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Why suing a home contractor may not be as beneficial as you think

(Patrick Semansky/AP)

Justin Pierce is a real estate investor who regularly writes about his experiences buying, renovating and selling houses in the Washington area.

I think people get a false sense of security thinking that our legal system will protect them if they are ever cheated. Because of this, people don’t check out service providers properly before they hire and they naively believe that the threat of a lawsuit will be enough to keep people honest.

Unfortunately, many people find out too late that settling a matter in court is often not worth the work, risk or expense. Contractors, however, are very aware of the reality.

Many of the worst actors out there are really essentially immune from any significant civil consequences. If you work hard and accumulate assets, then any honest mistake can land you in court facing a lawsuit.

However, if you have no assets or know how to keep your assets hidden, then you can almost cheat and mislead at will because, as an old crooked contractor I knew told me, “You can’t get blood from a turnip.” If you ever approach a lawyer with a potential lawsuit, the first thing she’ll want to know is if the person is worth suing. If the person has assets worth going after, then she’ll want to hear about the substance of the case.

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I’ve known this fact for many years. Several times I have been severely damaged by a bad or corrupt contractor and opted not to pursue a lawsuit because the contractor really didn’t have anything to go after. And no matter how egregious the contractor’s action, there is never more than a 50/50 chance of winning in court. Bad contractors are particularly good at complicating any court case.

Recently, I once again became the victim of a bad contractor. But this time I wasn’t going to let it go. I wasn’t sure if this contractor had enough to go after to make it worth my while. I knew it would be a lot of work and there were no guarantees, but I decided to press the issue out of principle.

These situations are extremely complicated, so this is just a very brief summary of events that led to the legal action:

In February 2014, I hired this contract to do a significant renovation on a house. The contractor was licensed, insured, and he was recommended to me.

The house appeared to have foundation problems and was leaning to one side. We knew we had to jack up the house and probably had to replace the foundation and footing on the one side and at the rear of it. Then we’d completely redo the interior of the house. We’d planned to move the stairs and add a second bathroom.

The construction contract had an anticipated completion date of June 1. The contract also made him responsible for getting plans and permits.

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When I hired the contractor, it was winter and he clearly needed something for his guys to do so he rushed over and gutted the house. But then the project stalled.

Permits became an immediate concern for me. He’d already started the work. I asked him if he’d gotten permits. He told me he was on it, explaining that he needed to give the county a couple minor things and he’d have the permits in a matter of days.

This is how the project sat for quite some time. I would ask about permits. He would say he just needed to do one more minor thing for the county, he’d grumble about the bureaucracy and then he’d say he would have them in a few days or next week.

In about April, he made some statements that made it sound like he had permits and he then went over and jacked up the house and he built stairs in a new location, did some foundation work and laid down the new floor joist.

The county records show that the first time an application for permits was applied for was June 15, which was 15 days after the project was to be completed. The contractor made a couple attempts to get permits after that but he was rejected. I was told we would have to get a variance before we could get permits, which would require a public hearing and take three to four months to complete.

Had the contractor gone in and applied for permits as he should have before he started doing the work, we would have known right away about the variance requirements and we would have had other options. But the contractor had already gutted the house and started structural work. Because of that, we had no other option but to get the variance.

By late September, the contractor had done very little on the project. He was not impressed by the letters from my lawyers and my angry phone calls. He, of course, tried to blame the delays on me, saying that I never decided on a final plan. He also tried to blame the architect at one point. At this stage, he was very bold and arrogant.

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Luckily, I keep all of my e-mails and, even though he didn’t like to respond to e-mails, I had records of having asked him at least every other week for updates on plans and permits and making it clear I was available to meet and make any necessary decisions.

By early October, I officially fired the contractor. At this point, I had owned the house for eight months; only about two weeks’ worth of work was done and all of that work was unpermitted. I tried selling the house as it was but it was way too much of a mess for anyone to take. So I went to the county myself and jumped through all of the hoops to get the needed variance. In February 2015, I finally got the variance and I hired a new contractor to finish the project.

I had paid the original contractor $30,000 and instead of improving my project he devalued it. The new contractor had to rip out most of the original contractor’s work and redo it. The stairs had to be ripped out and replaced and the foundation work that had been done at the back of the home had to be removed and redone. The floor joists that had been set by the first contractor required significant work to make them right. I was determined not to let another bad contractor get away with this kind of behavior.

