Unfortunately, major disasters and fraud often go hand in hand. It’s happened after every major catastrophic event such as the 9/11 attacks to natural disasters such Hurricane Andrew, Katrina and Sandy. It’s a sad fact that people take these unfortunate events and the chaos created by the events to cash in on other peoples’ poor fortunes. Dishonest people try to fraudulently profit, falsely claiming to be both victims and heroes.
After the event, construction always picks up to clean up and repair the damages caused by a storm. There are very good contractors, but also a lot of bad ones, more so than before. A lot of them are very, very new to this industry, but they see this type of event as a very lucrative opportunity and they take advantage of it. The most commonly recognized case is where a contractor approaches a home owner, takes a large up-front deposit, starts the work, and then disappears after just a few days. For suppliers, the concern should be on out-of-state, or unlicensed contractors that need rental equipment and/or supplies.
In the case of home owners, most people would normally recognize a scam and refrain from giving out a large amount of money before work starts. However, a fast talking contractor preys on the fact that contractors are in high demand and people are desperate to get back into their houses. As far as suppliers are concerned, it’s often a matter of being overwhelmed, as well as trying to help their community get back to normalcy. In times of need, we often give people the benefit of the doubt. While there is a degree of criminality involved whenever a person enters into a contract to do work or opens an account with a supplier and then fails to complete the contractor or pay for goods, it’s difficult to prove fraud because intent to defraud is an element of the crime. Intent is always difficult to prove, especially if the contractors makes “some” effort to do the work or makes a small payment on an account. So the majority of cases that actually go to court are civil disputes, and they are generally between the homeowner and the contractor over the quality, timeliness of the work, or the cost of the work.
Here’s some things you can do to prevent, or at least minimize, potential fraud:
- Don’t independently acquire the building permits. Legitimate licensed contractors obtain the permits themselves.
- Verify that the contractor is properly licensed in the State that the work is being performed.
- Never pay more than 10 percent or $1,000 as a down payment for a job; never pay in cash; verify that the contractor has proper insurance.
- Have a written contract, with a defined scope of work to be performed, a lien waiver clause, start date and approximate finish date in the contract.
- This seems like common sense, but check references. Look at pictures of work, look for proper business addresses, websites and other indicia of a legitimate business operation. Ask to see their driver’s license, and take pictures of their work vehicles and license tags.
- Ask to see the contractor’s proof of liability and worker’s compensation insurance. Follow up with their agent or insurance company to verify it’s still in place. You can request a certificate of additional insured, which means the company has knowledge of your project.
- Check your State’s contractor licensing board website for an active license before signing any contract.
- Do not be rushed into signing a contract. Never sign a contract containing blanks; unacceptable terms might be added later. Make sure you get a copy of the signed contract.
- Make an insurance claim on your homeowner’s insurance before entering into a contract for repairs. Take pictures of the damages. Keep receipts.
- Don’t pay for a lot of temporary repairs.
- Finally, never pay a contractor in full or sign a form of acceptance of work before the work is finished and inspected by appropriate municipal inspectors.
- Stick with Standard Operating Procedures. Do not open accounts or take payments in a manner that is outside of your firm’s normal procedures. Check references. Obtain additional security or assurances of payment, if necessary.
- Ask questions about the project. Ask for direct payment, or joint checks, from the owner.
- Be wary of out-of-state contractors. It is difficult and more expensive to obtain and collect on a judgment if the defendant is out-of-state.
- If they’re registered with the Secretary of State, look at their corporate status and filings. Make sure they’re in good standing and that you’re dealing with authorized agents.
- Similar to homeowners, ask to see the contractor’s proof of liability and worker’s compensation insurance. Follow up with their agent or insurance company to verify it’s still in place.
- Check your State’s contractor licensing board website for an active license before extending credit.