Karen and Bill have unpaid bills totaling $23,000 hanging over them for remodeling work done at their Appleton, Wis., home.
They didn’t fail to pay their bills. Their contractor didn’t pay his subcontractors and suppliers with the money the couple gave him.
Much to their surprise, they are still responsible for the bills.
They failed to get lien waivers for the work they paid for and fell victim to a twist of law they still have a hard time believing.
“Our system isn’t working,” said Karen, who asked that their last names not be used.
That system says you are responsible for the materials and labor that go into your house until all of the companies involved are paid, or until you get a lien waiver.
Normally construction projects are billed in multiple payments, with a lien waiver, an agreement that there is no longer a right to put a contractor’s lien on the property. It is provided by each subcontractor or supplier for the amount paid.
The system is more formal in new home construction, set up in four or more draws on a construction loan with the lender or title company insisting on the waivers before releasing the next payment.
It is less structured for a remodeling project like Karen and Bill’s, which included construction of a new garage, driveway repair, siding, new doors and windows and roof repair.
Karen, a middle-aged professional, sought the recommended three bids, interviewed the contractors and picked the middle bid.
“He (the contractor) was very persistent and he was very energetic,” she said. “He had a very winning personality.
She now wonders whether that energy came from cocaine use, which had led to earlier possession charges against the man.
He was convicted of felony theft for Karen and Bill’s job and was sentenced in July to two years in jail, three years on probation, 400 hours of community service and restitution of $26,438. The jail sentence was stayed pending completion of the other requirements, but he remains jailed on unrelated traffic offenses.
Unfortunately, the conviction doesn’t relieve Karen and Bill of their responsibility to pay the bills a second time, something Karen said they can’t afford.
“Unfair, bizarre, unrealistic,” is how she describes the lien waiver law.
A bill reforming lien waiver law is in the works in the Wisconsin legislature, but it doesn’t go as far as she proposes. It would put more onus on subcontractors and suppliers to notify homeowners earlier when they intend to file liens, but still leaves them on the hook if the general contractor absconds.
The early work on the garage and driveway went well, Karen said. The builder asked for the first payment of $13,000 in cash, which roused some suspicion.
Then he asked for the second payment of $10,000 ahead of schedule. Karen knew she would get lien waivers at the end of the job, but says she could kick herself for not requiring waivers on the work covered by the first payment before giving him the second. That was indeed her mistake.
The typical mode of operation locally is for the lender or title company to disperse payments and get lien waivers for the homeowner before making further payments, said Leon Church, a local builder.
In cash transactions where a lender is not involved, he said, the consumer should get lien waivers from every subcontractor and supplier involved in the project.
In projects where the homeowner doesn’t know the contractor’s work well, especially remodeling jobs, Church recommends getting waivers before making any payments.
“When there’s a problem, it’s typically because someone didn’t follow the law,” Church said.
Church explained why the law is as it is. From the perspective of, for example, a small plumbing contractor, if the general contractor doesn’t pay him, the property still has benefited from his labor. His only recourse is a lien against the homeowner because the general contractor doesn’t own the property.
Karen compared that arrangement to a McDonald’s distributor filing a claim against the customers if the restaurant doesn’t pay for the hamburger meat.
“How long do you think business owners would operate that way? So how come we homeowners have allowed it to happen?” she said.
Karen and Bill have a court order directing the builder to pay them back.
Asked whether she expects ever to see the money, Karen said, “Probably not, barring a miracle.”
There were other signs of trouble well into the work.
The couple agreed to a two-week break in the project to allow the concrete to harden. Two weeks passed, then four, then six and the builder didn’t return.
When Karen tried to call him, his phone was disconnected.
Then a building inspector found the roof joists in the garage were placed too far apart and more had to be installed. The contractor had taken the permit out in Karen’s name, so she was responsible for the building not being up to code.
Things could have gone even worse from there, according to Church. When a builder declines to take out the permit in his name, or at least be listed as the contractor, that may indicate he’s not certified by the state.
Certification is required for a builder to get a permit and getting certification requires proof of unemployment, workers compensation and liability insurance. If a someone is hurt on the job and the contractor doesn’t have workers compensation, the homeowner is liable for the cost of the injuries.
Things finally started coming unwound when the siding installation didn’t go well. Some of the work crew had quit because they weren’t being paid.
Karen was able to get out of the contract for the rest of the work because the builder had exceeded the completion deadline.
Furthering their frustration, when Karen and Bill refused to return tools the builder had left behind until he paid the bills, he got a police officer to come over and demand their return.
“It was a stressful year,” Karen said. “It’s a horrible time expense and many, many sleepless nights.”
After her experiences, she said she would never again pay a contractor beyond the agreed upon amount until the work is done. She would only be stuck for $13,000 had she done that. She said she will also check references, verify whether the contractor is bonded and check if he belongs to a builders association.
Church has other advice.
“No. 1 is to check them out. Call previous customers. Call lenders,” he said.
He also suggests checking with suppliers and subcontractors. If they are owed a lot of money, they won’t give a good recommendation, he said.
Even when homeowners aren’t using a lender, they can still run the billing through a title company.
Ralph Kennedy, of the escrow and disbursement department of Evans Titles Cos., said in such cases Evans acts as a disbursement agency. It pays the suppliers and subcontractors directly and secures lien waivers for the homeowner.
At the end of the project, it gets a final lien waiver from the contractor and a sworn statement that everyone has been fully paid and all work was done to code. It also does reports before and after the job to assure there are no hidden liens on the property.
The fees depend on the number of draws and length of the job, Kennedy said, but average $200-$250 for new home construction, less for remodeling projects.
While endorsing all of those precautions, Karen still objects to the law.
“All I can say is there’s no way it’s fair,” she said.
