203k rollercoaster investment!

[Laura Da Silva]

Hello everyone My name is Laura and I am a current home owner. I purchased my first 2 family home back in December of 2016. I qualified for a 203k HUD loan and I was assigned a contractor whom took a full year to "complete" my project. Needless to say, the project should've been completed within 6months to a year. I could not deal with the lies, etc anymore and I realized that the work was shoddy (once I brought in a new contractor to review). I am not a plumber etc so I was not able to notice the work he was doing. My HUD inspector also did not help and asked for pictures to release payment to the contractor. I've learned an important lesson here and trust me, I now know everything there is to know about repairs, pricing, shut off valves, shark bites and where to find things at Home Depot lol! It's unfortunate I was taken advantage of but I literally jumped because I knew this was a good deal! The home is almost done and I will be moving in this weekend! I will have to do some decorating/painting in my apartment but the 2nd floor will be ready for rent!!!! Yay! It has been very tough paying for a mortgage and dealing with contractors (especially an old home in need of serious repairs). If I can be of any help to anyone I will be more than happy to assist :) I am looking to see if anyone could offer me words of advice regarding rentals/refinancing and getting line of credit for a 2nd project and how to go about with that? Has anyone been through a situation with their 203k hud contractor? I am also thinking I should take legal action but because things are so tight I am concentrating all my efforts on rebuilding/finishing my home. Thanks everyone :)

[Laura Da Silva]

Hello @jevarisjohnson ! 

So I will start by saying this: HUD can be a great program as long as you are heavily involved and trust the people (and bank) that are working with you. No one will look after your money like you will. Always ask questions and before signing the MANY documents the bank needs/HUD inspector needs and/or checks REVIEW YOUR DOCUMENTS and make copies! I would recommend asking... no wait! I would DEMAND that your bank gives you a copy of their cost break down.

I came to find out later in the project that the bank had a different spreadsheet/worked differently than the spreadsheet the HUD inspector did. This caused them to erroneously pay out an extra amount to my contractor! The HUD inspectors form was different and the bank did not see his "line items." Like I said, keep track of the line items and ask the HUD inspector and the Bank for their spreadsheets/documents so that you see what they see.

I would recommend you use a HUD inspector you trust (get referrals and meet with previous clients even if the bank picks them out for you) If they do not want to get involved in the project I would be wary! I would also recommend if you have contractor/plumber friends ask for an "opinion" of the work being done (if you don't trust the HUD inspector). Don't be afraid to voice your opinion to the bank. They are responsible too). Ask for inspection stickers/updates and inquire in your town. I found out my contractor failed 1 inspection 7 times!

I recommend using google and YouTube Home Depot channel to as reference items/jobs etc.  The truth is, no one will ever know everything but if you have a feeling something isn't right you need to confirm it and DOCUMENT it. Email your bank and copy the contractor.  You need to build a case should you find yourself in the unfortunate event of having to fire your contractor.  He/she could take you to court or place a lien on your home.  The bank may ask that you resolve that before giving away the rest of your reno. money. 

The projects shouldn't go on for more than a year (6 months) and after the 6 months the contractor needs to hand something in explaining or asking for an extended period of time.

The biggest issue with this (as with all businesses) is that there are too many people involved. The HUD inspector is the middle man between the bank and the contractor. If the work is not done correctly he or she has to inform the bank. The bank can recommend a HUD inspector but honestly, my experience was not positive. My 1st HUD inspector passed away and the 2nd one just left after he wrote the final letter for my project stating that my contractor did a poor job on my home. Very suspicious! That's why I don't trust anyone.

I would recommend you get a legitimate contract from the Contractor, not just the HUD documents where they detail the price per sqft and the cost of labor. If possible, I would recommend you research the products you like or have an idea ex: hardwood floors estimate price per sqft is X it should cost X that way, you know what you're being charged for (cheap material or decent material) that you will be happy with.

These contractors give business to stores so they usually get the cheapest things at times and will lie about the quality product.  I chose my quartz countertop because I wanted to but my contractor was upset and said it was "out of budget." It wouldn't matter anyway if it was out of budget because you are paying for labor and if you can cut cost or pay out of pocket should you need anything extra, you can do so! 

DO NOT GIVE AWAY CONTINGENCY ALL AT ONCE! Contingency is there for emergencies, if you have to do so (ex: leaks, unexpected events) make sure the "change order" is specific/detailed. 

The truth is, this is YOUR money and YOUR home. If the bank is lenient (which most of the time they are) as long as you are ok taking $1 out of floors for a nice countertop.... than you have all the power to do so! I thought I couldn't and it's funny because the bank I used was very laid back and did not question materials etc.  I am not sure about other banks, maybe they will ask that you stay on budget and what not, but at the end of the day it's your money and all they care about is the home being finished (another finished asset in their book).

The worst thing you could do is second guess yourself or give away your leverage.  NEVER sign a check if the contractor has not completed a job.  You would think this is obvious but sometimes they pull excuses like "I need money to get the ball rolling so I can finish."  DON'T FALL FOR THIS! This is a red flag! The contractor should be budgeting and know what to use/spend.  I paid many times for unfinished work believing things would be complete. :( I am a very understanding person and I know sometimes contractors do go over budget however, a job is only paid for once completed. The bank holds a 20% off each project BECAUSE they don't want to pay out everything until the job is completed. The 20% was what I was left with to complete my home along with other amounts but it was due to this rule that I still had money left.

I would get a few quotes from different reputable contractors. GET REFERRALS AND CHECK THEIR WORK! It might take time, you may not get calls back but it is a MUST! You need to know what kind of person you are hiring. Unfortunately, most HUD contractors don't live off referrals because they know they will get the job since they're licensed and familiar with the HUD program. Not all contractors are bad people, but the truth is you need to take care of yourself and your investment. Some loans/banks allow a "self help" loan so you can do the work and the money is ONLY for materials. If you feel more comfortable paying a good contractor out of pocket you can get reimbursed by the bank (that is what I am currently doing).

Lastly, don't go with the cheapest quote! I wanted the deal so bad we manipulated some of the pricing/didn't include certain things.  To be fair, I did receive a decent amount of money for the reno but as we opened those "mystery walls" things got pricier.  The bank will offer you a contingency amount however, if you are repairing a super old home, this probably will not be enough. 

In the end, the best guidance I can give anyone is to go in with an open mind and trust yourself.  Get expensive quotes and get cheap quotes.  Talk to different banks and find out how they operate and cooperate in all situations. If it is a property you really want to purchase, get to know it.  Visit the home many times as you get estimates because this will help you see things that you might not have seen before.  Sometimes we go in saying electric update is going to cost X amount of $ but did we check to see if the panel was old/in need of replacement.  Things like that are inevitable but it's best to double check.  I know from now on I will be checking every floor I need to update.  I had an issue with a kitchen floor that was not leveled and if I took the time to check I would've known I was looking at a costly repair.

I would probably start small and stay within budget.

Hope this helps!