Contractor Fraud

HOME CONTRACTOR fraud refers to a range of illegal practices committed by contracting firms in repairs and renovations on residential dwellings and financial arrangements associated with this type of work. According to state consumer protection agencies, it ranks among the most common types of consumer fraud in the United States. The most common illegal acts include unnecessary repairs, misrepresentation, bill padding, defective workmanship and home-improvement loan fraud. Such actions generally fall under conventional legal definitions of property theft and fraud, that is, deliberate and deceitful practices intended to gain financial advantage.

Unscrupulous home contractors target the 26 million homeowners in America who remodel homes each year.

Home contracting fraud has come under increasing scrutiny in recent years due to the substantial economic investment Americans make in home repairs. According to the Center for Housing Studies at Harvard University, every year 26 million Americans engage in home improvement projects on their homes, spending in total over $100 billion. One million of these homeowners spend sums of over $10,000 on large structural modifications. In addition, the expansion of consumer protection organizations and legislative and judicial initiatives at the state and federal level have drawn significant attention to home contractor fraud. The victims of fraudulent home-improvement work are often elderly and unsuspecting consumers unaware of their legal rights or deceived into unnecessary, overly expensive and often damaging repair work or upgrades on their homes.

According to the American Association of Retired Persons (AARP), certain groups such as older, minority, and lower income persons are more vulnerable to fraud, and are over-represented in cases of illegal home contracting practices. Senior citizens, in particular, are disproportionately represented among homeowners who have accumulated substantial home equity and therefore have much to lose from fraud. Since home repairs and upgrades are usually expensive, they offer prime opportunities for unscrupulous firms that exploit people they see as overly trusting and ignorant of their legal rights.

The Contractors

Consumer advocacy groups have painted a vivid portrait of the typical fraudulent contractor. Often, fraudulent contractors are small-scale and defraud a small number of clients for thousands of dollars. In some notable cases, home-contractor fraud has involved[Page 201] dozens of home owners and much larger sums of money. Many so-called contractors are employees of larger contracting firms who “moonlight” or find work on the side. They are generally not licensed, bonded, or insured. Nor do they belong to a reputable professional association which abides by ethical codes and standards.

Fraud experts advise homeowners to avoid offers made over the phone or that sound too good to be true.

Such businesses are therefore often unable to properly obtain legally required building permits, protect clients from sub-contractor abuses, potential liens on homes, and other home-owner legal liabilities, nor provide health insurance and workers' compensation for those employed on the job. Sometimes, contractors insist clients obtain homeimprovement loans from third parties with which they are associated. They do not provide references from former clients, have no permanent offices or contact numbers, accept only cash, demand full payment up front and refuse to enter into a formal written agreement outlining the rights and responsibilities of each party. This suggests that they are a “fly-by-night” operation intent on defrauding clients. Unscrupulous contracting firms solicit door-to-door and offer extraordinary “too good to be true” discounts and guarantees. Consumer groups warn that any or all of the above are warning signals for contractor fraud.

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