I have been asked by a friend of a friend to sign onto his new home loan as general contractor to improve his terms. He would be responsible for all aspects of the building. I know this kind of thing happens all the time but i am wary. A couple of my questions are… What is the extent of my liability? What kind of compensation should i expect for this? I have considered an arrangement where i spend a few hours every week or so overseeing the project to offer advice and preform quality control if necessary. Thanks for any guidance.
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In many areas, if the permit is in your name, YOU own that project. By that I mean, you're responsible if anyone gets hurt, does anything illegal, violates any code, etc.
Now not to totally scare you away from doing it as if you are serving as a consultant and the homeowner is doing the permitting in his own name, it might be doable and profitable for your time.
I would however consult an attorney so if the homeowner goes belly up, you're not held accountable for that loan and have the black mark go on your credit rating.
Just my .02 cents of course...
Mike
I think you should look at your question and state it as it really is. Someone you don't know wants to save a few dollars by having you do something that is illegal. You want to know what will happen if things go bad. It's one thing to have a clear and above board business relationship but this sounds sneaky. Work out the "but ifs" if you want to, I'd say no thanks. In most places, if you are the general contractor of record, the buck will find it's way to you before it stops.
Beat it to fit / Paint it to match
ultimately i will have some hand in this project, even if i dont sign onto the loan. its a bit unconventional, a strawbale with earth stucco walls. Because the "green" building is something i believe in i want to help out (within reason). I figure that by spending time around the project i can at least control the quality of building that goes on. The suppliers, bank, county and potentially off the books labor he hires are another story. Thanks for the advice.
I don't know what state you're in, and I'm not entirely sure it matters, but from a purely financial standpoint, you could (depending on the loan and its structure/parameters) have some financial liability if things don't go as planned.
Essentially, you're saying you'd do the work, set up for the draws etc. I can think of exactly 4 people in the world I'd take that chance on and one of them is my daughter.
Jay
You would be liable for every single nickle the bank advances on the project that is in anyway related to your name being on the form.
The place burns down the week before closing, his insurance company says "It ain't ours, your GC has the insurance obligation, we never signed on to his work"
Someone has a workman's comp claim, who is the GC that made sure all OSHA type rules were followed. Lawyers will be looking for anyone with a buck.
All remote things but happening every where EVERY DAY
I honestly don't know the exact legal ramifications, but I'll tell you this: About three years ago I did the exact same thing for a very very good friend of mine. The type of friend who has "been there" for me in the past when I needed him. In reality I suppose I could have said no, but I really didn't feel that way at the time.
Anyway..... I didn't sleep well until that house was done. It really really weighed on me all the time. At first I'd check in frequently because I wanted to make sure it was being done "right". But then it really dawned on me that if the sh1t hit the fan onsite it was probably going to amount to something like a major accident. In that case there wasn't much I could do to help the situation anyway, short of ignoring my own work to supervise this thing full time.
The other major pitfall was out of my hands too as I wasn't the one managing the job financially either.
So I realized that this potential trainwreck (which is what pretty much any homebuilding endeavor is) was, for the most part, totally out of my hands. I had given up the keys to the bus but assumed responsibility for it getting there safely and on time.
Anyway, it was a big risk and I learned a valuable lesson. I'll never get in that situation again. Too much can go wrong and you really have very little control over any of it. At least I didn't anyway.
I have done this type of arrangement a couple of times and would do it again. It would totally depend on the individual. Do I completely trust them? Are they competent? Do they have a workable financial and construction plan?
One of the projects I was involved in the entire construction project and was acting as a de facto construction supervisor. This was not much different than being the GC.
The other project I had very little hands on involvement other than two weeks of work for my crew. This was a simple project for a past customer and future business partner.
Both projects were satisfactory but if you are the type of person who needs to be in control of your destiny this is not a situation for you. I can't imagine doing this for a "friend of a friend."
There are good ways and bad ways to do what you are considering. With the proper legalities all spelled out, you could pick up a decent chunk of change without having too much work involved.
The question that I would start with is " how much are you going to save and what share of that is mine, since I'm putting my license on the line".
I would ask this question because one of the reasons I originally got my license was to make money off of it and this would be one way, one legal way, to make money.
I would then look at this proposal from a profit/risk point of view.
Again, it all depends upon the legal language. I certainly have him signing some fifteen page boilerplate type stuff.
blue
Certain types of these relationships result in the GC commiting fraud.
I was asked to do something like it for a house rehab a few years back, had a conversation with a lawyer and he explained that if you sign papers with a bank to build/rehab a project and the homeowner is in charge the contract necessary to cover your #### is pretty complicated.
According to my lawyer, it is possible the homeowner can sue you for his mistakes. Especially if there are licensing authorities in your area.
So probably its best if you don't do it. At least thats the conclusion I came to.
>you could pick up a decent chunk of change without having too much work involved.If the HO is doing this just to get more favorable loan terms, then he's probably not going to "allow" a decent chunk of change to leave his hands...certainly not the amount he's saving on the loan...he's already mentally put that in his pocket. I'll speculate that the HO figures it's essentially a freebie from the GC, does not value what the GC is risking, and anything beyond a case of beer or token payment would astonish him.How would you avoid this perception and make it favorable to you?
