Liens and contractor lies, looking for suggestions

[Jace Holt]

I hired a contractor to do part of some renovations on a 40 unit complex. He was contracted for install on some of the units for LVP flooring, cabinets, counter tops, doors, base boards, some wall repair and a few other things. The contractor reached out to me through my craigslist ad when I was looking for a drywall guy. After some due diligence and calling his references, everything checked out and I hired him and paid 30% down. The arrangement was after 30% of the work was complete, he would get payment for the next 30% and the final 40% payment was due on completion. I am buying all materials for the job and just pay him for labor.

After a few weeks and about 15% completion, one of the subs came to me saying they weren't getting paid. I asked the contractor what was up and he told me the subs were contracted to get paid when 30% was complete. The subs said they need money now. I don't know the terms of their contract. I can tell the contractor is lying to me or the sub about some things because the sub's story and his story don't line up and some of his excuses for things don't add up. I am not sure if the sub is lying. I don't know whether their contract stated payment at 15% like the sub apparently thinks or 30% like the contractor told me.

Today I received a surprise letter by mail from the county stating that a lien was placed on the property by the sub for $9,000. 

There is another $16,000-$17,000 worth of labor which other subs were contracted to do and which are also about half way to complete for their first payday.

If I fire the contractor now, I will likely never see the money back from him and all of the other subs will file liens. Consequently, I will have to pay for the labor twice to make their liens go away. I will be left with suing him and I doubt he has much to fall on. Additionally, the $9,000 is more than I paid the general contractor for what labor they performed, so I'm not sure where that leaves me. It may include labor they did not perform. I don't know where that number came from. They may just be trying to extort a bit of extra cash by exploiting a contractor's upper hand in the lien laws.

I think the contractor "robbed Peter to pay Paul" with my initial payment to him and I think the money from the initial payment is gone. I think two or three subs he hired earlier on did get paid just a few thousand or less. There is a good chance that he would pay the subs for their first 30% with my second 30% payment to him, however, I definitely won't pay the contractor any more money with the discovery of the lien on the property and the subs not paid.

Fortunately, I built a big enough cash safety net for problems and the deal is good enough that it can handle this. That being said, what are your suggestions on the best way to receive the smallest loss from all of this?