How to recover losses from a real estate contractor who took monies to build a home and then plans to file for bankruptcy?

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How to recover losses from a real estate contractor who took monies to build a home and then plans to file for bankruptcy?

Have a construction loan through a bank and have a legal contract with a homebuilder to construct a home. Have released money to the homebuilder to pay for materials and subcontractors’ labor. The home is a shell, with windows but not everyone has been paid by this homebuilder. Upon receiving a certified letter from supplier, claiming they will put a lien on the home unless paid, I contacted the homebuilder only for him to say he ‘”lost his business”. He claims that he is going on disability for depression and will file for bankruptcy. What do I do?

Asked on January 17, 2011 under Real Estate Law, Massachusetts

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

You may be able to put your own lien on the property; however, apart from that, IF the homebuilder does file for bankruptcy, you may have little recourse, since bankruptcy will discharge most debts. Furthermore, even if you put a lien on this property, if it's not worth that much (given its state and the real estate market) and there are other liens against it, that may not provide much recourse. And if the homeowner is truly in desparate financial straights, then even without him fililng for bankruptcy, there may be little you can do to recover. If the amount you're owed is significant (several thousand or tens of thousands of dollars), retain an attorney now to help you take all relevant steps (lien if appropriate; make sure you file as a creditor if there is a bankruptcy; etc.) If you're in the fortunate position of being owed $1,500 or less, you may be best served by writing off any losses.


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