Thursday, January 31, 2008

How To Pay Your Home Building Contractor So You Won't Be Scammed

Like many, you have probably heard of the family who had lost their home in the Greensburg, Kansas tornado and how they reportedly paid a company a huge lump sum of money to an out of state builder to rebuild their home. This builder then allegedly walked away with their money with only a small portion of the work completed and bills unpaid. How infuriating that anyone could have the guts to take advantage of people in dire need! But it happens all the time. It is heartbreaking that some homeowners are vulnerable to these con artists and fail to protect themselves from someone taking them for a ride! Now, this family is again without a home.

There are many con artists in our world just waiting to take advantage, so it is up to each individual to be on the lookout and to take measures to prevent from you being scammed. When building a home, or remodeling for that matter, never, never, never pay anyone up front for work to be done. Before you begin building or remodeling you need to find out about all the information on how and when to pay your contractors and sub-contractors and you should never have to pay for any job not completed as agreed upon. Discuss the payment terms with your contractor up front, before any building contract is signed, to break down the entire job into specific phases. And only then, after that phase is completed and approved by the inspector, should that specific payment be made.

Your contractor should supply you with a detailed list that is broken down into each individual job, phase, and material supply from the building permit fees to the finishing work of the home. You can then take this list and create a “payment log” and then make all payments yourself directly to the specific sub-contractor or building supplier, not to the contractor after the work is complete. In doing so, you know that the bills are being paid to the right person and you’ll be less likely to end up with invalid liens on your property. A running log of payments made and work left to be done should be kept readily at hand so that you always know exactly where you stand at all times. In addition, by making payments yourself it will free up your contractor from having to spend the time to disperse these payments.

Discuss this payment plan with your construction loan officer when you apply for your construction loan. After your loan is set in motion, a checking account should then be set up to write checks to pay for completed jobs. Every check should have a “no lien contract” stamped on the back prior to making any payments. When that check is cashed by the payee they are agreeing to that portion of the job being paid in full and have no grounds to apply a lien to your property. (Each state may have different contract requirements, so please discuss this issue with your legal advisor) In the end you will have your completed home built without having to worry about anyone running away with your money.

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