ReidBuilt Homes Financial Trouble..

[Kloubek]

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Assessing counter-party risk is one of the most important things anyone - an individual, or a large corporation - can do. It's fundamental.

Where you say people "shouldn't be allowed", you are saying that we should replace people doing their own risk assessment entering into a contract with a legal/criminal remedy after the fact. In no world is that a superior system. Besides, it means that we are making debt and insolvency a criminal matter. Do we want to start throwing people jail because they took on debt that they could not handle? We got rid of debtor's prisons centuries ago.

If you are extending credit to someone it is YOUR responsibility to make sure you are lending to someone with good Credit. (or more likely build into your pricing the ability to absorb a big fat hit).

Ok, you talk of risk assessment. I agree it is the responsibility of anybody making any kind of investment to do what they can to ensure their investment is a sound one - so I ask you: What measures do you feel one could have taken in this case to ensure that Reidbuilt was in a financial situation stable enough to warrant making said investment? Or do you just believe home ownership isn't something that should be considered due to the inherent risks? (I know you suggested that you factor the risks into the price of the home, but I'd like to see you try negotiating 25k off the price of a home due purely to the potential risk)

As for debt and insolvency being a criminal matter, I believe you may have ignored what I said so I will reiterate for you. I am not suggesting that ALL corporate debt be viewed as a criminal matter, or even most. I am suggesting that should a company make a contract in ill faith (ie: Realize they will not be able to perform their obligations as per the contract and that the other party would be left saddled with the debt) that they be held criminally responsible for signing that contract. Outside of a business structure, doing this would be considered fraud so why would we not consider it the same in the business world? But instead of making the business ownership responsible for that fraud, you are suggesting that the responsibility should fall on the purchaser... and in this particular case, even though they have zero way of obtaining the information which would likely influence their risk assessment and the company had been in excellent standing prior to this. So again I ask you - what would you have done to mitigate this risk?

[Buster]

I have no idea the best way to assess the quality of a homebuilder's credit. It's not my area of expertise. There might not even be a good way to do so. But that doesn't mean that a punishment-based regulatory/criminal outcome is the best way to solve that problem. It's much better to leave it up the players in the market to be able to determine risk. The best way to ensure that the market will find a way to determine who is a good credit risk and who is not is to leave the players in the market alone to figure it out. But the fact that some people will make bets in a market (the stock market, the bond market, the homebuilder market), also ensure that some people will get punished for those bets. It's a feature not a bug. The key here is that the trades people made the decision to put their faith in a particular counter-party of their own volition. No one forced them to do the work. All of this was a voluntary transaction.

The problem with your solution, is that the devil is in the details, and like any attempt to supplant market-based solutions with government solutions is that you get the law-of-unintended consequences rearing its ugly head. Do you create a law against someone doing something in bad faith? How do you prove intent? How do you make the entire economy or industry create mechanisms to determine whether they will be solvent in a month, six months, a year.

More importantly, do you then force that standard on everyone? What about a person applying for a credit card if they know they are at risk of a layoff? Are the trades-people themselves exposed? If the electrician can't pay his bill to the electrical supply company, is he criminally liable because he should have known he was over-extended?

"there should be a rule against that" is the easiest answer to any difficult situation. The best answer though, is: we should all become better at assessing risk.

[phreezee]

There are crooked owners who turn people's lives upside down, from homeowners to trades. What they do is play musical chairs with trades, and rack up unpaid invoices with countless companies for the same trade. They just find another cribbing company, or framing company, and so on. Once no one in Calgary will work for them, they go out of town to Cochrane or Okotoks, etc to find companies who will do the work with no intention of paying, knowing they don't have the money. It's fucked up.

These builders fuck over many families of trades who put in weeks worth of work and don't see a dime. I'm sure word gets around among the trades, but there is always someone who thinks it will be different this time and takes the job anyway.

[Kloubek]

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I have no idea the best way to assess the quality of a homebuilder's credit. It's not my area of expertise. There might not even be a good way to do so.
....
The best answer though, is: we should all become better at assessing risk.

Sorry, I am just not buying into what you are selling here. You seem pretty knowledgeable as it pertains to investing (not sure what your background is), but even someone in your position has no knowledge of how to assess the quality of a homebuilder's credit, because it isn't "your area of expertise". Well if you - someone seemingly in the general field - doesn't know what to do, then how do you expect Joe Blow to have that knowledge? The fact is, there IS no way of properly assessing undue risk here. The company didn't even reveal to most of their employees that there was a problem, and most certainly didn't open up their books for anyone to investigate. They were in perfect credit standing until such point as they were not, and then it was too late for everyone... buyers and contractors alike.

