Avoid Contractor Fraud (FAQs + Video)
Authored By: Southeast Louisiana Legal Services (Hammond Office)
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What should I know about hiring a contractor for repairs?
A contractor has offered to help me refinance my home or get me a home equity loan with a company he knows about. Should I go through the contractor to get a loan? +
No! It is best to shop around for a loan yourself.
Be especially careful of contractors who tell you they can get you a loan. Some contractors may work with lenders who charge high interest rates or high fees for home equity loans or refinanced loans. Always make sure that you deal directly with a mortgage broker or lender rather than letting the contractor be the middle-man.
If you let the contractor take your application for the loan, the contractor may pull a scam where he steals the money from the loan and you are on the hook to pay it back. The best policy is to keep your business with the contractor separate from your business with the lender.
What general steps should I take before hiring a contractor? +
- Get at least three written estimates. The estimates should contain an itemized list of the work to be done.
- Call the Better Business Bureau to see if there are any complaints against the contractors.
- Get a written contract that specifically itemizes the work to be done and the materials to be used.
- Ask the contractor how much he would charge you for supplying the materials. Then shop around to see if you can get the materials more cheaply. In many cases, you can get the materials more cheaply yourself.
- Also, before you hire a contractor, get three references. Call these reference numbers to check if the contractor has performed work properly and quickly.
What specific information should I get from a contractor before hiring him, and is it okay to hire a contractor who isn't licensed? +
Make sure that you get full contact information from the contractor before hiring him to repair your home. Get the person’s name, address, and phone number. If the person uses only a P.O. Box, get her or his business and personal street address. Also, ask the person to show you picture identification.
It is recommended that you hire only contractors licensed by the State of Louisiana Licensing Board for Contractors. Ask the contractor if he is licensed.
If the contractor is licensed, be sure to get the license number. Then verify the contractor's license number by calling the Board at 225-765-2301 or by searching the State of Louisiana Licensing Board Online Contractor Search. Call the Board and ask whether there have been any complaints about or disputes with the contractor.
If a contractor tells you that he is working under the license of a licensed contractor, call the licensed contractor to verify this and get a letter in writing from the licensed contractor confirming that the contractor will be performing the work on your home under his license.
Read all the fine print before signing a contract to repair your home. Do not sign the contract until you understand all the terms completely.
When is it required that a contractor be licensed? +
Whether self-employed or not, all home improvement contractors, renovators, and remodelers who bid and perform work valued at $7,500 or more must have home improvement licenses issued by the Louisiana State Licensing Board for Contractors.
Contractors performing new construction for an amount of $50,000 or more require a state residential building license and must carry $100,000 in general liability insurance as well as worker's compensation insurance.
Whether you are hiring a contractor to make repairs or build a house from the ground up, ask the contractor if he has liability insurance. Have him show you a copy of the policy, check to make sure that the name of his company matches the name on the policy, and check to make sure that the policy is currently in effect.
What if a contractor tells me that the state licensing requirement has been waived as a result of Hurricane Katrina or Rita? +
He is either misinformed or lying. In some cases, a contractor licensed in another state may be able to obtain a Louisiana license. Just because a contractor is licensed in another state, however, does not mean she or he is licensed in Louisiana. She or he must apply for a Louisiana license.
When and how much should I pay a contractor? +
If the contractor requires you to make an up-front payment, make sure that the amount is only a small percentage of the total of the job. Try to pay no more than 10 to 20 percent upfront. After that, only pay for work as it is done. If you pay the contractor before he completes his work properly, there is no incentive for him to finish the job. If you are not satisfied with the work, do not pay the contractor.
How should I pay for repairs? +
It is strongly recommended that you pay by check or money order, not in cash. Future proof of payment may be required by your mortgage company or insurance company. If you absolutely must make a payment in cash, be sure to get a signed receipt.
More Tips for Avoiding Contractor Fraud
TIPS FOR AVOIDING CONTRACTOR FRAUD
Prepared by Southeast Louisiana Legal Services
WATCH OUT FOR CONTRACTOR FRAUD! Avoid home repair scams!
When disaster strikes, many dishonest contractors and people claiming to be contractors prey on people whose homes have been damaged. These "contractors" know that in times like these, people are vulnerable and want their homes repaired quickly. Contractors, or those posing as contractors, whether from the local area or out of town, may take your money, and then disappear without doing any work or doing it poorly.
Information, Not Legal Advice. This guide has been prepared for general information purposes only. The information in this guide is not legal advice. Legal advice depends on the specific facts of each situation. Some information in this guide may not be correct for where you are. The information in this guide is not guaranteed to be up-to-date. The information in this guide cannot replace the advice of competent legal counsel licensed in your state.
Deadlines are extremely important in most legal matters. You may lose important legal rights if you do not hire an attorney immediately to advise you.