Avoid Contractor Fraud & Scams

Authored By: Lagniappe Law Lab
Read this in: Spanish / Español

About

About

Information for those who are working with contractors and want to avoid issues with contractor fraud and scams. This type of fraud can take many forms, including overbilling, using inferior materials, misrepresenting the services provided, or failing to perform the services agreed upon. Contractor fraud is often committed by those working in construction, home improvement, and remodeling services. The most common forms of contractor fraud include charging for services that were never rendered, billing for material that was never used, and performing substandard work. It is important to thoroughly research any contractor before using their services. Make sure that a written contract is in place that clearly defines the scope of the job, payment terms, and other details. 

Avoid Contractor Fraud & Scams

Disaster survivors are targets for fraud. People who are scam artists often head to areas that are part of a disaster to prey on the vulnerable - posing as building contractors, debris removers, and other fraudulent businesses. After a disaster, there may be people calling themselves contractors in the area, going door to door, and offering their services to homeowners. While some of the contractors who reach out to disaster survivors may be legitimate, disaster survivors should be aware of the risk of contractor fraud after a disaster. Many scammers may pose as legitimate contractors. They may demand payments in cash or before a repair job is finished. Scammers like this may never complete the work or provide inadequate work with no way for you to follow up. A healthy relationship with a contractor is often best when it is based on a business that you know or that is researched ahead of time. Disaster survivors should also be aware there is no such thing as a FEMA-certified contractor. 

Issues with fraudulent contractors occur with disaster survivors who are making repairs to their homes or property after a disaster event. Property owners may be desperate to get their repairs made as soon as possible. Frauds will use this urgency to their advantage. Fraudulent contractors scam unsuspecting property owners and do this by offering to do repairs and requesting an upfront payment. Once they receive the upfront payment, it is common for them to not complete the job or complete the job to a lack of reasonable standards. Often these jobs need to get finished at an extra cost by a legitimate contractor. Frauds may also use, or try to sell, stolen materials and equipment to property owners. Frauds may also promise speedy repairs to get a property owner's money when a property owner is desperate to get repairs made. It is important for homeowners making repairs to know how fraudulent contractors operate, what warning signs to look out for, and how you look out for potential contractor issues. 

There are some tips to avoid and watch out for contractor fraud: 

  • Get more than one estimate
  • Watch for demands for cash upfront, claims of a one-day-only sale, aggressive or fear-mongering sales pitches
  • Ask the contractor for references, to show a business or professional licensure, and provide proof of a physical business address 
  • Get everything in writing
  • Ask to see the salesperson's driver's license and write down the license number and their vehicle's license plate number
  • Never sign a contract with blanks; unacceptable terms can be added later 
  • Make sure you review and understand all documents sent to your insurance carrier 
  • Never pay a contractor in full or sign a completion certificate until the work is finished and ensure reconstruction is up to current code 
  • Never let a contractor pressure you into hiring them 

Here are some signs or tactics scammers use: 

  • Scammers knock on your door looking for business because they are “in the area.”

  • Scammers say they have materials left over from a previous job.

  • Scammers pressure you for an immediate decision.

  • Scammers ask you to pay for everything upfront or only accept cash.

  • Scammers ask you to get any required building permits.

  • Scammers suggest you borrow money from a lender they know.

Sometimes, contractors will not just scam you through the work they do — or don’t do. Sometimes, they’ll actually set up a scam that ends with a loan against your home.

Here’s how it works: a contractor calls or comes to your door. He offers a deal to install a new roof or remodel your kitchen. He says he can arrange financing through a lender he knows. After he starts work, he asks you to sign papers. They may be blank — or he might hustle you along and not give you time to read through them. Later, you find out you’ve agreed to a home equity loan with a high-interest rate, points, and fees. What’s worse, the work on your home isn’t done right or isn’t completed, and the contractor — who may already have been paid by the lender — has stopped returning your calls.

To avoid a loan scam

  • Never agree to financing through your contractor without shopping around and comparing loan terms.

  • Never agree to any loan without understanding the terms of the loan and knowing whether you can make the payments.

  • Don’t sign a document you haven’t read, or that has blank spaces.

  • Don’t let anyone pressure you into signing any document.

  • Never transfer your deed to anyone without consulting an attorney, a knowledgeable family member, or someone else you trust.

If you have a problem with a home improvement project

  • First, try to resolve it with the contractor. Many disputes can be resolved at this level.
  • Follow any phone conversations with a letter you send by certified mail. Request a return receipt, so you can prove that the company got your letter.
  • Keep notes and copies of letters and documents for your files.

If you can’t resolve it with the contractor, consider getting outside help from

Avoid Contractor Fraud

How to Deal with Contractors

How To Deal With Contractors

This includes the overall steps when you are looking to hire a contractor. You can follow these steps to help you avoid the issue of contractor fraud and scams. 

