July 26, 2007

If a home has defects, home buyers and contractors can use Florida’s construction-defect law, Florida Statute 558, to try to work out disputes in courts. But when contractors get overextended and fail to pay their subcontractors or suppliers, they sometimes simply go out of business. In that case, Florida’s Construction Lien Law protects the subcontractors at the consumer’s expense. The law makes the consumer responsible for paying off all tradesmen and suppliers who’ve worked on a home — even if the consumer already paid the general contractor for the same work.

Lien laws, or so-called mechanic’s lien rights, are long-respected protections for people who provide labor, materials and services. Industry officials say the lien law is important because it puts the ultimate responsibility for payment on the person benefiting from the work — the homeowner. State law requires notice of the lien law in all new-home contracts.

Still, consumers like Wong are often dumbfounded to learn that they can be made to pay twice for the same work or supplies if a contractor fails to pay the subcontractors — or risk losing their homes.

In Hernando and Pasco counties, some 200 families were stuck with liens after three builders failed to pay subcontractors and suppliers. The builders took on more work than they could handle during the boom, then got hit with rising costs of materials and labor. “Believe it or not, ‘too much work’ is one of the top reasons home builders go out of business,” says John Wiseman, president of the Florida Home Builders Association and president of CORE Construction in Florida. “With the big run-up, some people tried to do too much with too little.”

In another Great Bay case, Lenore Mascar says a primary reason she and her husband, Ray, decided to move to Port St. Lucie from Boca Raton was “to stay within our budget and retire comfortably without getting in over our heads.” They contracted with Great Bay for a modest, $151,000 home. The builder took a total of $70,000 in bank draws out of the Mascars’ construction loan but didn’t use it to pay subcontractors, who had completed about half of the Mascars’ house when Great Bay shut its doors. Dozens of liens poured in as the Mascars struggled to finish the home with the help of a new contractor. Total costs have stretched to more than $250,000.

The couple finally moved into the house last fall. Ray Mascar died of lung cancer shortly after. Now, Mascar has returned to work to try to keep up with her increased mortgage payment and the subcontractor bills — and legal threats — that continue to arrive in the mailbox. “We pictured a pleasant retirement in our nice, little, 1,800-sq.-ft. house,” Mascar says. “Instead, I haven’t spent one night in the house that I haven’t cried my eyes out with worry.”

Among the many sources of Mascar’s frustration are her bankers, who released large draws to the contractor without ensuring that he used the money to pay the tradesmen working on the Mascars’ home [see related article "The Banks' Role."].

As is common in large lien law cases, Great Bay consumers asked police and prosecutors to launch a criminal investigation. “As far as I’m concerned, it was a crime to take our money and not use it to build our house,” says Mascar.

Florida law, in fact, carries felony-level punishments for contractors who intentionally misapply construction funds. But proving intent is tricky, and many law enforcement officials consider it a civil matter, not a crime, when a contractor takes a down payment or makes hefty bank draws from a customer’s construction loan, does little to no work and abandons the job. Criminal prosecutors tend to leave abandonment cases in the hands of prosecutors for state agencies like the Department of Business and Professional Regulation. Officials there can do little more than take away a contractor’s license and encourage victims to apply for relief through the state’s Construction Recovery Fund, which can provide limited compensation for homeowners who’ve been harmed financially by a contractor.

The system incenses Calvin Brown, a lifelong Jacksonville resident. In September 2005, Brown and his wife contracted with home builder David Wesley Vickers to build a $24,000 addition on their home in east Arlington. Vickers took two payments of $7,200 but had barely begun work on the addition before filing for bankruptcy in October. Along with Brown, Vickers abandoned 50 other homeowners from whomhe had accepted thousands of dollars. “This has been a nightmare for 51 homeowners, and no one has cared,” says Brown. “The state of Florida has no teeth in its laws when it comes to contractors.”

One problem: The state’s Construction Industries Licensing Board routinely licenses contractors with a history of bankruptcies — despite continuing problems with contractors who go in and out of business [“Home Sick,” July 2003, FloridaTrend.com]. Vickers, for example, had filed bankruptcy three times before — in 1987, 1999 and 2004, although he did not proceed with the 2004 case. This time around, the U.S. Bankruptcy Court approved a deal that leaves only $45,000 for the homeowners whom Vickers abandoned — about $900 per family if evenly divided.

Vickers’ lawyer, Edward P. Jackson, points out that bankruptcy laws prohibit discriminating against someone who’s filed in the past. Vickers got into trouble when he underbid jobs and the cost of materials and supplies skyrocketed, Jackson says, a common problem among small contractors. The DBPR has permanently revoked Vickers’ license.

For years, Florida’s home building industry has fought off most attempts to make contractors more accountable, including killing proposals that would have required licensing bonds or mandated that contractors have more money upfront. This year’s Legislature, however, tightened several requirements, allowing the Construction Industry Licensing Board to establish a minimum credit score for contractors, to require bonds for those who don’t meet the minimum and to require criminal background checks. The Legislature also ordered a review of Florida’s construction lien law due in October.

G.W. Harrell, executive director of the licensing board, says the changes will give his organization more power to scrutinize contractors before they’re licensed. Last year alone, he says, the board ordered $8 million in restitution from contractors, revoked 170 licenses and handed out $3 million from the state’s recovery fund. Increasing financial accountability might weed out some problems on the front end.

Homeowners harmed by contractors aren’t satisfied. Many want the construction lien law abolished and would like to send home builders to jail if they take consumers’ money without using it to build their homes. “There are just too many loopholes,” says Ferol Falzone-Long of Brooksville, who is trying to help hundreds of neighbors, many of them retirees, navigate the state’s construction lien and defect laws.

“This is heartbreaking for people who don’t have the money to pay off the liens or hire the lawyers,” says Falzone-Long. “They shouldn’t have to.

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