State fund likely unable to cover losses for Stillwater home builder's creditors

A state fund established to help people who have lost money to fraudulent contractors will likely fall short of helping the many customers of Stillwater developer John Sharkey, who notified people in the past week that his company was close to bankruptcy.

The state's Contractor Recovery Fund has a $550,000 limit per contractor, and 11 homeowners have told the Star Tribune that they're out tens or hundreds of thousands of dollars after learning subcontractors weren't paid and that the homeowners would have to pay them directly to have their houses finished.

"We just think that there's something fishy going on here with all this money missing and so many people being unpaid," said Leanne Love, a GreenHalo Builds customer.

The email that Sharkey's company sent last week mentioning the possibility of bankruptcy was sent to nearly 40 people, and the company listed 24 houses on a recent list of ongoing projects.

One homeowner said Sharkey's GreenHalo Builds company left a giant pile of dirt on his lawn that would cost tens of thousands of dollars to remove. A woman said her GreenHalo home in Stillwater required $400,000 of extra funds — money that came from her own pocket — in order to complete the house. Other homeowners reported sinkholes in their driveways, missing pieces from their deck and concrete problems that will require expensive renovations to brand-new homes.

Some of those costs could be reimbursed by the state fund, but if the claims reach the maximum of $550,000, the homeowners will get a pro-rated share of the available funds. The fund, which uses licensing fees the state Department of Labor and Industry collects, has a cap of $75,000 per homeowner — even if their losses were more.

The fund, created in 1994, is intended to help home buyers who lost money due to "fraudulent, deceptive or dishonest practices, conversion of funds or failure of performance," according to the Labor Department.

The department's expectation is that the developer will stay in touch with home buyers as they seek reimbursement from the fund, said Sean O'Neil, director of licensing and enforcement in the construction codes and licensing division of the Labor Department.

The fund is not available to subcontractors or materials suppliers. Several subcontractors told the Star Tribune that they're owed tens of thousands of dollars each after laying sod, installing bathrooms, painting, plumbing and doing other work on GreenHalo Builds houses.

In addition, the funds available to homeowners are for construction costs, not intangibles like the distress a homeowner felt while dealing with their partly finished house — the sort of "pain and suffering" clause that's more common in a civil lawsuit.

"Certainly we feel badly for the homeowners, but the pain and suffering is outside of the reimbursable expense," O'Neil said.

O'Neil said his office handles four or five investigations a year of a contractor who's going under. None of the cases in the last fiscal year hit the $550,000 cap, he said.

Sharkey's attorney, John Lamey III, said this week that he's been in touch with many homeowners or their attorneys with regards to the Contractor Recovery Fund. When the cost to finish an individual house is known, Sharkey is signing "confession of judgments" statements that say the affected homeowners need to apply to the recovery fund.

"Mr. Sharkey just left my office and signed off on three such confession of judgments, and he will continue to come to my office to sign off when additional ones are ready to go," Lamey said in an email.

The remaining funds and assets of Sharkey's company are all subject to secured creditor liens, "which there are many," Lamey wrote. "Such funds and assets can not be legally paid to customers as they belong to the secured creditors now."