Re: Steps to Take When Your Contractor Walks Away

Yesterday's SF Chronicle Real Estate Mailbag, a column by Benny L. Kass - a Washington D.C. attorney, contained a consumer letter and advice by Benny on how to deal with a contractor who goes bust on your project.

Entitled Steps to Take When Your Contractor Walks Away, the advice Benny gives is very good for anyone who finds themselves in the position of the homeowner who wrote.

The homeowner is fortunate to have a completed job; but faces liens on his property that may force him to pay again for materials and services for which he has already paid...And the law is not on his side in this matter.

Materials suppliers and subcontractors have the right to lien property for goods or services they have provided in good faith. If they have not been paid, they have rights encoded in contract law...as long as they properly filed their liens within the period allowed by law.

Ignorant home ownership is no excuse when it comes to lien law. Here's a primer on California's Mechanic's Lien Law.

The question is: How do you avoid this problem in the first place?

First: Realize that the current environment will see more than a few bankruptcies among remodeling contractors. Those who started business since 1995, never having seen a downturn and without financial reserves, are prime targets for financial difficulties now or in the near future.

All it takes is one job going bad to sink a contractor who hasn't squirreled away reserves and who has to allow his insurances and license to lapse for lack of funds.

If that job happened to be the one before your job, it is YOU who could suffer the consequences!

Second: Before you sign a contract for remodeling services, take advantage of your state's contractor licensing bureau, if there is one. Here in California it is the Contractor's State License Board, or CSLB, that tracks adherence to the laws that govern contracting.

On the CSLB web site, you can check the contractor's license status and history. ANY sign of noncompliance is a warning you should never ignore.

That includes paying Workman's Comp insurance for employees who will be working on your home. Many contractors skirt this requirement by claiming that they do all the work themselves. If this is truly the case then Workman's Comp is not required. But, the fact is, anyone working for a contractor who is injured working on your home can file against your home owner's insurance if they are not covered by Workman's Comp. Your insurer will not look kindly on such a situation.

The CSLB urges consumers to follow these tips when dealing with a building contractor:

• Hire only licensed contractors and ask to see the license.
• Verify the contractor's license by checking online at www.cslb.ca.gov.
• Don't rush into decisions and don't hire the first contractor who comes along.
• Don't pay more than 10 percent down or $1,000 — whichever is less.
• Don't pay cash, and don't let the payments get ahead of the work.
• Get three bids, check references, and get a written contract.
• Contact the CSLB if you have a complaint against a contractor.

The Contractors State License Board operates under the umbrella of the California Department of Consumer Affairs. The CSLB licenses and regulates California's 312,000 contractors, and investigates more than 20,000 complaints against contractors, annually. In Fiscal Year 2006-2007, the CSLB obtained nearly $45 million on ordered restitution for consumers.

Remember: Ignorance of the law is no excuse. The homeowner who wrote to Benny is in BIG trouble and had better have plenty of financial reserves. He is going to need them.

Peggy