New Construction - Builder overbudget and might not close in time

[Duane Gunkler]

Hello BP Community,

Have a question about my personal home.  We are building a new home and did a construction to perm loan.  We signed the contract last April and were originally supposed to be in by last fall.  Here we are a year later, and we're still waiting for them to finish.  We have a fixed-price contract, but the builder is saying that they are nearly $250,000 over budget (Contract price is $781,000).  Additionally, we have gone past the 1-year mark for our construction loan.  The mortgage company gave us a 3-month extension, but we are concerned that we still won't be able to get the CO in time for that deadline.  If we don't make the deadline, they will give us another extension, but the rate lock will not be honored (we have 3.5% now).  So, that means we will jump up at least 2% on the rate.  If anyone here could give me some advice, I would be most appreciative!  The major reasons for the delay are money related.  The builder is doing several homes and we are confident he used the money from the draws to pay for other projects, so then, when the money was gone, he had to wait for other funds before resuming work again.  They are suggesting that they're going to be asking me to come up with the additional $250k at some point in the near future.  I'm happy to share more details if need be.  Thank you in advance!

[Mike Wood]

@Duane Gunkler The fact that the framers are still owned money on your project is very, very, very bad.  That would have been one of the first subs to get paid, and they have not.  If they have not been paid, I bet most other have not.  If this was me, I would hire an experienced lawyer in real estate and construction matters (make calls, talk to them and find one that knows what your taking about) and then fire the builder (unless your lawyer advises you otherwise).  Next, I would reach out to each sub (that you can recall being on the project) and find out what's owned.  Some of your subs will have to file for permits, so you can find them with the city (typically plumbers, electricians, hvac), but other you have to track down (foundation, framers, drywall, insulation, painters, roofers, exterior siding).  Run a title report as mentioned by others.  Hopefully the subs are not owned that much, but it could be quite a alot.  Tally that up and figure out if you can pay for that in addition to finishing the house costs.  Dont pay any subs yourself without a lien waiver.  

Sorry this has happened to you.  As @Jay Hinrichs mentioned, the value of the house in the last 16 months has gone up, so maybe you will be whole at the end.  But I would not waste one more day with this builder.  Lawyer up and fire him.  I also agree with other, you wont get a dime from him. I would report him to the state contractors board, but I am not sure I would waste money suing him, as he likely has nothing at the end of the day, unless your lawyer thinks he can go after the builder in his personal name, not just his company.

Understand that firing him will mean delays and extra costs.  While I would expect the major subs to stay with the jobs (electricians, plumbers, HVAC) most of the smaller subs will get replaced by your new builder.  I would also expect that any new builder would only take on the project as a T&M project, not fixed price.  They wont be able to get a good handle on whats done and still remaining, so the best I would expect is an estimate of total costs to finish.