Collecting from a Bank-Financed Builder

A cabinetmaker who's being stiffed on a job gets advice about liens, bankruptcy, and persuading a bank to pay up. July 12, 2012

I have installed cabinetry in a house that is under construction. The builder owns the property. He has a construction loan from a local bank to build the house. He will not pay me for the cabinets (there is nothing wrong with the cabinets or workmanship). I have filed a mechanics lien (in Virginia). He just filed for personal bankruptcy. If he files for bankruptcy for his business, am I likely to get paid? Would I get paid when the house ever sells? The house is a spec house. He has an open account with me. He has been doing business with me for several years and I do have a signed contract.

Forum Responses
(Business and Management Forum)
From contributor C:
Call the bank and let them know what is going on. The lien on the house is what gets you paid first as a mechanic. I would set up a job folder with a timeline of every detail in full, contract, notes, etc. and have it ready for the title company or bank.

From the original questioner:
Thank you. I contacted the bank about 10 days ago and she told me to call back in 2 weeks after she meets with the builder. However I will start documenting all communication with the builder.

From contributor A:
Ask the bank if they gave them any lien releases in your name. If he did and you didn't provide lien releases and they advanced funding to the builder for portions of your work, then the bank could be on the hook (this is why some owners require notarized releases).

From contributor C:
Contributor A, thanks for posting - I forgot that. It is an important piece of the puzzle in the process of dealing with the bank. "Enrichment through fraud" is usually prosecuted and bankruptcy can't protect the builder.

From the original questioner:
Contributor A, what a fantastic answer. If the bank has given him funding, after the cabinets have been installed, and he has not paid me, the bank is also on the hook. I will be calling the bank and let you know what transpires. If I get any grief from the bank I will sick my lawyer on the bank. This is a great forum! Thank you all for the help. He only owes me 25k.

From contributor C:
Stay focused on sales and production. Don't let this builder cost you any more time or money.

From contributor S:
Forget about it. No contract, no money.

From contributor C:
Check your local laws. Enrichment through fraud is illegal in most states and the mechanics lien laws are there to protect us. A bank giving out money to a builder that lies about the lien release has to shoulder the loss. But they can file charges for fraud and most of them are under pressure now to prosecute.

A written estimate and an invoice are proof enough for the court that a transaction took place. Putting a notice of your right to lien on your invoice is imperative. Completing the work is also necessary in most states. Your best defense is documentation down to the date and time/minute decisions are made. And, what actions you took to fulfill those decisions. I know a few builders and shop owners that have prevented long battles in court when they gave their job notes to their attorney. Documentation, documentation.

From the original questioner:
Thank you for your sound advice.

Contributor S, I am not quite sure what you mean by "no contract, no money." I did state in my original post that I have a signed contract.

From contributor J:
"No contract, no money"… I got a judgment and a small amount of damages based on some paper notes. Judge told the contractor in court there was no way he would be convinced that I just drove up, field measured, and decided to donate cabinetry to a house I would never live in. I swear I thought I saw that idiot cry. A year later the judge had me do her kitchen.

From contributor C:
That's funny, I had the same experience. Except I haven't worked on the judge's house. It's an amazing thing when estimates, invoices, and job notes show a timeline that add up to adding value to a client's home or project. I have been bullied out of money in the past and watched many others lose some money. I hope that my experiences can help others. Document, document, document.

From contributor R:
Don't know if the laws are different in your state, and I'm not a lawyer, so double check my advice, but…

If you did everything right with the prelim, etc., file your liens. Then you need to get a lawyer to file a notice of Lis Pendens which means there is a pending lawsuit for an undetermined amount which effects the property. It ties up the property because they can't bond around your lien if they don't know how much the action is. Then pursue the liens, file stop notices, and go after the contractor's bond and license, etc.

From the original questioner:
Thank you for the information. I have contacted a lawyer. He recommended I take him to small claims court and get a judgment against him next. In Virginia, you can file the civil suit yourself (which the lawyer recommended I do). I have done that and have a court date October 3rd. I expect to get the judgment. Also I have been in touch with the builder's banker and she is not happy that this is occurring. She is looking into how to resolve the matter since he is delinquent. She is being very cooperative, unlike the builder.