I feel like what you are stating here is an idealistic approach read out of a textbook but doesn't work in practice in this case. You have no empathy for these homeowners who may have lost tens of thousands on their deposits saying it is their own fault for not assessing the risk (and downplaying the morally wrong actions of the builder) yet you have no idea what they could have done differently to assess it. But it's still their fault. You have said nothing so far to back up your claim that the homeowners should have vetted the builder better.

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Do you create a law against someone doing something in bad faith? How do you prove intent? How do you make the entire economy or industry create mechanisms to determine whether they will be solvent in a month, six months, a year.

More importantly, do you then force that standard on everyone? What about a person applying for a credit card if they know they are at risk of a layoff? Are the trades-people themselves exposed? If the electrician can't pay his bill to the electrical supply company, is he criminally liable because he should have known he was over-extended

Sorry, you're just not getting what I've said twice now, and I don't believe saying it a third time is going to yield better results, but I'm gonna try. If this was a situation where all of a sudden building supplies doubled in price unexpectedly and they were unable to afford to continue operations, that's one thing. We aren't talking about someone who MIGHT be laid off. We aren't talking about someone being unable to pay "a" bill. We're talking about a company who signed contracts with customers for a product they KNEW they wouldn't be able to supply, and with a slew of contractors they KNEW they weren't going to pay. We are talking about a company who sent out letters to those contractors saying that they will be paid soon and that there were just some clerical issues going on, which was actually an outright lie and they were simply trying to get as much work out of them as they could before they couldn't milk the cow any longer. (And then they had the balls to suggest the contractors continue to work for free so that the house is in sellable condition which they could then use to recoup money and merely IMPLIED they might be in a position then to pay a few of their debts. Yeah... like anyone would be stupid enough to trust them now.)

The decision to shut down a business doesn't happen overnight - it's months in the making. So we know full well they continued to sell homes and hire people when they had no intention of following through with either. That's not an accident - in any other context, that's fraud. And just because this level of fraud is covered by nature of a limited company doesn't make it right. It is easy to see the malicious intent here.

How do you prove it? If the government had access to the books along with what played out I don't think it would be much of a challenge to prove intent in this particular case. Heck - I'm no lawyer and yet it's blatantly clear to me what happened here just using common sense.

So to sum it up, you believe that businesses should be happily allowed to swindle those that interact with them, and instead place the blame on their customer for not doing the due diligence you expected of them, even though there is no way to do so. Sound about right?

I guess we will just agree to disagree.

[Buster]

I'm simply proposing that the solution to the problem of unscrupulous homebuilders isn't an expansion of our fraud laws and a lowering of the bar for intent of fraud. My solution is that the players in the marketplace are best positioned to understand the risk and compensate for it. You can't eliminate risk really, but part of the game for anyone (including a trades-person) is understanding when they are exposed to risk.

Your suggestion of a vastly more powerful regulatory framework would come at an enormous cost to the vast majority of businesses and trades that conduct themselves properly. And your justification for this drag on the economy and efficiency is...well, Mr. Electrician can't put on his big boys pants and understand risk. (Even though many trades people do, every day, successfully).

An interesting conversation would be with the trades that elected to NOT work with Reidbuilt due to counter-party risk. And why they did so. The ability to understand risk or almost as important - when you are aware that you can't effectively rate it - is a huge competitive advantage in literally every business.

[Kloubek]

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I'm simply proposing that the solution to the problem of unscrupulous homebuilders isn't an expansion of our fraud laws and a lowering of the bar for intent of fraud. My solution is that the players in the marketplace are best positioned to understand the risk and compensate for it. You can't eliminate risk really, but part of the game for anyone (including a trades-person) is understanding when they are exposed to risk.

Your suggestion of a vastly more powerful regulatory framework would come at an enormous cost to the vast majority of businesses and trades that conduct themselves properly. And your justification for this drag on the economy and efficiency is...well, Mr. Electrician can't put on his big boys pants and understand risk. (Even though many trades people do, every day, successfully).

An interesting conversation would be with the trades that elected to NOT work with Reidbuilt due to counter-party risk. And why they did so. The ability to understand risk or almost as important - when you are aware that you can't effectively rate it - is a huge competitive advantage in literally every business.

Sorry, I just simply don't agree. I don't think the idea of there being laws in place to limit the actions of unscrupulous homebuilders or any other business owner would be that much of an expense or issue. I believe the knowledge that they can be held personally and criminally liable for their actions would actually curb the vast majority of business owners from even attempting such actions - and the remaining few that do would enter the same system we already have in place for a variety of other crimes. And even if there is the occasional additional expense to the government for putting such rare cases through the judicial system, the fact that other businesses and personal individuals (such as in this case) not being out thousands, tens of thousands, or even hundreds of thousands would well compensate for any such expenses overall. What we have here are private individuals who worked hard to build up that kind of money who now might not see a cent. We have contractors who may or may not be able to absorb this loss. The fallout will be widespread and there is a trickle-down effect for all involved as well. People are going to lose their jobs. Individuals are going to have to work for months or years to recoup the expense. This happening isn't good for anyone, and I would suspect it wouldn't have happened at all if the owners didn't have the ability to absolve themselves of responsibility because of the way our system is currently designed.

