Subcontractors going under / More and more aren't being paid because of foreclosed homes throughout Wasatch Front
Text 
1 Comment [ View ]By BRYON SAXTON
Standard-Examiner Davis Bureau
bsaxton@standard.net
House foreclosures along the Wasatch Front are claiming more victims than just investors, developers, builders, real estate agents and lending institutions.
The slump in Utah's housing market has also put subcontractors -- like Dean Hennefer, of Hennefer Plumbing in Pleasant View -- in a crunch. He has gone unpaid for work already completed on area homes.
Cutting his six-member staff in half and using reserves set aside for future expansion has allowed the small-business owner to avoid being pulled under by the crisis.
"I'm feeling like I'm a good example of what is happening," said the 49-year-old Hennefer. "A lot of (the work) I do is by word of mouth."
He said his company is not like a big retail operation, which runs a credit check on customers. "We assume they are going to pay us."
But that trust the 15-year business owner has put into builders is costing him.
Hennefer estimates he has done $150,000 worth of work in new homes from Sandy to Box Elder County that he will likely not be compensated for because the homes have gone into foreclosure.
The cost to pursue legal action -- with only a remote chance of capturing a portion of the loss -- prevents subcontractors like himself from pursuing that remedy, he said.
"It costs us money every time we talk to an attorney on the phone," Hennefer said.
The frustrated plumber is looking to lawmakers for a long-term solution.
He suggested legislation that will protect subcontractors by forcing loan organizations, in the event of a foreclosure, to set aside something for the subcontractors when the home sells rather than the asking price just covering the construction loan issued.
"They don't care about the lien. They don't care who built the home. They just want to cover the construction loan," Hennefer said.
"We need to make banks more responsible for where the money is supposed to go to."
A Davis County lawmaker who has been an insurance provider for a number of subcontractors put out of business by the recent housing crisis says legislation is not the answer.
"I insure a lot of subcontractors. I have had quite a few of them go under," said Rep. Curt Oda, R-Clearfield, who has worked in the insurance industry for more than 34 years.
But the GOP lawmaker, while sympathizing with those small-business owners taking it in the pocketbook, doesn't agree that introducing more laws is the best way to ensure subcontractors are paid for the work they do.
With the decline in the housing market, Oda said, "everything is connected" as a result of builders constructing spec homes and then going out of business.
The agreements between lenders and general contractors are contractual, Oda said, and lending institutions are not restricted from putting language in the contracts that protects the general contractor and subcontractors doing the work.
Oda said that is why fixing the problem has to be market-based. "It can't be legislative."
The current business climate means subcontractors have to be "more business savvy," he said.
Realtors, residential and commercial contractors and subcontractors, bankers, mortgage institutions and city building inspectors should come together to discuss the issue, Oda said.
"Everybody ought to be coming to the table on this," he said.
What subcontractors are experiencing is a microcosm of what unfolded in the housing industry across the nation, said Clark Noble, controller for Colonial Building Supply in Centerville.
The Davis County business has provided materials to builders of new homes that have been foreclosed on. He said he has lost several hundred thousand dollars as a result of there being no one to pursue for payback.
The foreclosures have resulted in a change in the way the supply store now conducts business, Noble said.
But everyone involved in the housing crisis, he said, has a level of culpability.
He said the situation, which he believes stems from greed from the bottom up, cannot be resolved through legislation.
The nationwide problem was caused by the greed of speculative buyers, loan organizations, Wall Street businesses and investors who, over the past few years, were trying to make large gains in the housing market, Noble said.
"It is everybody's greed that got everyone into this problem," he said of those looking to capitalize on16 percent to 18 percent annual jumps in the housing market.
Based on that, Noble said, there are no innocent victims involved in the housing crisis, only ignorant victims.
Subcontractors, including the firm he works for, Noble said, allowed themselves to go too far in the "aging schedule" in providing work and materials to builders in hopes of making a larger return on their investment.
"The party is over. We are back to the chicken coop as it really is," Noble said.
He said he expects the market to rest there for a few years before returning to where it was before the crisis began.
Add Your Comment
This is true statewide too. Sub & supplier payment is a problem everytime the cash flow slows. With well backed suppliers more apt to lien and pursue their options there than subs.
However, just a very few years ago a group of leaders from subcontractor organizations know as the Utah Subcontractors Council got a law passed to create quick payment and rules for retention in Utah contracting law.
That same Law was named exclusiveley for the commercial sector. Residential subs and contractors were excluded for unkown reasons to me. Perhaps they should check with the local association for home building contractors for that logic. If I recall that exclusion was supported by the banking associations as well.
Commercial contractors in Utah must be paid within a reasonable number of days for their trade 30 days once their work is certified to be complete - regardless of the overall project status. In other words we have a Prompt Pay Law.
Then this thing we all know as retention (a device created to create pressure on a sub to continue doing what he has already proved done or will do) is maximized at 5% in commercial. Only an owner may impose it & they must pay all they witheld from interest on their money for the period of time involve. No such limit witheld or % of interest is entitled a residential sub in Utah currently that I am aware of.
Both of these factors theoretically helps limit the exposure for payment in the commercial arena, that the residential subs face in Utah.
Now that is not to say commercial subs get paid paid as they should either, but at least those in the food chain above are breaking a law when they don't pay as the new law intends.
Mike Luke, Owner Mountainlands Area Plan Room. A builders exchange based in SLC with an office in Roy too.