It’s every contractor’s nightmare. The job is complete, and it is time to collect the final payment, but the customer decides to withhold payment.
A prevalent myth in the home improvement industry is that customers who finance their projects have the right to withhold payment after the work is completed. This misunderstanding often leads to disputes and confusion between contractors and homeowners. As with many myths, this can be quashed with a clear understanding of the legal and financial aspects of home improvement projects.
Why The Myth Persists
Many contractors incorrectly assume that customers who use financing, such as a bank loan or a home equity line of credit, to pay for their home improvement projects may withhold payment once the project is completed. This belief is based on the assumption that the financing agreement gives the homeowner leverage over the contractor, allowing them to delay or deny payment for any reason, including dissatisfaction with the work.
Protection Through Legal Contract
Legally, the relationship between a homeowner and a contractor is governed by the contract they both sign before the commencement of the project. This contract typically outlines the scope of work, payment schedule, and conditions for completion. Once a contractor fulfills their part of the contract, the homeowner is legally obligated to make the agreed payments.
Protection Through Financing Agreements and Partnerships
Financing agreements for home improvements are between the homeowner and the financial institution. The contractor is not a party to this agreement. Therefore, the financing terms do not impact the homeowner’s obligation to pay the contractor as per the signed contract. However, when contractors partner with third-party lenders specializing in home improvement lending, such as Salal Dealer Direct Lending, the lender works with both parties (Homeowners and Contractors) to help mitigate issues that may arise regarding withholding payments and work satisfaction.
Customer Rights and Contractor Obligations
Customers do have rights when it comes to the quality of work and adherence to the contract. The homeowner may have grounds to withhold payment if there are legitimate issues with the project, such as incomplete work or deviation from the contract specifications. However, these situations should be addressed through legal means, such as mediation or arbitration, and not through unilateral withholding of payment.
Consequences of Withholding Payment
Withholding payment without a legal basis can lead to complications for the homeowner. As a contractor, you may file a mechanic’s lien on the property, impacting the homeowner’s credit rating and ability to sell or refinance their home. Additionally, contractors may pursue legal action to recover the owed amount, which can be costly and time-consuming for both parties.
The myth that customers can withhold payment from contractors after completing a home improvement project simply because they financed it is unfounded and legally incorrect. While homeowners have the right to expect quality work, payment obligations are governed by the contract signed with the contractor. Homeowners and contractors should understand their rights and obligations under this contract and seek legal advice if payment disputes arise. By doing so, they can avoid potential legal complications.
Is it time for your home improvement business to offer a customer financing solution?
Partner Forward with Salal Dealer Direct
We team up with contractors nationwide to provide their customers with affordable financing for various solar and home improvement projects.
We can offer some of the most competitive rates and dealer fees because we’re part of a member-owned credit union. That means our profits return to our members—and business partners—through lower rates and fewer fees.
Our Dealer Direct Financing programs feature:
- An online loan application with fast credit decisions and a high approval rate.
- Terms and loan amounts are available to fit various budgets and project sizes.
- Partners pay ZERO dealer fees on our standard program.
How to Start Offering Salal Dealer Financing to Customers
We’re serious about helping your business grow with fast funding times and personalized support from a dedicated and experienced team of lending specialists. To get started, our dealer application process requires these documents:
- Completed dealer questionnaire
- Current income statement and balance sheet
- Copy of business license and/or contractor’s license
Disclosure: Salal does not provide legal advice. Businesses should contact their own legal representative for any questions.
