Contractor Fraud

The Scheme

Home contractor schemes often follow a simple rip-off formula.  You, the homeowner, pay the contractor for a job that he never begins, never finishes, or performs to fraudulently poor standards of quality. 

Con artist contractors can use sophisticated methods to make sure they get paid.  The “home improvement loan scam” offers a classic example.  The fraudster comes to your door and offers to re-tile your kitchen floor at a good price.  But you can’t afford to pay cash for the job, so the contractor offers to put you in touch with a lender.  The work on your kitchen begins, and a couple days later, you are asked to sign some papers without really understanding their terms.  Later, it turns out that you signed up for a home equity loan at extremely high rates of interest.  The contractor and the lender were in cahoots, and now that the trap is sprung, the contractor walks away from the job.  You’re stuck with a half-done kitchen floor and a brand new loan. 

Red flags: It’s best if you are always cautious in hiring a contractor.  But if you notice some of these warning signs, be extra vigilant:

Door-to-door solicitation.  The availability of good contractors rises and falls depending on the economy, but even when the economy is in a slump, it’s wise to be suspicious of contractors rounding up business by traveling door to door.

Offering a discount on “leftover materials.”  A tell-tale sign of a shady operator is his offer to discount his services because he just finished with another job in the area and has leftover materials.  It’s likely this offer is being made by a contractor who travels from state-to-state with no real business location and no way to track him down to complain if the work is substandard. 

Enlisting you as a sales rep.  If the contractor is offering you a discount for your help in finding other customers for his business, be wary.  The question you should ask yourself is why he’s not getting enough work through the natural word of mouth of satisfied customers. 

Permit pigeon.  Don’t be duped by a contractor into getting the building permits yourself – it could be a sign that the contractor is unlicensed or not registered as required by law. Part of a contractor’s job is to get the requisite permits himself. 

Help For Consumers

Basic tips for avoiding problem contractors include these:

Deal only with licensed contractors: ask to see the contractor’s “Pocket License” or their representative’s “Home Improvement Sales Registration.”  Ask to see some ID to prove they are who they say they are.

Check with the state’s Contractors State Licensing Board to make sure the contractor is licensed, bonded, and carries worker’s compensation coverage.  Log onto www.cslb.ca.gov and have the contractor’s name, license number, and business address ready.  

Check 3 different references.

Check to see if there are any pending or prior legal actions made against the contractor: call the appropriate Region Office’s Legal Action Disclosure number: Northern region: 916-255-4041; Southern region: (562) 345-7656.

Don’t pay with cash.

Don’t let payments get ahead of the work completed (don’t pay full cost of the job up front).