How to prevent home contractor fraud after a natural disaster

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Experienced home damage after a storm? Here’s how to choose a solid contractor.

  1. Dishonest contractors preying on homeowners in the wake of a disaster can account for as much as 10 percent of annual natural catastrophe losses.
  2. View examples of home contractor fraud, from inferior materials to contractors who “take the money and run.”
  3. Learn 13 steps to protect yourself from fraudulent contractors, from never choosing one going door-to-door to checking licenses, insurance and references.

First you experienced damage to your home from a natural disaster. Don’t layer on another disaster: home contractor fraud. Next week is Contractor Fraud Awareness Week, highlighting the importance of identifying fraudulent contractors who perform shoddy or incomplete work. We’ve compiled this article from a number of sources: the National Insurance Crime Bureau, Insurance Information Institute and several state government agencies.

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Trademarks of home contractor fraud

Here are examples of home contractor fraud, according to Stop Fraud Colorado:

  • Performing unlicensed work.
  • Advertising or selling services other than those advertised or a refusal to offer the services advertised.
  • Misrepresenting the standard, quality or grade of services or materials.
  • False or misleading statements concerning the price of goods and services.
  • Failure to pay subcontractors or failing to set aside money for subcontractors.
  • Failure to disclose important information about materials or services that the contractor knew at the time of advertisement.
  • Failure to perform work after receiving payment or using those funds for purposes unrelated to the project.

According to the Federal Trade Commission, some of the most common signs a contractor may be looking to scam consumers include:

  • Going door-to-door looking for customers, especially after a hailstorm or other severe weather event or a natural disaster.
  • Offering to provide free or low-cost work.
  • Using high-pressure tactics.
  • Asking for more than 10-20 percent of costs up front.
  • Requiring payment in cash, gift cards, or cryptocurrency.
  • Refusing to pull required local permits.

Another possible sign of fraud if a contractor tries to steer you to a specific lender to finance the costs of your project.

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How to differentiate between a solid contractor and a fraudulent one

Here’s what to look for in a contractor to protect yourself – and your home.

  1. All too often, door-to-door contractors with unmarked vehicles or out-of-state plates could be out to just take your money. Don’t pay for an estimate – ever.
  2. File a claim with your insurer. And hold off on any repairs if possible until they’ve sent out an adjuster to look over your damage and given you an estimate of repair costs.
  3. Do your homework. Only hire licensed, insured contractors who have a good reputation. Check with your city or county to make sure the general contractor is licensed to work in your area. Your insurance company should be able to provide you with a list of recommended contractors.
  4. Get three written estimates for the work and compare bids, not sharing the information with the other two. In the aftermath of a major natural disaster, contractors are in high demand.  The pandemic and supply chain disruptions also have put additional pressure on labor and building material costs.
  5. Check credentials, including licenses, references, and insurance—Reputable contractors will provide homeowners with their state and local business licenses, physical business address and telephone numbers, as well as references.
  6. Read your contract carefully. Anything you can get in writing will help you if something goes wrong. Be sure your contract includes estimated construction schedules and prices for labor and materials. If a contractor requires full payment upfront for a job, think twice about doing business with them. Typically contractors will request 10-20 percent upfront after signing a contract with a homeowner, to purchase necessary materials. Your contract should have clear language and no empty blanks. It should also have guarantees included. Don’t sign a handwritten contract.
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  1. Watch out for “deals” following a natural disaster. Those may be red flags signaling fraud.
  2. Watch out for change order fraud, when a corrupt contractor submits fraudulent change orders to increase the work price or extend a contract without your permission.
  3. Do not believe a contractor who says they are supported by the government. The Federal Emergency Management Agency does not endorse individual contractors or loan companies.
  4. Is your homeowners policy up-to-date? Contact your insurer to be sure.  If a contractor offers advice on what a homeowners insurance policy covers, double-check this interpretation with your insurer.
  5. Make sure you have good contact information for your contractor and any subcontractors working on your project. It’s best to communicate via email or text, so that you have written records of everything.
  6. Don’t pay with cash, gift cards or cryptocurrency. That’s a sure sign of home contractor fraud.
  7. At the end of a job, the contractor wants you to sign the certificate of job completion, says RMN Law. However, you should be sure to have the work inspected by your insurance adjuster before you sign. If you experienced any problems with the contractor, you want to make sure that the work has been done to your satisfaction and meets the contracted agreement.

Dishonest contractors preying on homeowners in the wake of a disaster can account for as much as 10% of annual natural catastrophe losses paid by the U.S. insurance industry, said PC360. Don’t become part of that statistic – do your homework and check carefully when the work is done.

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Federal Trade Commission
Triple-I and NICB Join Forces to Help Homeowners Combat Post-Disaster Fraud Schemes
Stop Fraud Colorado
Ruppert Manes Narahari
DA’s Office warns homeowners about contractor fraud
Contractor fraud can account for as much as 10% of NAT CAT losses