Want to protect yourself from a fraudulent contract home builder? Start with a contract
Marianne works in our Warranty Services department here at Tarion. She handles financial loss claims from homeowners who have built, or are trying to build, contract homes. In theory a contract home is exactly what it sounds like. You contract a builder to build a new home. You own the land; you imagine your new dream home on that land; you contract a builder to build that dream home. But remarkably, too few contract homes actually involve a construction contract. It seems that too many people get so caught up in the excitement of building their dream home they are happy to take someone at their word and then ‘seal the deal’ with just a handshake.
Build your home on more than a handshake
The vast majority of files that cross Marianne’s desk are based solely on handshake agreements and they are almost always heart-wrenching stories of disappointment, financial loss or worse. Marianne tells the story of the woman who owned a lot with an older house on it. She found a contract builder. They agreed on the terms, shook hands to close the deal and then she paid him a sizable fee to get the project started. He promptly knocked the house down and then left town with all her money, for good. Why he didn’t just leave town was a mystery to Marianne. “What kind of a person takes someone’s money and their house?”
Protect yourself from loss and anguish
In more than 10 years at Tarion, Marianne has dealt with too many tragic stories. She has seen marriages end in divorce, retirees lose all of their life savings, and people become terribly ill from the stress. One homeowner believed their cancer was related to their stress and anxiety. She has seen builders run away with large sums of people’s money and get away with it, more than once. The maximum deposit compensation under the warranty is $40,000. While most victim homeowners are grateful to recover any loss, they may find that without a contract the journey to demonstrate that they are in fact victims of fraud can be particularly challenging.
So, please heed Marianne’s advice: If you are planning on hiring a contract builder be sure to put your agreement in writing. “The thing that causes the most problems in the files I deal with is a poor contract, and a poor contract is a recipe for disaster.”
The thing that causes the most problems in the files I deal with is a poor contract, and a poor contract is a recipe for disaster.
We know that building a new home is very exciting, especially if it is the “dream home” you’ve been working, saving and waiting for all your life. But don’t allow your emotions to let you rush blindly into a flawed agreement. Make sure you get off to the right start by doing the following:
Make sure your contract is in writing
Turn your agreement into a written contract. “I have dealt with cases where there was nothing in writing. The “contract” between the owner and the builder was purely verbal.” If that agreement falls apart, you have no way to prove what you agreed upon in the first place. “In other cases where I have seen something on paper, it was little more than some drawings and notes.” It’s very important to be as specific as possible about the work that will be done and who is responsible for what.
Include a schedule of payments
A good contract will include a schedule of payments. The schedule should outline when you are going to provide funds to your builder, how much, and what for. Why is this so important? Well, if your builder does leave you hanging, it allows Tarion to easily determine how much you should have paid for the stage your home is currently in, and compensate you accordingly.
Get a lawyer to review it
Once you have an agreement. Take it to your own real estate lawyer to be written into a binding contract. At the very least, have your lawyer review your written agreement to ensure that it protects you if the relationship with your builder turns badly.
At the end of the day, you can’t foresee a builder running away from a deal with your money and only a half finished house to show for it. But you can take steps to protect yourself if that happens. A good, written contract will go a long way towards preserving your finances, relationships, and health. It will also allow you to get back to building the home of your dreams.