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Question DetailsAsked on 8/4/2017

what happens to my permit if my pool contractor goes out of business ?

Just saw my pool company on investigative show on local news last night - Looks likes he is being sued by a couple of clients. If he goes out of business prior to finishing my project - do I have to start over with my own permit - He hasn't started working on my property - but he has my deposit(10K) I know my money is gone - I am debating letting him start the job just to recoup some of my money in this project, but If I let him start and then he goes out of business where does that leave me? What if he doesnt pay his subs - how can I protect myself from mechanical leins at that point?

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You would need to get the replacement contractor to put his name on the permit - which also means he would have to accept liability for the work that was done to date - not something most contractors would do if beyond the excavation stage.

I hope this contractor is bonded - though if there are people in line ahead of you suing, sounds like even if he has bonding it may be depleted or fully encumbered by prior claims.

If you happen to be in one of the few states with a consumer protection fund to protect against contractor failures/defaults, you might have a shot at compensation from that for any loss under the contract.

I would say you need an attorney - because to drop the contract you would have to show a material change in conditions (like a lot of people suing him for poor/incomplete work) which would have caused you to not sign the contract in the first place if you had known of his situation. Attorney could also advise on how to get out of the contract and/or on putting claim on his Bond or even an attachment on his bank account if he does not refund your deposit. It is also possible the deposit money (if required in your state - not many do) is in a dedicated trust account for deposits/advance payments and if he has been handling that legally and only dispensing funds for the job they were deposited/paid for, your funds might be secure for now. Course, if he is scraping the bottom of the barrel or is a scammer or shoddy contractor or just a crook, more likely deposits have been used to finance jobs ahead of yours - or are totally gone out of town.

Details of the news story might give some clarification on that situation and WHY people are suing him - and might also give you a couple of potential lawyer's names to advance your case (though bear in mind their existing clients would likely get priority over your case with them, so a different lawyer might be a better idea.)

If he is not properly licensed or bonded or insured as required by law that would also be cause to terminate the contract.

If this is as bad as it seems (try to get a copy of the tape from the TV station - most sell copies of news stories for personal use), I certainly would not want him working on my job - both because of the risk of him going out of business and then getting hit with subcontractor/supplier liens, but also do you expect first-class workmanship and staying on schedule if he is in a seriously distressed situation ?

I would get an attorney on board ASAP - you might be able to lock in a claim against his Bond (or possibly his business and possibly even personal insurance company if fraud is involved or he was not legally licensed). Also, depending on the contract terms, you might be able to get out with only a small loss if he has not started work and there is not a large penalty for you cancelling, assuming he has $ in the bank to cover your deposit.

After all is said and done, bear in mind you might be able to claim all or a portion of the loss (depending on your income level) as a Schedule A or Schedule D tax deduction - sometimes fraud losses and bad debts (which an unrefunded deposit would be) can be deducted, especially if intentional criminal fraud or theft was involved, but there are a lot of limitations.

On protecting against liens - trying to make sure his subs are being paid (including asking them to tell you if he is falling behind on payments), making sure his bonding company will notify you if the bond is encumbered or dropped, making sure all suppliers and subs provide lien releases concurrent with you making final payment. Considering the situation, perhaps even setting up a construction escrow account, to coordinate progress payments to him for subs and suppliers dependent on signed, receipted invoices from them - though depending on your contract forcing that solution might or might be something he has to accept, and of course sounds like he already has about 1/3 to 1/2 the total project $ in the deposit so that money is probably at high risk regardless.

But I would say far better to drop him if possible.

Answered 3 years ago by LCD

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