Mechanic's Lien of Flip Property

[Steven Norton]

Hi Everyone!

I've never actually introduced myself on BP, so I feel I need to do so before I start posting questions :) My name is Steven Norton, and I am a structural engineer and real estate investor in the greater Denver area. I live in the Longmont area, and I am currently in an investment partnership for our first fix-n-flip property, own a rental property, and am lightly involved in a commercial warehouse purchase. Before jumping into any of these, I have gained so much valuable insight and advice from BP, so thank you all for your input and advice!

That said, I'll jump into my question(s) and relevant background. We were recommended a contractor for our flip from a friend who had used him. We set up an interview, asked a bunch of questions, and had him walk through a number of properties with us to get his pricing basis as well as work with his personality. We purchased a SFR in February, signed a contract with this contractor, and began demo/reno shortly after. All looked bright and happy.

Through the project, a few small issues with the contractor surfaced, and we started getting everything in writing: change orders, designs preferences, and even our weekly calls. Lo and behold, his workmanship plummeted and the project was projecting grossly beyond schedule. We tried to work with him, bring in extra help, and figure ways to finish up the project. Still more issues. We contacted our lawyer, and kicked him off the project.

As recourse, the contractor filed a mechanics lien on the property for a value well beyond the remaining amount of the contract, and the house is far from finished. Our lawyer has given us a number of suggestions to avoid court and unload the property as quickly as possible. One option is by using an insurance bond or surety bond, both of which set money aside to account for the lien amount and get the lien off the title. Now, the contractor does not necessarily get the money, but has to pursue it, and still allows us to sell the property. Obviously, if we can convince him to remove the lien, then that is our best option, but we would like to explore our other options too.

My questions are:

1. For anyone who has been through a similar circumstance, do you have any hindsight advice or suggestions?

2. Does anyone have any recommendations for insurance bond or surety bond providers in the Denver area?

Thank you all so much for your contribution to the BP community. I hope that my experience here is a learning opportunity for others than just myself and my partners :)

Steven