So while I worked with a new contractor to finish the project, I also visited an attorney who had done some work for me in the past to pursue a lawsuit against the first contractor. The first attorney I visited didn’t really do construction litigation. So he referred me to another lawyer in his firm. This lawyer seemed pretty hot on the case. But I was stunned when I got his bills. He charged $550 an hour for any and every single thing. I had one bill for around $2,000 for him to do research. I didn’t know I was paying for the lawyer’s education, and normally when they research a topic, they charge a paralegal rate. Not this guy.

When I called him and told him to stop working for me, I got a bill for that 10-minute phone call, too. When it was all said and done, I paid that lawyer more than $5,000 and he hadn’t created or filed a single document on the case.

From there I went to my main real estate attorney. He was not a construction attorney but he told me he could handle the case. It took a lot of work on my part. I had to go through all the e-mails between  the first contractor and me and prepare a timeline and a statement. After hours of poring through the e-mails, I really considered dropping the entire case. But I pressed on out of anger.

When I completed all of the documentation, I gave it to my attorney and with it he drafted the complaint. The contract required that we first do mediation, so we served the contractor a demand for mediation. For several months, the contractor would respond but never set a date. The mediator would not allow us to move to a court case because she said the contractor was being responsive and, let’s face it, she was going to make $3,000 when we finally sat down so it was in her interest that we waited to mediate.

Finally, about three months after we served the contractor, we finally got a sit-down meeting with him and the mediator.

It really amazes me the ridiculously high threshold required in cases against a contractor.

If you go rob a convenience store for $50, they will put you in jail for five years, but if you’re a contractor you can go sign a contract, take a $10,000 deposit and disappear after doing little or no work, and the authorities will tell the victim to take the contractor to court. I’ve seen that very thing happen. Imagine if the cops told the convenience store to take the robber to court.

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The project cost me $50,000 more than what it should have to complete since I had to redo so much of the first contractor’s work. It took me at least nine months longer than it should have to complete and cost me at least $40,000 in additional holding costs, and there’s no way you can quantify the opportunity costs. How many projects did I miss out on because I was dealing with this mess for nine extra months?

Early in mediation, the contractor offered to settle for $10,000 and the mediator and my lawyer seemed to think that was a pretty good deal. That would barely cover my legal expenses to pursue the case. They seemed to think that all I could expect to get back was some portion of the money I paid the contractor. So to them the case was as simple as figuring out how much work had been done and subtracting from that what I’d paid the contractor. The remaining number would be my settlement.

I thought that was crazy because almost all of his work had to be pulled out. For example, the contractor had built stairs he says were worth $2,000 but I had to pull those stairs out and have them rebuilt. I say I’m entitled to receive back the money for the stairs.

My attorney said yes, but he didn’t really get any monetary gain from the stairs. So that’s the standard, he doesn’t have to provide a quality product, he just can’t pocket the money. Now of course, he has to provide good stairs, but my attorney was simply saying we’d have to go to court and fight that issue and it would be costly, risky, and it’s an unbelievably murky subject. It seems clear to me but not to lawyers or a court of law.

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In the end, I accepted a $20,000 settlement. I will receive that settlement in monthly payments over a couple years. My lawyer thought that this was a good deal, and really, it was. Even if I’d won a $100,000 judgment in court, I would still have to collect that money, which means my new occupation would become bill collector. My other option would be to turn it over to a collection company, which would get half of anything they collected, and there’s always the risk the contractor just files bankruptcy or disappears and I get nothing.

Unfortunately, however, this contractor cost me a great project and at least a $100,000 and my legal expenses were in excess of $10,000. Had I gone to court, my legal costs would have been double. So if the contractor does actually keep up his payments I will net back just $10,000 of my losses after you subtract legal fees. This doesn’t even take into account all the time I spent preparing the case or the stress.

I think if I really added it up, the legal pursuit probably actually cost me money.

So was it worth it? Yes! I am amazed by the incredible arrogance of these guys. When I told him I was going to sue him, he pretty much made fun of me.

The once-bold and blustering contractor quickly changed his tune when he got in that room with me, my lawyer and the mediator and he was facing a six-figure lawsuit.

The vast majority of people take no action against bad contractors. And that’s how bad contractors get to continue cheating people, and the state and county authorities really do almost nothing to go after these guys. So they just keep on hurting people.

I didn’t put this guy out of business, but at least I made him account a little for his actions.

Catch up with some of Justin’s previous columns:

How to sell your home without an agent

What you need to know before converting your home into a rental

Why the real estate business has jaded me

How to save money on your bathroom remodel