Homeowners are not the only victims of the foreclosure crisis.I have a friend and former law client in California who owns a flood dry-out and mold restoration company. His company has been thriving for years until the foreclosure crisis hit.
The way the flood dry-out business works is the homeowner calls a flood company's ad and hires the company to come save them. The flood company shows up day or night, and starts drying the premises in order to mitigate the damage.
The dry-out and remediation process will usually take several days to complete. The homeowner signs a contract to pay for the work, and assigns any insurance payment to the flood company. The homeowner then makes a claim with their homeowner's insurance.
Most insurance companies will only issue a check to the homeowner, and then the homeowner pays the flood company. Before the foreclosure crisis very few homeowners would receive a check from their insurance company but not pay the flood company. Also, there was a very effective tool to help the flood company collect, which was a mechanics lien.
A mechanic's lien is a lien against real property for the value of materials and services put into the property. Most slow-to-pay homeowners would pay their bill after getting a letter from me explaining that the flood company was going to put a lien on their property. The few who still didn't pay then had a mechanic's lien placed against their property.
Almost all of the homeowners paid after the mechanic’s lien was placed against their property, because there is an expedited legal process available to foreclose and sell the property to pay the lien. We never had to actually foreclose. A few cases were dealt with in small claims court by the company, and in only a couple did I actually have to file a lawsuit.
Then the foreclosure crisis hit, and everything changed. When banks owned a property, they would not bother hiring a flood company if the property flooded, so the volume of flood dry-out business dropped off significantly.
The next effect was even more devastating. Homeowners who knew they were going to lose their homes to foreclosure were immune to the threat of a mechanic's lien. They just didn't care. Virtually all of the homeowners in this situation took the insurance check and didn't pay the flood company.
As a result of these losses my friend's flood company had to lay off all but one employee, and sold all of his equipment except for one truck. Now, his company will only do work for the very few insurance companies that will pay the flood company direct, or will insist that homeowners pay in advance. This doesn't leave much business for my friend’s company. The effects of the foreclosure crisis extend well beyond the damage to homeowners.
Melville Capps
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