InvestigatorsMatter for Mallory


New home nightmare: Families stuck with massive bills & unfinished homes after local builder closes

Posted at 9:08 AM, Dec 17, 2018
and last updated 2019-05-31 09:24:57-04

BALTIMORE — Looking out her kitchen window, Deborah Reilly can see her daughter's home.

Korey Homes, a custom home builder in Harford County, built the home a few years ago. Reilly said they did an excellent job, and her family decided to also hire Korey Smith, the business owner, to build her and her husband the retirement home they'd always dreamed of and worked hard to achieve.

Right before the job was complete, Smith went out of business.

"He didn't give anyone notice, he just shut the doors," Reilly said.

The Reilly's have a lengthy work list that includes missing shutters, uneven tiles, scratches, marks, and an unfinished driveway. They repeatedly contacted Smith about the incomplete work but never heard back. Then they started receiving liens in the mail from unpaid subcontractors.

"Actually we have a case against us by Bel Air Carpet for $41,000," Reilly said.

She said she paid Bel Air Carpet through Smith, but the money slated to go to the subcontractors didn't. The Reilly's then spent $6,000 in legal fees to fight the liens.

"I actually put off going to the mailbox," said an emotional Reilly.

Her dream of having everything ready for the holidays has been derailed. And the Christmas she planned to share with her 12 grandchildren feels a little less merry.

"Obviously, I've had to cut back on some of the spending on the grandkids and things like that, so that's what makes it tough," Reilly said.

Fortunately, for them, the house is habitable. Smith abandoned other projects in the early stages, including one with just the framing. After Smith stopped returning calls and emails, the homeowner had to go back to install doors and windows to preserve the structure.

The Korey Homes office in Forest Hill is now closed, the website is no longer active, and the business phone has been disconnected.

Steve Klitsch, a longtime home improvement renovator and expert witness in home improvement fraud cases, said it's not uncommon for builders to go out of business, but it is unusual in this economy.

"I would think to myself, as a business owner, we're thriving in this industry. Why would anyone want to go out of business?," said Klitsch, who is also a volunteer board member at Maryland Consumer Rights Coalition.

But when it does happen, he says it's usually because of poor business management.

"[Builders] are gifted with their hands. They can take this kind of material and build whatever you want out of it. They're truly gifted with that, but when it comes to thinking like a business person, we're losing those skill sets; they don't have that," said Klitsch.

Klitsch said these businesses typically file for bankruptcy, preventing any lawsuits from moving forward. Homeowners are also left with few options. They too can file for bankruptcy, or choose to fight the liens in a lengthy court process. And while it was the builder who put them in that situation, they're still on the hook when subcontractors aren't paid.

"That's the legal course that the subcontractors have because they've not been properly compensated by the general contractor, who apparently has been properly compensated by the homeowner," said Klitsch.

His advice is to be extra thorough in researching builders and policing projects.

"Get a lien release from your contractor that's paid the subcontractor that says, he's been paid in full for all his labor and materials," said Klitsch. "That homeowner should have 30-40 lien releases from the different trades people, the different subcontractors who have performed that craft in their home."

"No more work should take place until you get that first lien release from your excavator. ... The second one is from the person that puts in the foundation work. Get that and then the framing contractor, and so on."
Steve Klitsch, home improvement contractor

It's true custom builders are less regulated than home improvement contractors, however, Klitsch says the real issue is consumers not knowing how closely they need to monitor and track the flow of money.

Custom Home Builder Checklist:

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"They really need to stay on top of it no matter what, yes," said Karen Valentine, head of the Maryland Home Builder Registration Unit.

Valentine oversees the Maryland Home Builder Guaranty Fund, a reimbursement fund for consumer's that lose money from incomplete construction or breach of warranty.

Homeowners can request money, however, this process takes time and there's a $50,000 limit per consumer, and $300,000 max pay out per builder.

"It isn't necessarily going to get all consumers full recovery, but it tends to be enough to get most consumers what they're entitled to," Valentine said.

Meanwhile, the Harford County Sheriff's Office is investigating five complaints against Korey Smith. They declined to comment further. Korey Homes' builder registration is also still active on the Maryland Attorney General's site despite the open investigations.

And while the case works its way through the legal system, this is a warning and reminder that homes built on trust can quickly crumble.

"How can you judge when meeting someone for the first time whether or not they're going to follow through and deliver that new home, or is this a person that's gonna say, 'I've got a way to take money from these people and leave town?'," Klitsch said.

Trust is what burned the Reillys. They've had to put off retirement while dealing with this new home nightmare.

"We were blindsided, total trust in his company, total trust in him, he shook my husband's hand when we signed the contract. He said his word was his bond and I just don't know how we got to this point," Reilly said.

Korey Smith's attorney sent WMAR-2 News Mallory Sofastaii this statement:

Korey Homes Building Group faced significant financial stress, and had accrued debts that it was unable to pay. In September, Korey Homes engaged Joseph Bellinger, a bankruptcy attorney, to advise the company and develop a plan to restructure its liabilities outside of bankruptcy court because it did not appear that the company could afford the substantial costs that would be incurred in attempting to reorganize in bankruptcy. Korey Homes held a meeting with its critical suppliers and subcontractors to discuss restructuring its debt so the company could continue in business. Unfortunately, but understandably, the subcontractors and supplies decided not to support a restructuring plan and that resulted in the demise of Korey Homes. There was nothing nefarious whatsoever about the prompt cessation of business; it was dictated by financial realities. Korey Homes was a family owned and operated business. Korey Homes’ management and dedicated employees took great pride in the fine custom homes it built for so many families over the years, and deeply regret that the company was unable to continue to serve its valued customers.
Joseph J. Bellinger, principal attorney