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How a Property Owners' Association Might Recover a Debt Against a Virginia Contractor

The approval of expensive work on the common area of a Virginia Property Owners’ Association (“POA”) can be a daunting decision for a Board to make, especially when an Association’s reserves must be used to pay for that work.  There is always an element of trust by a Board that the work will be done well by its chosen contractor.  But, when that work is not done well by a contractor licensed in Virginia, and far worse, that contractor is also insolvent or simply “gone,” the chances are bleak that a POA will actually recover its money from that contractor.  Fortunately, there is a fund administered by the Board of Contractors for Virginia’s Department of Professional and Occupational Regulation for a POA to make a claim.  While making a claim may be document intensive, a properly prepared claim may be a POA’s last and best hope for recovery.  This article details the use of the Virginia Contractor Transaction Recovery Act, Virginia Code Ann. § 55.1-1118, et seq., by POAs.

Step One – File a lawsuit

Recovery from the fund begins with a Court Order or judgment stating, or at least strongly inferring, that a contractor licensed in Virginia has engaged in “improper or dishonest conduct” in the performance of its contract with a POA.[1]  “Improper or dishonest conduct” is a broad term that can include theft, fraud, misrepresentation, gross negligence, incompetence or intentional violations of the Uniform Statewide Building Code by a POA’s contractor.[2] But beware: a breach of contract alone by that contractor is not improper or dishonest conduct.[3] So it is critical for a POA to not just obtain a Court Order against the contractor; that Order must say that the POA’s contractor engaged in improper or dishonest conduct.  If the POA already has a Court Order that omits these words or words of similar meaning, then it is worth the POA’s time to seek an Order from the Court adding these words to the Court’s Order nunc pro tunc.  Once the proper Order is entered, the POA has one (1) year to complete Interrogatories in Aid of Execution of the contractor and file the claim with the Board.   These deadlines should be calendared as soon as possible.[4]

Step Two – Conduct Interrogatories

Next, a POA needs to verify that its contractor cannot pay from his or her own pockets any judgment against entered him or her involving improper or dishonest conduct.  So the POA will need to conduct, or attempt to conduct, Interrogatories of the contractor.[5] Service of Interrogatories on a contractor can be very tricky, and often unsuccessful, but at least the attempt must be made.  The POA’s Summons for Interrogatories can, but does not have to, be supplemented with subpoenas asking for records kept by the contractor and/or by the contractor’s accountant if known and/or from the city or county’s tax office if that tax office requires contractors to file lists of its assets each year for tax purposes.  In short, if there is anything to be collected or sold to pay the POA’s judgment against the contractor, discover those assets before making a claim.[6]
 
 Step Three – File a claim with the Board of Contractors   

Finally, if the contractor’s Interrogatories disclose nothing of value that can be used to pay the debt owed to the POA, the POA may file a claim with the Board of Contractors.[7] The documentation required for the claim is - to be polite - comprehensive.  The claim includes an application,[8] a copy of the contract between the POA and its contractor, all pleadings filed in obtaining the POA’s judgment against a contractor, a copy of the POA’s judgment against the contractor, and a transcript or affidavit of the information about the contractor’s assets disclosed during Interrogatories; all of which must be attested to by a person with authority for a POA, i.e., its President.[9] Fortunately, the careful preparation of the claim can then allow the POA to wait for a decision by the Board of Contractors without further time or cost spent after the claim is filed. 
           
The Board of Contractors will hold a hearing to consider a complete, or “verified,” claim, but will often do so without hearing testimony from the members of a POA.  To be sure, the POA will be notified when its claim is to be heard and members of the POA can attend that hearing but their participation in the hearing is unlikely.  Often the contractor does not contest a claim so the claim is taken as true. 

Ultimately, a successful claim -- as almost any claim that is heard by the Board of Contractors is -- will net a POA the lesser amount of its judgment, court costs and attorneys’ fees awarded by the Court against the contractor, or $20,000.00.[10] There are other nuances of the Virginia Contractor Transaction Recovery Act that are not covered here, but they, as well as any claim to be filed by a POA, are best reviewed by the POA’s attorney in addition to the lawsuit and Interrogatories against the contractor to ensure that the POA recover those amounts it cannot recover from its contractor itself. 

And, unfortunately, condominiums cannot not make a claim against the fund.  The Virginia Contractor Transaction Recovery Act is not available for condominiums for reasons that we frankly do not know.[11] It is the express desire of this author to work with the Virginia Legislative Action Committee to propose the appropriate legislation to include condominiums in the near future.