As far as contractors who opted NOT to work with Reidbuilt due to counter-party risk, I would challenge you to find a single one. Again, Reidbuilt has been a reputable company with no sign of significant distress for decades. If a contractor opted not to work with them then I imagine it would have been for reasons other than risk.

And as far as that risk goes, you keep driving that point home. Risk risk risk. But again, I challenge you to find anything prior to this exploding that showed any undue risk on behalf of either the home purchasers or the contractors. The ONLY thing that could have been an indicator is simply the sluggish nature of the housing market - but then what are contractors supposed to do... shut up shop because they have no way of knowing which homebuilders are going to be able to weather the storm? In fact, the market is stronger now that it has been for a couple of years so that only added to the surprise when Reidbuild opted to shut down.

I'm not going to banter with you any longer on this; I'm sure we both have better things to do. But I simply don't agree with your position that it is up to the customer to somehow magically anticipate when a company is trying to defraud them when there are simply no signs of such. And I don't agree that we should continue with a system that protects those who knowingly commit fraud. Simple as that.

[Rocket1k78]

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I feel like what you are stating here is an idealistic approach read out of a textbook

BAHAHAHA i was thinking the exact same thing and this scene popped in my head
https://youtu.be/hIdsjNGCGz4

[Buster]

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Sorry, I just simply don't agree. I don't think the idea of there being laws in place to limit the actions of unscrupulous homebuilders or any other business owner would be that much of an expense or issue. I believe the knowledge that they can be held personally and criminally liable for their actions would actually curb the vast majority of business owners from even attempting such actions - and the remaining few that do would enter the same system we already have in place for a variety of other crimes. And even if there is the occasional additional expense to the government for putting such rare cases through the judicial system, the fact that other businesses and personal individuals (such as in this case) not being out thousands, tens of thousands, or even hundreds of thousands would well compensate for any such expenses overall. What we have here are private individuals who worked hard to build up that kind of money who now might not see a cent. We have contractors who may or may not be able to absorb this loss. The fallout will be widespread and there is a trickle-down effect for all involved as well. People are going to lose their jobs. Individuals are going to have to work for months or years to recoup the expense. This happening isn't good for anyone, and I would suspect it wouldn't have happened at all if the owners didn't have the ability to absolve themselves of responsibility because of the way our system is currently designed.

As far as contractors who opted NOT to work with Reidbuilt due to counter-party risk, I would challenge you to find a single one. Again, Reidbuilt has been a reputable company with no sign of significant distress for decades. If a contractor opted not to work with them then I imagine it would have been for reasons other than risk.

And as far as that risk goes, you keep driving that point home. Risk risk risk. But again, I challenge you to find anything prior to this exploding that showed any undue risk on behalf of either the home purchasers or the contractors. The ONLY thing that could have been an indicator is simply the sluggish nature of the housing market - but then what are contractors supposed to do... shut up shop because they have no way of knowing which homebuilders are going to be able to weather the storm? In fact, the market is stronger now that it has been for a couple of years so that only added to the surprise when Reidbuild opted to shut down.

I'm not going to banter with you any longer on this; I'm sure we both have better things to do. But I simply don't agree with your position that it is up to the customer to somehow magically anticipate when a company is trying to defraud them when there are simply no signs of such. And I don't agree that we should continue with a system that protects those who knowingly commit fraud. Simple as that.

We aren't disagreeing one what we want the outcome to be, I don' think - which is less unscrupulous behaviour and people operating to a high standard.

You suggest my view is idealistic: quite the contrary. YOUR view is idealistic. That we can remove risk by waving a government and regulatory wand, and all will be well. Life doesn't work that way. Things are messy, and there are no easy fixes. Regulations are actually very poor at solving the problem you've identified. I understand it's frustrating to have to accept that we can't manage all risk out of existence, but life just doesn't work that way. At worst, what you are suggesting would give a false sense of security. Being able to better predict or assess counter-party risk is a competitive advantage in the home building environment (obviously), and those that do it better reduce their risk, allowing them to compete more efficiently, and they become the winners. The specific tools for improving your ability to assess risk will vary by industry (so I have no idea how an electrician would do it), but it's a concept that exists in every industry. It's how companies like equifax came to be, etc. Industries figured out a way to solve the problem.