Contractor obligations with verbal contract

[Michell Chase]

I began working with a contractor while I was looking for an investment property in upstate NY in August 2024.  He visited several properties with my realtor to give me feedback on renovations and costs as we asked him to work with us on a project.  Finally in September we decided on a property which would be funded through a hard money rehab loan therefore requiring a licensed and insured contractor and an approved scope of work because it is a major rehab project with a $100k budget and converting a tri plex into 4 units.  This contractor prepared the scope of work and the budget so that we could get our loan and he is the contractor of record with the finance company.  Throughout the offer and purchase process we were in regular contact discussing the project and how we would proceed once we closed on the property, discussing options and furnishings he could do…basically conversations about his work on the project.  Unfortunately our closing was delayed a couple of times due to seller repairs on the property so our closing got pushed from mid December to mid January.  In the interim the contractor took on another jobs and contracts (major government contracts both local and federal), which I understood but it was also the understanding between us that he would still do the work on our project. The delayed closing was out of all of our hands and I didn’t expect that I was his only project.

Fast forward to almost the end of march and renovations have not even started.  It is excuse after excuse why construction hasn’t started, other obligations, other projects, communications are basically non existent.  I have kept him updated and in the loop with emails and text messages at least twice per week, also asking weekly for a contract to sign and I hear some excuse from him basically one of every ten messages that I send him, the rest he ghosts me on.  A couple of weeks ago I kind of met my limit and sent him an email expressing my frustration on his lack of communication on where this project stood and his consistent broken promises of “I am having a meeting this week with my team about pending projects” or “we will start demo soon” etc….nothing has been followed through on.  I have retained all messages and communications to show that despite a signed contract there was a full verbal/email agreement on both our parts that he would be the contractor on this project.  Basically my question is what are my legal rights at this point with the clear breach of contract.  I am unable to move forward on this renovation and get this property on the market because he has not followed through.  Do I have any legal recourse to hold him accountable?  At this stage of the game I am 3 months into my HM loan with no construction started and it was to be completed by now.  This is in a pretty small town so the chance that I could even find another legitimate contractor that can do a project of this size is slim to none and also I have to get the lender involved again and jump through the hoops to get another contractor approved.  

Is there any legal standing that I have that I can bring to his attention on this for him to at least respond on what he is doing..he is just stringing things along, I just need him to give me an answer one way or another.

[David Atis]

I get how frustrating this is, but at this point, legal action is just going to have you spend even more time and money. Every day that passes, you're paying interest on a project that isn’t moving forward as scheduled. Your best bet is to cut ties, find a new contractor, and either push forward with the triplex rehab or get moving on the four unit conversion ASAP.

As a lender, I always stay in close contact with my clients throughout their rehab because the most critical part starts after closing, the renovation and exit strategy. A proper hard money lender should be involved beyond just funding the deal, ensuring things stay on track so you can complete the project and hit your target profitability.

Once you've exited the HM loan, at that point feel free to spend the time, effort, and/or money on what your legal options may be with an attorney. But for now, your lender may be able to help expedite approval for a new contractor, and even if finding one in a small town is tough, it's better than sitting in limbo. The longer this drags on, the more it eats into your budget and potential profits. I'd focus all efforts on getting a new contractor lined up and getting work started immediately.