I Did Home Repairs Under Oral Agreement, Now Homeowner Won't Pay. What Now?

Let's say you run a contracting business or do odd jobs. When the jobs are big enough, you probably (or hopefully) have the homeowners sign a formal written contract. But when they're small, like a couple thousand dollars, perhaps you let the work proceed with an oral understanding.

But such an arrangement can go awry. The homeowner might neglect to pay you, and dodge your calls and emails. What can you do? Do you always need to sign a written contract for every little job?

Few things can be as frustrating for a small business owner than a customer who refuses to pay. Small contracting businesses have a great deal of overhead, between the equipment and the labor and materials necessary. A non-paying customer can disrupt those cash flows. What should you do if a customer refuses to pay after you've rendered contracting services? Here, we'll suggest the following possibilities:

• contacting the customer personally
• sending a demand letter
• filing a mechanics' lien, and
• suing in small claims court.

Approaching the Non-Paying Customer in Person

First, see whether you can discuss the situation (if you can get the customer to answer the phone). Was there a particular area of the work that the customer was unhappy with? If so, is it easily fixable, for example, by installing a different doorknob or switching a small fixture? It might be worth your effort to put a bit more work into the project, if that will break down the barrier to payment.

Sending a Demand Letter

Second, if the disagreement is larger or if the homeowner is simply unwilling to talk with you about the nonpayment, send a demand letter. A formal letter, written on your business letterhead, will likely be taken seriously, especially if you note that you are "reserving all legal rights" to collect on your earnings. The letter should be polite but firm, stating all of the facts and reminding the homeowner of the obligation to pay.

Filing a Mechanic's Lien

If other options aren't working, consider filing a mechanic's lien in the county clerk's office where the property is located. Such a lien essentially creates a cloud on title to the property. Homeowners hate having such liens, because it makes it far more difficult for them to sell or refinance the home.

Speak with your county clerk about the specific procedure for filing a lien. Sometimes a lien will add the necessary pressure to force the homeowner to write you a check.

Suing in Small Claims Court

Finally, consider suing the homeowner. A small claims court lawsuit does not require a lawyer, and it puts the homeowner on the defensive. The fact that you do not have a written contract is not a bar to the lawsuit or the mechanic's lien, with the right evidence in hand.

Consider the different ways that you could prove the existence of the agreement, for example through emails or witnesses. You can also sue for the fair market value of the labor and materials that you've provided to the home, even without a formal contract in place.

As for whether it's worth signing written contracts over small jobs in the future, you will soon have a sense of how the time balances out, and might decide to make use of the written-contract option more often.