Contractor Fraud: Buyer Beware

Tips from Real-Estate-Agents.com

by Leticia Stefens, reprinted courtesy of ServiceMagic.com

Unfortunately, fraud exists, but you can protect yourself. These warning signs indicate that a contractor may be running a scam.

• Does not list a number in the phone book, which may indicate a fly-by-night operation that will be here today and gone tomorrow. They may seem legitimate in the beginning, but as soon as you make your first payment for the job they may vanish. And you could encounter some real problems trying to track down this contractor again.
• Asks you to get required building permits. Contractors should provide all necessary permits. If they don't, they may not be licensed or registered properly under the requirements of your state or locality. You may want to call the state licensing board to verify.
• Only accepts cash. A legitimate business should have the appropriate financial accounts and should accept a variety of payment options from clients, including personal checks and credit cards. If a contractor only accepts cash, you probably won't see them again once you pay them.
• Solicits door-to-door. Most legitimate contractors find enough work through word of mouth referrals or a service such as ServiceMagic. If they need to drum up business by going door to door, they probably are not an established, local operation. Chances are this contractor is running a fly-by-night business.
• Says you will get a discount if you find other customers for that contractor. A good contractor's work should speak for itself. If the contractor has to provide you with an incentive to be a good referral, they probably haven't worked for other customers or the customers they have worked with have been unhappy with their work.
• Has materials left over from a previous job that are available for your job. Legitimate contractors order enough supplies to meet the needs of each job the price for supplies is typically included in the contract. If a contractor has materials left over from a previous job and is making them available to you, he either didn't finish the job or is cheating the previous customer. What's to prevent you from being cheated? Worse yet, the contractor may have never had a previous job but has materials to make it look like he did.
• Tells you your job will be a demonstration. Some contractors may even offer you a cash bonus to let them use your house as a model. Established contractors should have completed enough previous projects that they won't need your job as a demonstration. If they do, this could signal the contractor is not experienced or is running a sham business. If you want the job done right, don't hire him.
• Offers exceptionally long guarantees. The contractor may be making promises that can't be kept solely to sucker you into hiring them for the job. The contractor could be inexperienced or may be running a fly-by-night business. In either case, you'll probably not get what you're looking for. As a general rule: If it sounds too good to be true, it probably is.
• Asks you to pay for the entire job up front. This contractor will be long gone, and no where to be found, well before your project gets underway. Or, worse yet, the contractor may have started the project, leaving you with a ripped up home and depleted funds.Suggests you borrow money from a lender the contractor knows -- If a contractor does suggest you borrow from a specific lender, this could indicate a home improvement loan scam.

To prevent falling for this scam: Never agree to a home equity loan if you don't have the money to make the monthly payments. Don't sign documents that you haven't read or that have blank spaces that will be filled in after you sign. Don't let anyone pressure you into signing a document. Don't deed your property to anyone. Never agree to financing through your contractor without shopping around and comparing loan terms.

Protect yourself from fraudulent operations by doing the following:

• Read and understand every word of a contract before signing it. If you don't understand something, ask for clarification.
• Never sign a contract with a service professional who makes promises that are too good to be true. Chances are this service professional needs to create these incentives to attract customers; if that's the case, the service professional's record can't speak for itself.
• Avoid bargains that sound too good to be true. A service professional is going to have to cut corners somewhere to live up to an unreasonable price.
• Be wary of service professionals who try to scare you into signing for repairs that they say are urgent. Before agreeing to any additional costly repairs, seek a second opinion.
• Proceed cautiously when a lender or contractor demands a lien on your property. If you've taken out a loan for less than $7,500 to complete the project, a lien should not be necessary. Shop around for a more reasonable loan or a less demanding contractor.

-- Tips courtesy of Service Magic