Tag Archives: home-improvement

Contractor Homeowner Disputes and How To Resolve Them

7 Common Contractor-Homeowner Disputes During Home Renovations & How to Resolve Them

When a contractor and a borrower have a disagreement on a rehab loan, it can cause delays and complications in the project. Here are some common issues I’ve encountered and potential solutions so you can keep your project on track.

Common Areas of Disagreement:

  1. Scope of Work: The contractor and borrower may have different understandings of the work to be done, leading to disputes.
    • Solution: Refer to the original agreement or contract. It’s important to have a clearly defined scope of work, including detailed plans, material specifications, and timelines.

  2. Costs and Budget: Disagreements over costs, especially if unexpected expenses arise, can strain the relationship.
    • Solution: Set up a contingency budget in the loan to account for unexpected costs. If the dispute is over costs already agreed upon, reviewing the original estimate and ensuring both parties stick to it can help resolve the issue.

  3. Payment Schedule: Some borrowers might feel the contractor is asking for payments prematurely, or contractors may feel they are not being paid on time.
    • Solution: Rehab loans often have specific draw schedules where payments are made as work is completed. Stick to this schedule and ensure inspections are completed before releasing funds.

  4. Quality of Work: If the borrower feels the work is not being completed to their standards or within code, they may refuse to approve payments.
    • Solution: Have a HUD 203k Consultant, licensed inspector, or third-party mediator assess the quality of work. This helps provide an objective opinion.

  5. Timeline Delays: Delays in the project timeline are common, but they can lead to frustrations on both sides.
    • Solution: Review the contract for specific completion dates and penalties for delays. Ensure any delays are documented and, if justified, negotiate an extension.

  6. Change Orders: Changes requested during the project may not be properly documented or agreed upon by both parties, leading to disputes.
    • Solution: All change orders should be in writing and agreed upon by both the borrower and contractor before any work begins. This helps prevent misunderstandings.

  7. Project Delays: Delays by the contractor may frustrate borrowers, especially if loan terms have timelines.
    • Solution: A clear timeline with penalties for delays can be included in the contract. Regular progress checks can help manage expectations.

How to Resolve Disagreements:

  • Communication: Foster open and transparent communication between the borrower and contractor. Misunderstandings often arise from a lack of clarity.

  • Mediation: If direct communication fails, a mediator or arbitrator can help resolve disputes without escalating to legal action.

  • Legal Recourse: If the disagreement cannot be resolved through other means, it may be necessary to involve an attorney. Contracts and agreements will be critical in this process.

Ensuring proper documentation from the start can prevent many of these issues from occurring.

Watch this video to learn how a 203K Consultant can help when a dispute arises between the borrower and contractor.

5 Ways To Avoid Mission Creep & Finish A Renovation Project On Time

During a renovation project, expectations are at an all-time high. At the beginning of a project, both the contractor and borrower are excited to begin the renovation. However, when the conditions change from excitement to complacency as the eventual “mission creep” sets in, sticking to the renovation deadline can become a problem.

What Is Mission Creep & How To Avoid It?

Mission creep or scope creep is when one or more of a project’s components creep outside of the parameters that were originally set. In our case the project’s components would be the Specification of Repairs (SOR). The decision to keep a project on time and on budget in most (if not all) cases depends on the communication between the contractor and borrower. This is crucial for several reasons:

  1. Project Understanding: Clear communication ensures that both the borrower and the contractor understand the scope of the renovation project. This includes details such as the desired outcome, budget constraints, and timeline expectations.
  2. Timeline Adherence: Timely completion of the renovation project is essential, especially if the borrower plans to move into the property soon after renovation. Open communication allows for setting realistic timelines and addressing any delays promptly to ensure the project stays on track.

Watch this quick video to learn why contractors should avoid overpromising to keep the customer happy.

  • Quality Assurance: The borrower’s expectations regarding the quality of work need to be clearly communicated to the contractor. Regular discussions and inspections during the renovation process help ensure that the work meets the desired standards, and any necessary adjustments can be made promptly.
  • Problem Solving: Issues or unexpected challenges may arise during the renovation process. Effective communication between the contractor and borrower enables them to collaborate on finding solutions efficiently, minimizing disruptions to the project. If an impasse occurs, get your HUD 203K Consultant involved. The consultant may offer a perspective that both parties may not have thought of to smooth out a potential misunderstanding.
  • Legal & Contractual Obligations: Clear communication helps in understanding the terms and conditions outlined in the contract between the borrower and the contractor. This includes payment schedules, warranties, and any other contractual obligations. It also helps in resolving any disputes or misunderstandings that may arise during the renovation project.

Overall, effective communication between the contractor and borrower is essential for the success of a 203k renovation project. It helps in ensuring that the project is completed on time, within budget, and to the satisfaction of the borrower.

Contractors: Having Issues? Talk To Your 203(K) Consultant

As a HUD 203(k) Consultant, one of the main things I see that can sabotage the contractor/borrower relationship is not getting the 203(k) Consultant involved if an issue comes up during the home renovation.

Let me give you an example. During a renovation project, a borrower had the vision of opening a wall to create an open floor plan between the dining room and kitchen. However, that vision was not in the original Specification of Repair (SOR) the contractor bid on in the Work Write Up. So, the borrower and the contractor agree to open the wall for an out-of-pocket fee.

When I was called in to perform the Draw Request (draw inspection), the wall was opened. Since I, the 203(k) consultant, was not notified in advance of the change in the SOR, the contractor may not get paid from the Lender for the work that they have completed.

This is why communication with your consultant is important. If I had been notified earlier, I would have reminded the contractor that any changes in the SOR, must be approved BEFORE the work can commence by the Lender. I would also remind the contractor that any work performed outside the SOR, may cause unnecessary delays to the borrower’s rehab project, since no co-mingling can occur per the Lender’s signed agreement at closing.

The moral to the story is that I am here to assist the borrower AND contractor so everyone can get through a project with very little friction. Contractors, please reach out to your 203(k) consultant to avoid any problems with you getting paid.

All the best!

Want to learn more? Watch this quick Youtube video!