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Question: “I have a fixed firm price contract to build a primary residence with a licensed General Contractor. I obtained a construction loan that would role over into permanent financing upon completion. The GC was allowed to obtain a draw based on the percentage of completion. As time progressed he did not pay his subs etc. When I realized there was a problem, A material supplier has placed a lien on my property as of today for over 40k. I cannot obtain any additional draws until the lien is satisfied. The GC told me that he was going to file chapter 11 and that he had no intention of paying the material supplier. In order to terminate his contract from the bank, he must sign a release which he has declined. I have expended over 35K of my personal funds to pay subs. Can I get my money back and disolve his contract so that another GC can finish my house?”
Answer: Until the GC files for bankruptcy, you can go after him in court and get a judgment against him. With the judgment you can take control of the company’s assets and sell them to satisfy the debt.
Unfortunately, once the bankruptcy is filed, however, you will be precluded from suing. This is because of the “automatic stay” against any and all collection activity. Therefore, you cannot send a demand letter, make a demanding phone call, file a lawsuit, or do anything else that could be construed as collecting on the debt. Instead, you will need to file a “proof of claim” with the bankruptcy court and hope that the GC’s assets are enough to cover all of his debts (not just yours).
By failing to pay his subcontractors, however, the GC has certainly breached the contract. Therefore, I believe you can fire the GC and hire a new contractor to finish what was started.
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