Legal Question in Construction Law in New York
Contractor Starts Before Loan Approval
What recourse is there if a contractor begins work prior to loan approval and then the loan is not approved? The contractor demo'd the breezeway/garage and first floor prior to loan approval and a payment schedule in place. The property no longer has the collateral value to obtain another loan. Is there recourse?
2 Answers from Attorneys
Re: Contractor Starts Before Loan Approval
It depends on the documentation and representations given by the bank. Normally, work prior to loan is at the risk of the applicant.
Mike.
Re: Contractor Starts Before Loan Approval
The question starts with, did your contract say not to start until you issue a notice to proceed? If so, then there is a breach of contract and you can sue the contractor. The trick is to cast the complaint in such a way that the contractor's insurance will cover it.
At the same time, if the contractor broke the contract, then he was a trespasser. Notify your homeowner's insurance company and be prepared for a fight.
If these solutions do not take, be aware that your mortgagee has grounds to foreclose the mortgage on grounds of "waste."
And if your contract permitted the contract to start work with no preconditions, you had better get to a creative lender, and soon, because otherwise your house will be a total loss once water comes in and you get a mold infestation.
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