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Reforms needed to protect homeowners from builders

Lighthouse Builders recently joined at least a half-dozen other residential home builders in the Tampa Bay region who have gone belly-up in the past decade. Lighthouse, which built in Hernando, Citrus and Pasco counties, filed for Chapter 7 bankruptcy in December. The company left behind 81 unfinished houses.

But Lighthouse and other moribund builders across this overdeveloped state, whether through negligence or criminal actions, have left behind more than half-built homes.

Along the trail of their failures are strewn the fortunes and dreams of hundreds of people whose biggest mistake was to trust contractors to complete the work for which they were paid.

Some builders have been convicted of fraud and theft, but Lighthouse's attorney claims the company is guilty only of overextending itself. That may be true, but whether it was crooked or just careless, it provides no comfort to the people whose hard-earned savings have been squandered.

It's virtually the same story every time a builder goes under. Buyers who thought their money was going toward building their houses are left with the choice of accepting the loss or spending more money on a lawyer to sue the contractor.

Then, even if the buyers are successful in civil court, there usually aren't sufficient assets to fully recover the losses.

Before the next builder fails, the state Legislature, prosecutors and lending institutions need to collaborate on some meaningful consumer-protection reforms.

State legislators should do more to protect home buyers than they do the building industry and its powerful lobby, which has been the status quo in Tallahassee.

In 1995, after a pointed recommendation by the state grand jury regarding Tampa Bay area builder Clyde Hoeldtke, the Legislature paid lip service to the public's outrage by adopting the Home Buyer's Protection Act.

It was an unfocused, ineffectual piece of legislation that did not go nearly far enough to protect home buyers from dishonest contractors. It went from bad to worse after the builders' lobbyists dismembered it.

Ignored was the grand jury's recommendation that the state require residential contractors to obtain performance bonds to guarantee they had the resources to undertake building projects.

While the builders' lobby correctly argued that requirement would put many smaller builders out of business, legislators refused to even consider a bill that would set more affordable mandatory bonds.

That idea should be resurrected and coupled with a measure that raises the minimum-assets requirement for a contractor to obtain a license. It currently is only $10,000, which means anyone with a half-paid-off pickup truck and a few tools is authorized to build a house. If he or she fails, there are no assets on which the buyer can place a lien.

A possible solution would be to categorize the licenses by dollar amounts so buyers would have some idea of the financial means of a building contractor and to correspond with the size of a project that could be started.

Lending institutions also must be more responsible. Banks need to ensure that all the contractor's bills are paid before authorizing draws on buyers' escrow accounts, and to ascertain that contractors who draw on the accounts are actually performing the work stated and not using the money to finish other houses.

That is against the law, and as lenders identify those who violate it, they need to report it to the buyers, as well as county officials who issue building permits, and law enforcement agencies. Then law enforcement agencies must be willing to prosecute the outlaw contractors. It is clear that all these parties are routinely overlooking such misdeeds.

Only the threat of severe penalties will deter unequipped or dishonest contractors from taking advantage of unsuspecting home buyers.

Such reforms should bolster the public's waning confidence in the building industry, which should be eager to support, not defend against, such measures.