Katrina: How to Prevent Home Repair Fraud

Checklist for Preventing Home Repair Fraud:
  1. Never give a contractor money up front. If people would follow this one tip, 99% of the contractor fraud would be eliminated. Reputable contractors with an established business do not need money up front to begin a job. They will work out a payment plan with payments due as work is completed. The reason for this is that contractors have the right to put a lien on your property if you don't pay them what you owe for repairs on your home. The home cannot be sold without the contractor's lien being settled. You, however, have virtually no protection in most cases when you pay a contractor up front. If he fails to live up to his end of the contract, you may sue the contractor in the court system which will typically cost you dearly in attorney's fees. If you win, you then have to collect the money. Collecting the money is something akin to squeezing blood from a turnip. Most contractors who steal money are doing so because they don't have anything. They have nothing so you are likely to collect nothing.
  2. Get a copy of the contractor's licenses. The contractor you hire should have a contractor's license through the State Board of Contractors in the State of Mississippi. Get a copy of the state license from the contractor before you sign a contract. The contractor should also have a license to do business in the city where you live. Get a copy of that license from the contractor before you sign a contract.
  3. Call the licensing agencies and verify that the licenses are still valid. Many contractors jump through the hoops to get a contractors license only to let it lapse or have it revoked. The only way to make sure your contractor is still licensed is to call the licensing agency or visit the appropriate web site.
  4. Obtain the individual name of the contractor and his/her address, as opposed to the business name and address. Sometimes this will help you in the event you have to serve them with legal process in a lawsuit. Even if the contractor moves from the address, the information that they gave to the landlord prior to renting, or their forwarding address for mail, may help you find them later.
  5. Call the Better Business Bureau and find out if there are any complaints on the contractor in his individual name and in his current business name. Keep in mind that many contractors move around and change business names as often as most of us change our bed sheets. If your contractor has been working out of town or out of state, you should also call the Better Business Bureau office in the area where they were previously working.
  6. Do not hire a contractor who is uninsured. Most disreputable contractors are not insured or bonded. Disreputable contractors are not willing (or have no money) to pay for insurance. On the other hand, most reputable contractors will have insurance coverage, including worker's compensation coverage. Sometimes contractors must prove they are insured or bonded to obtain a license. Be warned that this does not mean they will stay insured after they have become licensed. The point of this tip is that insurance is a sign that a contractor is responsible. We do not mean to imply that such insurance will cover your losses in the event a contractor cheats you, fails to finish the job or does shoddy work. Typically the insurance that contractors carry does not cover fraud or workmanship. What does it cover? This leads us to the next tip.
  7. Verify the contractor's insurance or bond information. Once the contractor give you the insurance or bond information, call the insurance company/agency that wrote the policy and confirm that the policy is still in effect, the amount of coverage and the type of coverage maintained by the contractor. The agent can tell you what is covered and what is not covered by the policy. If the agent is unwilling to discuss the coverage with you, arrange a three-way call with your contractor.
  8. Don't automatically hire the first contractor available to do the work. Good and reputable contractors often have a waiting list. We know that when a disaster like Katrina hits, we are all in a hurry to get life back to normal. We also know that folks panic and want to give money to the first person who says they can get your life back to normal. Resist the urge. Unscrupulous contractors will tell you that they can start your job next week but they will leave out the part about the other five jobs they have promised to start next week. They will lie to you about how long the job will take. In addition, they will put more pressure on you by telling you that they won't be able to start your job until you pay them. That dishonesty is a sign of things to come.
  9. Check with the owners of the contractor's last few jobs. You should ask your prospective contractor for a list of names and addresses of the last few jobs he performed in your area. You should then follow up with that information and contact these homeowners. Most would be glad to talk to you about their experience. Contractors, like any other business men and women, can mismanage their affairs which in turn negatively impacts their work. Indicators of this can often be discovered by talking to the homeowners of the last few jobs performed by the contractor. Examples of these indicators are:
    • The contractor required them to pay money up front.
    • The employees of the contractor complained that the contractor wasn't paying them on time.
    • The subcontractors asked the homeowner to pay them because the contractor hadn't paid for their services.
    • The job took an unusually long time to complete once it began.
    • The homeowner had to pay more than the contracted price because of some unforeseen extra work or expense.
    • The homeowner was dissatisfied with the contractor's performance.
  10. Never give a contractor money up front. See #1 for details. This is repeated because it is the most important tip we can give you. Your contractor can't steal your money if it is in your bank account.

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