>you could pick up a decent chunk of change without having too much work involved.
If the HO is doing this just to get more favorable loan terms, then he's probably not going to "allow" a decent chunk of change to leave his hands...certainly not the amount he's saving on the loan...he's already mentally put that in his pocket. I'll speculate that the HO figures it's essentially a freebie from the GC, does not value what the GC is risking, and anything beyond a case of beer or token payment would astonish him.
How would you avoid this perception and make it favorable to you?
Cloud, the most important thing I can tell you here is to not prejudge or do the other guys thinking. All we really can control is our own thoughts, so the thing we need to do is to put forth a proposal that is beneficial for us.
Lets say the guy will save $3000 if he gets me to sign on as a GC. I do a quick study and figure out that I'll need $1000 worth of lawyering to protect me. I make a proposal to the guy: "If you'll pay the lawyer expenses to keep my noose out of the wringer and we split the difference of what's left, I'll do it."
You've just put forth a proposal that will garner you a quick $1000. The homeowner can reject it, but with all the potential for problems, that's okay with you too. I call this a win-win proposal for me because I really don't care either way how it falls.
If I run from the situation just because I'm scared, I have no chance at pocketing that $1000. If I think it through logically, rather than emotionally, I have a solid chance at marketing my license in a perfectly legal way without having to wear a toolbelt. That is the goal of some licensees.
blue
Some very good points in that last post. I especially like the summation:
If I run from the situation just because I'm scared, I have no chance at pocketing that $1000. If I think it through logically, rather than emotionally, I have a solid chance at marketing my license in a perfectly legal way without having to wear a toolbelt. That is the goal of some licensees.View Image
I know this kind of thing happens all the time but i am wary.
Does it? I don't know. But then again, people drive without their seatbelts on, and under the influesce of things, or inattentively, too. Many times they "get away with it," but it only takes that one time to ruin a whole day for any number of people, too.
Means you are likely right to be wary.
A couple of my questions are
Well, there's a number of questions in return. Your Profile does not tell us where you are or what your do--that makes the answers more complicated. (You can update your profile by clicking on either your own name in blue, or on the grey "Update Profile" there at the top center of the screen).
To answer your questions, we have to know what relationship you are going to have with the client. If you are both subcontractors, and you are being asked to "GC" the project pro forma, in many places you are then assuming every legal risk a GC does (whether you arranged to be paid for, or to pay for, any additioanal coverage required). In other words, you could actually lose money on this deal, even if there are no problems.
In my town, you'd be liable for getting a City GC license, even if all the permits are pulled by the HO (and if the BI reports you're GC-ing they can issue a Stop Work order).
And all this effort is to save a few points on the construction note?
You are running a business (if you are a sub, as I presume), you must follow the first Rule of Business: Thou Shalt Not Lose the Business Money. That rule holds true for friends or family. We know what's "in it" for your buddy, what's in it for you?
Another issue is legality. Would your local laws allow a situation like this?
Architects used to stamp drawings they had not worked on for projects in other states, if they had a license for that particular state. Since obtaining a license for each state is a PIA, it was often easier for one architect to pay another a nominal fee to stamp their drawings, rather than get their own license for that state. This has since been disallowed, and risks punishment if it's caught.
Don't know what entity controls your contractor licensing, but a call to them could provide some answers that affect your decision.
I agree with the naysayers. This seems like a potential nightmare for you and a windfall for homeowner. I'd pass for the reasons already stated but I'll summarize:1) Who controls the daily job procedures? You say that you'd be 'nominally in charge' but what does that mean? When a disagreement ensues about technique or safety, who makes the final decision? You as the strawman G.C. or the homeowner who seems to be the one who really wants to run the project?2) Liability in this one has a stench that looks like it will stick all over you. In many states and in legal interpretation, a General Contractor assumes responsibility for a job they sign onto, period. Your professional expertise will outweigh the homeowner's amatuerism all day in court, placing you at liability. And that's outside of the contractural arrangement you signed for the bank.3) Fraud. Frankly, to sign to be something or represent as someone you are not amounts to fraud. Is your professional reputation something you want to have bantered around in court potentially with that attached to it? Probably not. Again, the homeowner is an accessory, but you represented an arrangement that doesn't exist in order for someone or yourself to make a few extra bucks. Banks get kinda upset about that and tend to hire lawyers.4) Do you have the time to take out of your day to oversee this project properly? And for what compensation? And what does it say about your profession anyway if you think someone should get your services and your responsibility for little to nothing? This person essentially wants a free/cheap G.C. and is thinking of their own benefit and little of yours.I'd steer clear saying that after some consideration, the legal ramifications are just too great. Or just say your too damn busy and your time is money so they can hire you on as a G.C., working with the homeowner, or not.The consultant route is an interesting one, but I'd have an attorney help me draft a contract sufficient for CYA in that instance, lest you get stuck being considered a G.C. anyway and then stuck with all its attendant problems.Hey, if everything you touch turns to gold, or at least you never have anything in your life go wrong, then I guess go for it. Or like another said, "Those who must control their destinies..." Personally, I take responsibility for my destiny indeed and choose not to leave it up to chance.