Rehab not completed but paid for-Should I take legal action?

Question

Hello, I am a new BP member and am having a big issue with an out of state rental property.  I purchased a duplex in St Louis through a turnkey provider that was pre-rehabbed.  The contract included a purchase price and an itemized rehab, for one total payment.  The concept was to refinance after the rehab.  The Turnkey company (in California) has a management and rehab team in the St Louis market.  I felt the management team was doing a poor job, so I decided to switch companies.  Once I did this, I learned that over $5000 in rehab that was listed in the purchase contract was not done.  I have photos the new management team took to prove it, and it's clear these items are not new or completed.  The real estate company that brokered the transaction is pushing back on their willingness to compensate me for this unfinished, but paid for work.  Is this worth taking legal action?

Andrew Pappas · Answer

Also, in my demand letter, how much time should I give them to submit payment?  I presented my findings in an email with pictures and the compensation I deserve, which they received on Monday.  It is now Tuesday.

Andrew Pappas · Answer

Thank you very much.  I do have a contract with the rehab scope of work, and the cost for each item.  I have photos for each item that was neglected, which I sent to the broker real estate company and rehab company.  She (decision maker at the brokerage company) did not demonstrate any kind of client support tone.  She made repeated excuses about how the property passed inspection 3 months ago and she has never had an issue with their St. Louis team until my situation.  I also have some pictures of the property before the rehab, which makes it even more clear these repairs were not made.  I told her I want compensation for the dollar amount of unfinished work I paid for, and the repairs I had to subsequently pay for that they didn't fix.  She really hasn't budged an inch, and my impression is she and her company are deceitful and take advantage of out of state investors because she has total control through her management and rehab team on the ground.  The total for unpaid work and repairs I had to make that they neglected per the contract are around $6000.

I haven't looked into a letter of demand, but I will pursue that step today.  Any advice on the letter of demand, other than what I can find on the internet?

And should this go to the rehab company or the real estate brokerage company?  I purchased it FSBO, so I don't think the seller had anything to do with the deal.

Christopher Morin · Answer

Legal action, maybe.  Swift and deliberate action, definitely.  What precedent will you set in your own life and business by allowing $5,000 in unfinished work to just disappear?  I would apply a firm escalation of pressure.

Line up your paperwork and communication logs. Separate emotion, and be a fact based professional representing your business' interests. Make sure you're talking to a decision maker, not the front office secretary.  Be concise and factual; they won't take you seriously if you start with "he-said she-said".  Explain to them what you're asking for, and in as few words as possible, how they can remedy the situation.  Consider the details and facts from their perspective, and make sure they understand.

After you talk to them, immediately send them via certified mail a letter of demand, just like you would if you paid a deadbeat contractor too early and he walked out.

Have an attorney call next, he can be more concise in their breach.  Then you can file suit against them. If nothing else, these escalation actions will force them to look at the facts of the case to determine their culpability from a legal perspective, and let them figure out if its worth it to defend in court.

You can drop the suit if they call your bluff and you don't think its worth it.

I'm not a lawyer.  I'm sure there are specifics to your deal that I'm missing.  Good luck, let us know how it goes.

Corina Eufinger · Answer

Whether its worth it probably depends on the amount of damages you are seeking.  Given that attorney costs would probably add up to around 2K (unless he gets them to settle outside of court) you would have to consider that.  How much lost revenue, increased repair costs are you out?

Most attorneys will do a consultation for free or a flat fee of around $350.  You could get recommendations in the of the rehab for a contract attorney (possibly real estate) and get the expert opinion.  Your case would be heard in Missouri state court since that is the location the services may/may not have been performed.  If the damages exceeds $75,000 and you sue an out of state party it would end up in the federal circuit court of the disctrict.