as well. I work for a bank that does a lot of construction lending. +/- 600 projects going now. We get some push back from builders and even some borrowers for asking too many questions, asking for too much documentation and looking around every corner. This is exactly why we do it.

What steps did the bank take to vet the builder? Did they run a NACAM report? Get a BK score? Verify supplier and sub references?
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In reply to jja79 • 9:14a, 10/1/21
AG
I don't know what they did to vet the builder.
What questions do you recommend I ask of my banker?
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