He had run into problems when he got behind the walls, and the labor took longer than expected. But he didn’t put in change orders - he told us not to worry about it, he’d catch up. But he didn’t catch up. There were other problems – his problems – with his workers, his subcontractors, with his other projects. Then our investor became concerned. There were penalties written into the contract - $100/day for every day the flip went over deadline. The investor wanted to enforce those penalties, but we backed up our contractor and convinced him to extend the deadline. Change orders would have been a lot easier to explain to our investor – this contractor did us no favors by not putting in change orders!
The new deadline came and went. And then our contractor essentially walked off the job. He sent us an e-mail that he was stressed out. He felt like he was getting the short end of the deal. He said he would complete the few little things that were left, but he never really came back. We couldn’t even get a hold of him.
Well. What do you do then? We chose to finish the job. We pulled some handyman types off working on our rentals to complete. We got the place to pass inspection. We polished it off enough to impress a buyer, who put it under contract. Their home inspector had a short list of things we needed to do to make the deal happened, and we got our guys on that.
Then our contractor resurfaced, looking for his final payment. Well, how about that!
The Mechanic's Lien: A Gun To The Real Estate Entreprenuer's Head!
Two days before Thanksgiving, he wanted to meet to talk about his check. Or he was going to put a mechanic’s lien on the property. Things got pretty heated – I do not like a gun being held to my head, and that’s essentially what he did by threatening that. We never set out to screw anybody, least of all him. We liked his work, for the most part, and before he got “stressed out” we thought we’d flip many houses together. But alas, it was not meant to be. He made a bad business decision by not putting in change orders, almost 3 months behind and with a list of things we had to fix, and suddenly we were screwing him? Really?!
I was not about to drop everything and make myself available one day before an out-of-state trip to appease this guy. Go ahead and file that lien. Like George W. Bush, I do not negotiate with terrorists. If he had filed that lien, I was pretty sure I was going to file something with the Attorney General.
He didn’t file the lien. Steve kept in contact with him over the weekend, and finally he agreed to a meeting first thing Monday. I re-read the contract on the ride home from our trip. He had signed a waiver of lien, and there were several areas of the contract that protected us in this case. His filing the lien would have been in violation of the contract, and I’m confident we would ultimately have prevailed. But how long would a court case take? How ugly would it get? Would it spook the buyer? We’ve never fought a lien before. This would be uncharted territory for us, we don’t know what to expect. One day, I’m sure, I’ll be able to right a blog post about successfully fighting a mechanic’s lien. Not today. We settled out of court.
His wife, who is also his business partner, met with us for the negotiation. For some reason, supposedly a good one, he couldn’t be there himself. He was available by phone.
The two parties to this negotiation have much in common – both husband-and-wife teams working hard at an entrepreneurial venture. Both balancing the precarious tightrope between business and family. Both needing to get paid to ensure the survival of business and family. I went in hoping we could come up with something fair. Yes, I was angered by the threat of the mechanics lien. Enraged, actually. But I had spent the last six days meditating on Napoleon Hill’s money consciousness mindset based on love, faith, hope, and the other positive emotions that leave no room for anger, resentment, and revenge. (See last week’s post: http://thisgingerjustsnapped.weebly.com/blog/hope-for-the-angry-entrepreneur)
I walked into that meeting practicing compassion. We had a number our investor was willing to go to, and I thought it was more than generous. I guess I have a lot to learn about compassion! And business, too. To our investor, this was the amount of money he was willing to part with to make the headache go away.
I listened to her tell their side of the story. They worked tirelessly all summer on that house. They didn’t put in change orders because they simply don’t do that – they often eat some costs in an effort to go above and beyond for their clients. They just didn’t count on eating this much. And then everything just snowballed – problems with their labor pool, scheduling conflicts with other projects because it just went so far behind schedule. Finally, when things got tense with the investor and with Steve he just couldn’t take the stress anymore.
There is still a big part of me that wonders how any of this is our fault. We never asked them to not put in change orders! We did not cause these problems that snowballed as a result of that decision! In my radio career, I have been in many a frustrating work situation. But never once have I walked off the air before finishing the show!
Still, they completed most of the work. And the house went under contract after just 13 days on the market.
Things got tense. We were less than a thousand dollars apart, but the husband on the other end of the phone wasn’t budging. He’d rather go to court. I was thinking we’d have to walk away. Maybe give him some time to think about it and leave the door open. But the wife threw out a number that was only $200 higher than our investor’s maximum. So I told Steve to call the investor. Run it by him. And he agreed to settle. Fine. Done. They got their check that night. And now we can go ahead with the sale, which is scheduled to close in mid-January.
Steve already has another flip under contract in Scranton, with the same investor. We’ll need to find another contractor, though.
I will be putting special language in this next contract with regards to change orders. Anything that is going to affect the time of completion requires a change order. I can’t stop our next contractor from trying to be a hero and eating the cost of any extra labor, but I can make it clear that the consequences of such a decision are completely on him and not on us! And that the project will need to be delivered on time regardless! So just put in the damn change order, already!
When all was said and done, this flip still came with a lot less drama than our last one:
I wonder how many flips we’ll have to do before we get one that’s drama-free?