Effects of the mortgage crisis and other tales of woe

The last weekend of July, we didn't spend much time at the land. We attended an event at the Phippen Museum in Prescott on Friday night then stayed in Prescott with friends and attended the Cowpunchers Reunion Rodeo in Williams on Saturday. Here's Gerald outside Rod's Steak House in Williams.

Friday afternoon, on the way to the Phippen, we dropped off a check to APS. By the time we arrived at the land on Saturday afternoon, they had already marked where they wanted the trench dug.

The block work was completed-- here's our garage--but we were still at an impasse on the framing.

Since we put the framing out to bid again, we had some trouble with our lender, Wells Fargo. We had been building the house using a line of credit they had offered us on very good terms.

Gerald was just about to transfer enough to cover the materials package, when he noticed that our available balance was far too small. In fact, it would just about cover materials and nothing more. He checked with the bank and found that they had reduced our credit line by nearly $100,000 based on declining real estate values. We could, however, request an appraisal, which we promptly did. If the property appraised at high enough to reinstate the full equity line, we wouldn't have to pay for it. Then they started asking for all sorts of documentation. "Wait a minute," Gerald said. "You're asking us to reapply for a loan you already gave us?" Yes, the bank official said. That's what they were doing. That offended Gerald, since we have used Wells Fargo for all our accounts, including business, for years but after arguing for several days, he gave in.

Meanwhile, we were having some misgivings about our builder, Paul Russell. Since moving to Missouri, things weren't working out as we had hoped. He kept talking about how this project was causing him difficulties. We started to think he was going to back out. That might have been okay except for the situation with the backhoe.

When Paul was still here, he had the idea that we could buy a backhoe. The benefits to us would be that it would be on site to do all sorts of things: brushing, APS trench digging. It would save us money because we wouldn't have to pay for a backhoe to be transported every time one was needed. At the end of the project, Paul would take it with him to Missouri, which would make him more valuable to his new employer.

So we bought a backhoe Paul found for $30,000. We paid Paul for expenses like permits. We paid him for digging the septic system after the contractor he recommended came in at what seemed like an unreasonable price. We paid him what he would need to pay the concrete people and for doors and windows. We also gave him what we thought was a $10,000 deposit on lumber. We didn't pay him for his labor because in our minds he was working off a $30,000 backhoe. Unfortunately, we didn't put any of this in writing.

So when the question of framing came up, we got our own bids and also asked Paul for one. We had a bid from a contractor we liked for $36,800 that included the framing and siding. Paul thought he'd be able to put together a crew, come back for a couple of weeks and complete the framing for maybe $15,000 plus the backhoe. Then we'd all be done and he could get on with our life. With our credit squeeze this sounded like our best option.

We waited for weeks for Paul to come up with a bid. When he finally did, he said he found a contractor who would do the framing for $26,000, not including siding. Paul would come back to help. He'd also dig the APS trench and we'd pay him $10,000 and he would take the backhoe.

This didn't seem like a good deal to us. We could pay one contractor around $37,000 to everything including the siding. The other option was to pay a total of $36,000 to Paul and a different contractor plus the $30,000 backhoe. Suddenly using Paul didn't seem like a smart move.

Given our cash situation, this was disappointing. And if we didn't use Paul, we still had the unresolved the issue of getting the backhoe worked off. At least there was the $10,000 materials deposit. We decided to ask Paul to send it back and use a different contractor as soon as we could get the financing resolved. We also asked Paul to send us a breakdown of the work he had done for us, so we could see what was remaining on is commitment. Gerald thought Paul had about 37 hours into the project and that wouldn't go very far toward paying off the backhoe.

When Gerald asked Paul if he could send the deposit back, he said he couldn't. "What do you mean you can't," Gerald asked. Apparently Paul had been using the money as a draw. His labors, he said, had come to nearly the whole $10,000. In his mind, he wasn't working off the backhoe. He somehow got the idea that if he kept the price of the project under a certain amount, we would give him a $30,000 backhoe. 

In addition to paying for his time. 

"What about the breakdown?" Gerald asked. Paul said he had e-mailed it, so we should have it when we got home. It was there, but it was less then illuminating. Paul listed $9,500 for "month and half (sic) dealing with permits, digging footings, layout of home, phone calls, trips to prescott, phoenix, gas, making sure all went well and people lined up, haul lumber, cut trees, etc." There was  no accounting of how much time he had spent, what he had actually spent for gas, what he was charging us for picking up a load of lumber to go to a job site he was heading for anyway. We had some problems with some things on the list. For example, if Paul had to re-dig footings, he should have charged back the contractor he hired to do it. We did think we should have to pay for it twice. There were other things, too.

Gerald spoke to Paul and said we had expected a little more information. $9,500 seemed like an awful lot for what we thought he had done. But in the end, he decided not to push for more figuring Paul would use whatever creative accounting he needed to to justify using that money. 

He let him know we weren't happy with the situation and couldn't seem to get Paul to see it as we did. Paul kept saying that if he kept the job under a certain amount, he would get the backhoe as part of his payment. Gerald couldn't seem to get him to understand that while we agreed on the target estimate, that didn't mean we wanted to spend more than we had to. And that's how this weekend ended, with Gerald asking Paul to come up with a solution that would work for us both by Tuesday. 

It was a painful lesson. The moral of the story? Don't assume anything. Get everything in writing. Ask for a detailed accounting often. Simple rules of business. Gerald is a shrewd and careful business man, which made the whole situation all the more painful. We could only hope that we could come to an understanding we could live with in the end.