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Home » 12 Tell-Tale Signs of Contractor Fraud

12 Tell-Tale Signs of Contractor Fraud

  • Published
  • 6 min read
Watch for these signs of contractor fraud.

The sun is shining, and summer is on its way. That means it’s the busy season for home repair projects—and, unfortunately, contractor fraud.

Put simply, contractor fraud (also called a “home improvement scam”) is when an individual contractor or firm knowingly misleads a client with the intent of taking as much money as possible for incomplete or subpar work. Typically, it involves overbilling, the use of substandard materials, shoddy work, incomplete work, or predatory loan and billing practices.

In most cases, the customer is left with a bill several times larger than expected and—more often than not—the need for more costly repairs.

Be on the lookout for fraudulent acts and watch for these red flags to avoid falling victim to contractor fraud.

1. You are asked to pay in cash or forced to pay in advance. If you are asked to pay in cash or are forced to pay upfront for work, you may be left in the lurch with no recourse for a refund. The contractor could take off with your payment and not do the work, delay the work indefinitely, or perform shoddy work that is not worth what you paid.

2. Your contractor will not put the agreement in writing. If a contractor is not willing to sign a contract before the work begins, do not agree to the work—even for a short or seemingly simple job.

3. Your contract does not seem complete. A common method for defrauding homeowners is to initiate a low-ball offer that doesn’t include the entire scope of the project. Then, to complete the project, you are forced to pay for the add-ons that go well beyond your initial budget.

4. You run into a lot of unforeseen problems. It is common for unexpected things to happen during remodeling projects. Newly opened walls can reveal things like water or termite damage that weren’t visible before and those setbacks may cost you more money. But, be wary of contractors who demand huge sums of money to fix the problem or continue to discover “hidden problems” throughout the project. If you suspect that something is off, get a second opinion.

5. They say they don’t need a permit or ask you to get the permits. Nearly all renovation or construction projects in the state of Oregon require official permits—including structural, plumbing, mechanical, and electrical changes—before the work can begin. If your contractor says a permit is not necessary, it’s a good idea to contact the building department responsible for your area to double-check. On the other hand, if your contractor asks you to secure the permits, think twice before moving forward. Without proper permitting, you may be liable for any issues or injuries sustained on the premises. With a licensed, reputable contractor, permitting will be factored into the project costs.

6. You discover the contractor has improper licensing. To protect yourself, only work with contractors who are properly licensed and insured. In the state of Oregon, anyone who “works for compensation in any construction activity involving improvements to real property needs a license.” If your contractor has unlicensed workers—even if it is their own teenage kid—that is a problem. If you knowingly hire an unlicensed contractor, it could cost you a lot more in later repairs and fines. What’s more, you could be held liable (along with the unlicensed worker) for anything that happens on the job.

7. They offer a high-pressure sales pitch. If your contractor pressures you to make a quick decision or to spend a lot more than you were initially planning, get a second opinion. Most legitimate contractors understand that agreeing to renovations can be a big decision and will give you an opportunity to consider your options.

8. You Are Asked to Pay the Supplier. If your contractor doesn’t pay the supplier for the building materials required for your project, you could be left with the bill. Make sure your contract includes a stipulation that your contractor will pay the supplier directly—and don’t agree to make your final payment until the contractor has made all the necessary payments to the supplier.

9. You are offered a “great deal” on leftover materials. This is one of the most common contractor fraud scenarios to watch out for. Sadly, you could become a party to it and not even know it is happening. With this scam, a contractor typically offers you a discounted rate because they plan to use “leftover materials” from a previous job. In reality, they may be using materials that should be considered scrap or were illegally obtained. Contractors who commit this type of fraud could also use, substitute, or remove material from your home without your permission or knowledge.

10. They find you through solicitation calls. If you have ever had someone knock on your door offering their services (aside from neighborhood kids looking to mow your lawn), be wary of what they offer. A common contractor scam is to tell you that you need work done somewhere on the exterior of your home—often the roof—when you don’t actually need it. Of course, not all contractors who go door-to-door or solicit business are shady, but it’s best to get multiple estimates and check the credentials of anyone you consider hiring.

11. Your contractor is located out of state. If you can avoid it, don’t hire a contractor from a different state. In many cases, contracting licenses do not transfer from one state to another. If the work ends up subpar or incomplete, the contractor could be difficult to track down or prosecute—and there could be legal ramifications if it turns out their license is not honored in Oregon. For example, Oregon only has reciprocity agreements for journeyman electrical licenses from Arkansas, Idaho, Maine, Montana, Utah, Washington, and Wyoming. The state also has reciprocity for journeyman plumbers licensed only in Idaho and Montana. The rules for independent contractors may vary.

12. You are told to borrow money from a lender of their choosing. Consider this scenario: A contractor comes to your door and offers to repair your roof or remodel your deck. It’s an expensive project, but he says he can coordinate financing through a lender he has worked with before. It’s a great deal, right? But before you sign any paperwork—especially loan paperwork—read your contract VERY carefully. You could unknowingly agree to a high-interest home equity loan. Unfortunately, it’s a common occurrence. In most cases, the contractors who offer such agreements are paid by the lenders in question to recruit new loans.

How to Avoid Contractor Fraud

  • To protect yourself, your home, and your money, follow the advice of Federal Trade Commission and the Better Business Bureau before hiring someone for construction projects.
  • Before you reach out to contractors, do some research on projected costs for your project.
  • Before you hire someone, get multiple quotes.
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