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There’s always something to howl about

A disturbing Reality – desperate builders doing immoral things

I was having a chat with Mike Taylor, a real estate broker and friend from Indianapolis the other day. He was unusually incensed about a builder allegedly doing something I find unconscionable. Selling homes as free and clear that are actually in the process of or about to get hit with Mechanic’s liens. Nice. “Aren’t you glad we bought this new home, honey?”–followed quickly by– “Hey what’s this mechanic’s lien on our new house?”.

How? Well, most of the details are here on Mike’s blog. He is a sensible guy and not prone to overstatement and from what he has documented with courthouse records, he certainly has a reason to be miffed about this kind of treatment of people.

FORGET THE LEGAL IMPLICATIONS, WHATEVER HAPPENED TO THE GOLDEN RULE?

I am not talking about the “He who has the gold, makes the rules” one. I am referring to the original one of do unto others. These morons KNOW that these bills are going to come due and they KNOW that they cannot pay them and they KNOW that the buyer is going to wake up with in some cases, up to $10,000 of encumbrance on their home and a royal pain in the rear to clear.

Would they want this on a home THEY bought? Would they want to have to explain this to THEIR wife?

Yes, this market has been tough and YES it will grind some people out of the business. However, tough times only reveal the true character of the person below and if what Mike alleges is true (and I have ZERO reason to doubt it), the true character of these folks is morally bankrupt.

And financially broke you can recover from FAR more easily (in my opinion) than being morally bankrupt.

Kudos to Mike for having the courage to stand up and say a) this is immoral and b) I am not going to sit quietly by and watch it happen. (NOTE: He didn’t just post it on his blog. He is taking it to the local press as well.)

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  • 12 comments

    12 Comments so far

    1. Jim Rake April 29th, 2008 4:29 am

      Eric – thanks for shining a bit of light on one of those things we tend to ignore instead of publicize. Accountability in any business is a must – appreciate the note. Being fairly new to the blog business, it’s apparent why the “Bloodhound” is a popular read – always good stuff to chew on!

    2. Mike Taylor April 29th, 2008 5:41 am

      Thanks for the props Eric. It is truly disgusting what these people are doing to unwitting homeowners. That is what gets me, is that they sign that vendors affidavit saying there are no liens when they clearly know otherwise. You really have to careful out there dealing with national or local builders.

    3. Glenn April 29th, 2008 7:37 am

      I will have to bounce over to Mike’s blog and read more about this situation. Here in the Naples area, new construction has to have a clean title before it can be closed by either the title company or real estate attorney.

      There seems like there could be some legal ramifications on the surface.

    4. Eric Blackwell April 29th, 2008 7:53 am

      Hey Glenn;

      Yes. I agree. I specifically wanted to avoid those in my post and go to the heart of the matter– the indecency of it. I hope all is well for you down in Florida, my friend.

    5. da April 29th, 2008 7:57 am

      I left this there as well, but it doesn’t seem to have taken…

      Mechanics’ liens are frightfully common with new builds, and just because a few (or several) show up after closing doesn’t mean the builder is about to go bust. Usually it just means they suck at paying their contractors on time.

      Also, while in theory title insurance wouldn’t cover these liens, in practice they are usually paid anyway (if only to avoid a future foreclosure action which would make the mess worse.)

      The seller does sign an affidavit at closing stating that there are no pending liens, and the title company will use this to pursue the seller (unless, of course, it’s an ABA, at which point they’ll just pay it and forget about it!)

      These things are common even during boom times – they just get more press during the busts.

    6. Bob Wilson April 29th, 2008 7:58 am

      This is a story that will be repeated several more times around the country.

      This happened in the 90s here with one builder who had built out a large section of one of the area’s most popular new communities. At the time of sale, the title to the new home was clean. The vendors were used to being paid in arrears and as then market slowed even more, the arrears stacked up. When the builder could no longer pay the vendors, then the liens came.

