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Protect Yourself From Contractor Fraud

May 3, 2017

When storms, floods and other disasters leave damaged homes in their path, local contractors often get more business than they can handle. In many cases, out-of-town contractors will arrive in force to pick up the slack.

Think twice and exercise caution before accepting the services of an out-of-town contractor, advises a University of Missouri Extension family financial education specialist.

“Depending on the damage, you may want to make temporary repairs and wait for local contractors who will be there to guarantee their work,” said Brenda Procter.

While some visiting contractors are honest and do good work, others are there to make a quick buck from people in crisis, she said.

Before you sign
If repairs can’t wait and local contractors aren’t available, there are precautions you can take to protect yourself from fraud, substandard work or legal liability.

  • If possible, check with the Better Business Bureau, in either Missouri or the city and state where the contractor is based. It’s also a good idea to check with other customers in Missouri who have done business with the contractor. “A contractor’s unwillingness to refer you to past customers is a major red flag,” Procter said.
  • Ask for proof of insurance. The contractor must have disability and workers’ compensation insurance or you may be liable for accidents on your property. Don’t just take their word for it. Ask for written documentation.
  • Don’t let the contractor begin work until both you and the contractor have signed a contract.
  • Don’t pay in advance. Once the job is completed to your satisfaction, pay by check or credit card—not cash.

“If you can’t find a contractor who will accept these terms, strengthen the patches and wait patiently until you can be sure of a good job,” Procter said.

Warning signs
Procter urges homeowners to turn away contractors who show any of the telltale signs of fraud:

  • Quotes prices that are “too good to be true.” The contractor might make up for a low bid by skimping on quality or materials.
  • Offers a “special” deal that’s good “today only” or uses other high-pressure sales tactics.
  • Wants payment in cash.

Get it in writing
A contract should clearly state all that is to be done and when including start and finish dates. “A home rebuilding contract should also state that materials and procedures used will follow the minimum standards of the current building code,” she said. If your location has no building codes, you may wish to specify materials that will be used in the contract.

In addition to the above information, the contract should answer these questions:

  • Guarantees: What is guaranteed and for how long? Who is responsible for the guarantee (contractor, dealer or manufacturer)? Does the guaranteed transfer to new owners if you were to sell the property?
  • Permits: Who is responsible for obtaining and paying for any required building permits?
  • What is the amount to be paid and when is it to be paid? The payment schedule should be based on progress toward completion, not the passage of time.
  • If circumstances make it necessary to modify the original plan, what procedures are to be used to change the original work order?

All parties must be at least 18 years old and mentally competent. All parties must sign the contract.

Exercise your right to inspect all work or hire someone to inspect the work for you.

Before you pay in full
Withhold full payment until the contractor has met these conditions:

  • Has paid for all building supplies used. Unpaid suppliers can legally put a lien on your property when you sell it. Require receipts for bills paid on all materials used. This should be specified in the contract.
  • Has completed the entire job as specified in the contract and to the satisfaction of you or your inspector.
  • Has provided releases of lien from him- or herself, from suppliers, and from labor subcontractors. This also should be in the contract.

Source: Brenda J. Procter, University of Missouri