Have you been getting lien releases as you have been paying draws?

No, I have not. I did not know I should be. I was told by the title company that we had title insurance that protected us against any liens. Do I need to get them? I never built before, this is ALL new, and after this, I will NEVER build again.

Call an attorney immediately. If possible, seek one who is experienced in real estate/construction. This is a very serious situation. Divorce yourself from the builder's problems. Do not pay the builder additional funds until you talk to an attorney.

JM!! Oh No!!! Hugs.... that's all I can offer. I never heard of Lein Releases either. I am so, so sorry & wish I had advise. Hope you get some here soon!!

If our builder didn't have a 35+ year framing company to fund all 3 his houses currently going on, I suspect we would be in your same boat, because of all his re-do's, there is no way on earth he's making a dime on our house.

YES, you should have been getting lein releases! If you are financing this build the BANK should have been getting them before allowing draws.

Consult an attorney N-O-W! Did you not have an attorney look over your contract with the builder before you signed it? Does the contract not state that lein releases must be obtained?

Yes - get legal advise immediately! TODAY! In addition to being prepared for a civil action, you should probably also go talk to the district attorney about the possibly of filing a criminal action against your builder.

Basically your builder is admitting that he took the money you entrusted to him to pay subs who have done work on your house and he used that money to pay other bills. Depending on the way the laws in your jurisdiction are written, he could very well be guilty of conversion (theft), breach of fiduciary duty, fraud, and half a dozen other crimes.

It doesn't matter one whit if he was stiffed by someone else on two previous commercial jobs. If he wasn't paid by the owner of the commercial jobs, then he should NOT have paid the subs who worked on those jobs and those subs could have filed liens against the commercial property in question. That is the honest way to have handled things.

More than likely tho one of two things happened before you ever signed your contract with him... if not both. 1) your builder lived too high off the hog while jobs were plentiful and money was good and he got behind on paying his subs and now the new jobs simply aren't coming in fast enough for him to ever catch up by using his "profit" to pay off previous bills. Or, 2) your builder screwed up those two commercial jobs so badly that he managed to lose money on them even though he was paid properly for the work... so he had to use your money to finish paying off the subs on those jobs because he knew if he didn't, the owners of the commercial properties would file suit against him and he is now hoping you'll be too stupid - or too softhearted - to do what a business owner would do in a heartbeat.

In either case, by misapplying the monies you entrusted to him and using them to pay off subs who worked on other jobs, he is putting you in the position of potentially of having unpaid subs put liens against YOUR property despite the fact that you paid him so he could pay them for the work done.

You cannot afford NOT to hire a lawyer at this point. Your builder is underwater and I will bet you dollars to doughnuts that what he is HOPING will happen is that he will sign another client in time to get enough upfront money from that client to pay off what he owes to the subs who worked on YOUR house and postpone the inevitable day of reckoning a little while longer. This is classic "robbing Peter to pay Paul" activity. And, in this economy, it is only a matter of time before he files bankruptcy and leaves somebody holding the bag with no recourse whatsoever. YOU DON'T WANT THAT SOMEBODY TO BE YOU.

If you want to have any chance of ever recouping, you need to get a lawsuit filed alleging the fraudulent activity in detail before your builder gets around to filing his bankruptcy. And for that you need a good lawyer. If I recall correctly, you're located somewhere in Pennsylvania so...

Here is a link that might be useful: Pennsylvania Bar Association Lawyer Referral Service

I agree, get a good lawyer specializing in this type of case, and out of area one especially if you are in a smaller town/county etc.
When we built, hubby acted as prime contractor, as he had experience in that and his job was in inspections. No one or no materials came on the property without a paid receipt and a lien release. Our credit union paid 1/3 each time to us and we in turn paid the workers. BUT, we had to prove to the CU that everything and everyone was paid for before they release the next amount of money. We also got insurance, and required all contractors to be insured and licensed.
It was worth it.

Prior to going to the cost of an attorney I would talk to the builder and find out EXACTLY how much is owed and who has not been paid. You may be able to pay them your self (getting lien releases from the boss of each subcontractor). This will of course dip into the builders share which is his problem as he used your money for your home for other jobs not related to yours.

Good luck!