      The builder then went under and the homeowners went to the title company, Chicago, which disputed the claims. First American Title Company, in a shrewd PR move, then stepped up and offered to take of the liens. It cost them little in comparison to the goodwill and future business it earned them. They have had the lion’s share of the market in that area ever since.

      There seems like there could be some legal ramifications on the surface,/blockquote>

      They’ll likely seek protection in BK. With builders, when the vendors file liens and stop working, the party is over.

    7. geno petro April 29th, 2008 8:53 am

      Let me preface this by stating on record that approx. 25% of all business I’ve ever written (buy side and list side) has involved New Construction.

      It is so surprisingly easy for any trade to file a mechanics lien here in Chicago that many are simply spurious and result over unfounded disagreements with the builder as to what is and is not a completed job–especially when the city inspector comes through and calls out code violations between draws. The subcontractors always hate coming back to correct their work and thus, go unpaid…then liens get filed…etc. This is why Chicago Title charges such high premiums.

      Even worse, and oh too frequent an occurrence, is when a deal dies in Attorney Review and the buyer runs to City Hall and records the contract, which clouds the title, etc. Again, a sad fact but very common. Legal representation is a must in this city.

      Having said all this, I agree that the purposeful concealing of possible future litigation is plain wrong. I’ll also add that I’ve never seen builders/developers as desperate to get deals closed as they are now and all types of dishonorable character (from all parties involved) comes out in this type of chaotic market.

      Where should I begin…

    8. Mike Taylor April 29th, 2008 9:20 am

      @ Da – I agree the mechanic’s liens are pretty common and don’t necessarily mean the builder is going bust, however in this instance I think it is a good indicator they are going under. They have pared their staff down to next to nothing and it has talked about for quite some time now. We will soon see.

      @ Bob – That is my concern is that they will hide behind a BK and leave the homeowners holding the bag.

      @ Geno – It is a sad state of affairs that we are in now with builders doing unscrupulous things to get deals closed. I honestly hope that these liens are as you say, but I don’t think it will shake out that way in thsi case.

    9. Doug Quance April 29th, 2008 10:05 am

      Back in the 80′s, I had a landscaping company. A couple of the big local builders went bankrupt in the same week, leaving me holding the bag for over $40K in unpaid work.

      As a landscaper, I was the last one to work the property – usually after the contract was made – so by the time I found out that I wasn’t getting paid… the properties had already changed hands.

      I could have filed liens… but I didn’t think it was fair to the homeowners to pay for their landscaping twice – so I didn’t do it.

      I didn’t know anything about title insurance, at the time.

      I’m still waiting for that goodwill on my part to pay off.

      :lol:

    10. Eric Blackwell April 29th, 2008 10:14 am

      @geno- Spot on. I really like what you said below. In this market the character of people can often get tested against “rice bowl issues” (things that affect a person’s family lifestyle and relationships.

      <>

    11. Eric Blackwell April 29th, 2008 10:15 am

      ack! here’s the quote:

      “Having said all this, I agree that the purposeful concealing of possible future litigation is plain wrong. I’ll also add that I’ve never seen builders/developers as desperate to get deals closed as they are now and all types of dishonorable character (from all parties involved) comes out in this type of chaotic market.

      Where should I begin…”

    12. Chris April 29th, 2008 10:57 am

      I had a new construction listed last year, and in an effort to move it the builder agreed to offer a $5k bonus to the buyers agent on top of the co broke. I sold it, and for damn near asking to so the builder shouldn’t have had anything to complain about. Well all of a sudden I get a call and he is like I’m not paying the $5k since it didn’t go for asking. Well the buyers agent wasn’t to happy about that, neither was his broker. My broker called his broker and it came down to if the builder wasn’t going to pay we were going to send the attorney’s after him. I wasn’t about to pay that $5k!

      In the end the builder payed some of it and the buyers agent and broker were happy.

      The builder was my God father, I’ll never let him forget that!