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whammo77

Bank overpaid contractor on construction loan

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Ok, I'll make this as short as possible. We are in Oklahoma. My daughter decided to build a new house here locally. A realtor suggested a home builder to her (which is who she used), and then she set up a construction loan/mortgage with a local bank.

 

Long story short, the bank handled all of the money and all of the money disbursements... the bank had done other home projects with this contractor before, so they didn't bother to inspect his progress before giving him money (they trusted him). They also were not asking him for receipts. So, he manages to squeeze $130k out of the bank (total loan was for $150k) before my daughter found out what was going on. Unfortunately, only about $60k worth of work/materials had been delivered/accomplished.

 

When my daughter found out how lop-sided the funds-to-work-completed ratio was, she confronted the bank and the contractor about it. The contractor promptly bailed and now no one can find him. He won't return calls, etc etc. We've had a PI looking for him, but he cannot find the contractor either.

 

Next thing you know, all of the subcontractors are banging on her door (HVAC, plumbers, electricians, roofers, etc) wanting money because the contractor had never paid them. So the bank wasn't making sure that the sub-contractors were getting paid by the contractor either, now were they obtaining lien wavers.

 

So now, my daughter went to the bank to basically ask "ok, you gave him all this money, what do we do now?". The bank told her it is her problem and that she's on the hook for all of the money. What??? Again, the bank handled all the money, all the transactions, all of the payments, failed to do their due diligence in inspecting the progress of the work, and just blindly handed the contractor money..... and they want my daughter to be on the hook for it???? 

 

The next kicker is going to be liens... since the contractor didn't pay any of the subs for their work or materials, I'm quite certain they're going to file liens against her property. Ok, I get they want to be paid, so I don't blame them. But again, this is all a mess that was created by the bank not properly managing the money.

 

Another interesting note is that the bank at first claimed that the contractor had a bond in place with them for the construction, but when my daughter asked them for the information (after he bailed) they backtracked and claimed they didn't have a bond from him.

 

So, I'm just wondering if anyone has ever dealt with this and what the proper way forward might be. Obviously, yes, there is the lawyer option. At best, that's going to take a minimum of three years to resolve (if you even win the case). And let's just be honest, if you don't win it, you're going to be on the hook to a lawyer for another $40k or more going that route if you lose. As if the situation isn't bad enough already....

 

So, I'm just looking for suggestions... maybe consumer protection agencies or something? Not sure really who to contact for help. There's got to be someone tho, right?

 

And am I wrong thinking that since the bank handled all the money/disbursements and kept my daughter out of that loop, THEY should be on the hook for him bailing with all that money and NOT my daughter??? Why would she be liable for THEIR screw up and for them trusting the contractor and not following protocol??

 

Thanks in advance.

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3 hours ago, whammo77 said:

the bank handled all of the money and all of the money disbursements... the bank had done other home projects with this contractor before, so they didn't bother to inspect his progress before giving him money

 

Why would a bank inspect a contractor's work?  Banks don't employ persons with that sort of competency.  Did the loan agreement require any sort of inspection before payments were made?

 

 

3 hours ago, whammo77 said:

They also were not asking him for receipts.

 

Was that required by the loan agreement.

 

 

4 hours ago, whammo77 said:

Next thing you know, all of the subcontractors are banging on her door (HVAC, plumbers, electricians, roofers, etc) wanting money because the contractor had never paid them. So the bank wasn't making sure that the sub-contractors were getting paid by the contractor either, now were they obtaining lien wavers.

 

I certainly hope the loan agreement required that the bank obtain lien waivers from any subcontractors/suppliers who served a proper pre-lien notice.  Did it?

 

 

4 hours ago, whammo77 said:

Another interesting note is that the bank at first claimed that the contractor had a bond in place with them for the construction, but when my daughter asked them for the information (after he bailed) they backtracked and claimed they didn't have a bond from him.

 

It would be very rare for contractor of this sort to have the ability to obtain a bond.  In any event, any requirement for a bond would have to have been imposed by your daughter.  Did the contract require that the contractor post a bond?

 

 

4 hours ago, whammo77 said:

So, I'm just wondering if anyone has ever dealt with this and what the proper way forward might be. Obviously, yes, there is the lawyer option. At best, that's going to take a minimum of three years to resolve (if you even win the case). And let's just be honest, if you don't win it, you're going to be on the hook to a lawyer for another $40k or more going that route if you lose. As if the situation isn't bad enough already....

 

I'm at a loss to understand why you think something like this will take so long.  And, while you're correct that shelling out good money after bad wouldn't be a good idea, it won't take anywhere near $4k (much less $40k) for a lawyer to review the agreement with the contractor and the loan agreement and advise your daughter if she has a viable claim.

 

 

4 hours ago, whammo77 said:

And am I wrong thinking that since the bank handled all the money/disbursements and kept my daughter out of that loop, THEY should be on the hook for him bailing with all that money and NOT my daughter?

 

Answering this question would require carefully reading the loan agreement.

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