"I was told by the title company that we had title insurance that protected us against any liens."

Better ask the question again.

Without the releases title insurers do not usually cover liens.

They will cover an old lien that shows up, but not usually new ones from new construction.

The answer is to be a good human being, feel sympathetic for the builder's situation--and talk to an attorney right away. Sympathy is fine--but you can't trust him. The builder has already misled you by not telling you what was going on until you caught him. This is not someone you can trust.

You can't trust him to pay the subs, you can't trust him to pay your bank fine, and you can't trust him to be honest with you.

Talking to an attorney is essential to protecting yourself, your family, and your investment in this home. That *has* to take precedence over feeling sympathy for someone who has been dishonest with you.

Even if he finishes the job, you need legal advice to find out what you need to do to protect yourself from liens if he gets the subs to finish (or finds new subs) but isn't able to pay them.

Best of luck to you--

OK, update. I spoke with a lawyer, a good construction, real estate, contractual law. He came highly recommended by my business attorney. He has a plan of action if things don't get resolved by next week. He advised me to give him until next Thursday as he originally asked, and he should have CO by then. If not, the lawyer will take action. He was honest and said that right now it will not cost me anything to wait and he reviewed all the paperwork and said we are well protected right now. Since then the builder has paid the subs that were needed, and I spoke with all of them to personally verify that. The plumber is almost done, HVAC equipment got delivered and is being installed and the builder finished the kitchen work. He has been there long hours and looks and talks like a dog with his tail between his legs. Things seem to be headed toward the finish line.

I'm delighted to learn that it's all looking so much better! (Not what I'd expected would happen.)

Our next door neighbors hired a contractor who used their funds on other projects. They had to sue, and they had to become their own contractor to finish the job. No one else wanted to assume responsiblilty for what had/had not been done properly by the first man.

Happy for you!

JMPhoto --

Please keep us posted. Sounds like this may all work out after all.

brickeyee is right -- title insurance is purchased once, when you buy you property, and is designed to guarantee that you have clear title to the land -- that there are no old mortgages or other liens of record, and no adverse claims of ownership to your land AT THE TIME YOU PURCHASE. It DOES NOT cover liens that arise after you take title.

Same thing happened to us. We ended up chasing off the builder and finishing the house ourselves (four years later and we just finished the laundry room - last thing on the list!).

Not sure how much he ripped off - I figure around $100k. Luckily for us, unlucky for our subs - he hired mostly illegals (on purpose) and didn't pay most of them. Being illegal, they are too scared to file liens so unpaid subs weren't our problem - although I feel very bad for them.

I was totally duped into feeling sorry for the builder. His sob stories were never ending and he played me like a fiddle. Hard way to learn a lesson - but boy did I learn it. Trust no one when money is involved and business is business.

JM - Yay so far!! Logged in just to see what was up with your situation. I certainly hope this moves successfully towards close for you. What a nightmare. Keep us posted - and don't let them budge an inch!

Lessons available for the learning. As a builder I am glad to have never been in this situation. I can tell you though that if someone had threatened me with a lawyer, even if I was in the wrong, it would lead to a lot of ill will. Dont get ripped off but dont make regrettable decisions either. It could have ended much worse, had you threatened litigation.

A sales rep I know had a very similar situation happen recently and it did not end as well. He had originally come to me for a bid. Needless to say, he went with the lower bid. I can guarantee the money that he saved and ripped off indirectly from the subcontractors was not worth it.

Update! We have CO. Everything is done and looks awesome!! The only thing needing finished is the driveway, but with all the rain we had in PA, it got held up because of the rain. We are starting to move. I will post some finished pics in the "how is your build going" thread. Thanks everyone for you thoughts and help and encouragement. I am glad it worked out for all parties involved. He is an awesome builder and a great craftsman. I think its just hard for small builders right now with the economy and he is stuck in a bad situation and I feel good it got resolved and it did not have to get worse for him.

JMphoto, congratulations on your CO. I am so glad it turned out okay in the end. Thanks for sharing your story. We're still in the very early stages and its helpful to learn from others' experiences.

Congrats on your CO and glad everything worked out for you. Looking forward to the day!

Yay JM! It is so nice to hear happy endings :)