Eric Richards decided to go into the commercial laundry and dry-cleaning business. He began by agreeing to buy the land, building, and equipment of a small dry cleaner. Richards agreed to pay the owner $200,000 in cash and "to assume" a $50,000 existing mortgage on the property. He next entered into a contract with a local contractor to build, within five months, a large addition to the building for $150,000 with $40,000 payable with the signing of the contract and the balance to be paid in periodic installments as the construction progressed. Because Richards had heard some horror stories from friends in the local Chamber of Commerce about contractors who walked away from jobs without completing them, he asked the contractor to post a security bond or provide a surety to assure the contract would be completed in a timely manner. Richards also had some of the existing dry-cleaning equipment picked up for repair and refurbishment. When the work was completed, the repairman refused to redeliver it until Richards paid in full for the work, claiming he had a lien on the equipment until he was paid.
Among the questions that will be addressed in this chapter are:
What legal rights and obligations accompany the "assumption" of a mortgage?
Would Richards risk losing any of his rights to recover against the surety if he granted the contractor additional time to complete the construction?
If the contractor does not pay subcontractors or companies who provide construction material for the job, would they be able to assert a lien against the property until they are paid?
Would the person who repaired and refurbished the dry-cleaning equipment still be able to asset a lien until Richards paid for it? Would it make a difference if the repair work had been done on-site?
Whether it would be ethical for a person who has sold a parcel of real property on a land contract to declare a default of the contract when there is a minor default in making the payments called for in the contract and to reclaim possession of the property with the purchaser losing all the equity he might have built up in the property?