  1. Get multiple bids: When hiring a contractor, it is important to get multiple bids from different contractors who have the skills and experience you need. This will allow you to compare prices and ensure that you get the best deal.
  2. Ask for references: Ask the contractor for references from previous jobs. This will give you an idea of the quality of the contractor’s work and if they are reliable.
  3. Check reviews: Check online reviews of the contractor and make sure they have a good reputation.
  4. Get a written contract: Before any work begins, make sure you have a written contract that outlines the scope of work, payment terms, and other details.
  5. Document progress: Document the progress of the work with photos, videos, and other records. This will help you track the progress and make sure the contractor is doing the work as agreed upon.
  6. Make payments gradually: Make sure you don’t pay for the entire job upfront. You should make payments gradually as the work is completed.
  7. Inspect the work: When the project is completed, inspect the work to make sure it meets your expectations. If there are any issues, you should address them with the

What Should I Know About Hiring A Contractor For Repairs?

Disaster survivors are targets for contractor fraud. It is critical that disaster survivors stay informed about the process of hiring a contractor and forming a health contractual relationship to make repairs to a home property. It is important to be careful when hiring a contractor after a disaster. Contracts are legally binding so it is important to know what you are signing as documents when you are working with the contractor. There are some other steps you can take listed below: 

  1. Get at least three written estimates. The estimates should contain an itemized list of the work to be done.

  2. Call the Better Business Bureau to see if there are any complaints against the contractors. 

  3. Get a written contract that specifically itemizes the work to be done and the materials to be used.

  4. 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.

  5. Also, before you hire a contractor, get three references.  Call these reference numbers to check if the contractor has performed work properly and quickly.

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.

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.

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.

Pay for a contractor by check, money order or credit card. Do not pay cash. Pay the final amount only when the work is done and you are happy with it. 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. 

Do not: 

  • Pay for the whole job before the work starts 
  • Make a large down-payment 
  • Make expensive, temporary 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.

Be careful when you need a loan to pay for repairs. If you put up your home as security and cannot repay the loan, then you may lose your home. If you get a loan, ask someone you trust to read the loan documents. 

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 middleman. 

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.

Creating a Good Contract

How To Create A Good Contract With A Contractor

When you are working with a contractor, it is important to understand how to create a good contract for the services and the work provided. Before entering into a contract with a contractor, you should clearly define the scope of work that needs to be completed and the desired outcome. After deciding what work needs to be done, you should research potential contractors who can do the job. Draft the contract when you've decided on the contractor. Before signing the contract, make sure to negotiate any terms you are uncomfortable with. Here are some steps you can take when you are making a contract with a contractor. 

  1. Clearly define the scope of the project: Outline all of the tasks the contractor will be responsible for in order to successfully complete the project. This includes the scope of the work, timelines, payment terms, and any other relevant details. 
  2. Discuss the payment terms: Make sure to include the rate of payment, deadlines for payment, and details of any bonuses or incentives.
  3. Set a timeline: Establish a timeline for the project and determine when it should be completed.
  4. Specify the roles and responsibilities: Make sure to clearly define the roles and responsibilities of each person involved in the project.
  5. Address the confidentiality agreement: Make sure to include a confidentiality agreement so that all information is kept private.
  6. Include a dispute resolution process: Include a dispute resolution process in the contract in case of any disagreements.
  7. Define an exit strategy: Outline an exit strategy in case either party decides to terminate the agreement.
  8. Include a signature: Make sure to include the signature of both parties involved in the contract.

Creating a Good Contract

The signs of a good contractual relationship are that the contract is with a business that you know or that you have positive references on. This also includes: 

  • Payments that are set up on milestones of completed work 
  • You've gotten estimates from different contractors before choosing a contract
  • The contract is in writing and you read it carefully
  • The contract includes such things as the contractor name, street address, telephone, license number, the total amount to pay for a job, the payment schedule, start, and end date, permits, information about changes to the contract, warranties covering materials and workmanship, and/or contact information for warranty company. 

A contract is a legally binding document so it is important to know what you are signing when you are working with a contractor. A healthy contractual relationship often includes a business that you know or that is researched ahead of time and not someone who knocks on the door.

After hiring a contractor ensure the contractor finishes the job. You can do the following things before you sign off on a completed contract job: 

  1. Make sure all of the work meets the standards spelled out in the contract
  2. Ensure Permit issuers have inspected and approved work
  3. You have received written warranties for materials & workmanship 
  4. You have received proof that all subcontractors and suppliers have been paid 
  5. They have cleaned up the work area 
  6. You have inspected and approved the completed work 

If you have a complaint about the work try and resolve the issue with the contractor first. If you do resolve the problem you should try to get it in writing and get it signed by the contractor. Then, follow up with a letter or email to follow up with what you've agreed to. 

Last Review and Update: Dec 07, 2022
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