Dealing with the aftermath of a major storm can be stressful. You’ve got cleaning up to do and insurance forms to fill out. Now imagine what could happen if you fell victim to contractor fraud. Not only would you still have the hassle of getting your home repaired, but you’d have the extra trouble of being overbilled for shoddy work and unnecessary repairs.
Unfortunately, natural disasters may subject homeowners to opportunists hoping to take advantage of confusing and turbulent times. Worse? It costs insurance companies and homeowners a lot of money.
What is contractor fraud?
Contractor fraud is when an individual contractor or a contracting firm purposely deceives another party over services. Not every professional who goes door-to-door offering to clean up or make repairs after a catastrophe is out to scam you. However, this is a common tactic by folks who might try to defraud victims after a major, community-wide disaster.
Some examples of contractor fraud include:
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Get upfront payment for a job and never show up for it.
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Begin a job but not complete it.
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Use subpar materials or deliver shoddy work to pocket more profit..
One type of contractor fraud that has been impacting Florida home insurance centers on assignment of benefits (AOB). It’s not uncommon for contractors to ask homeowners to sign an AOB that gives the contractor control of the homeowner’s insurance claim. Unfortunately, some fraudulent contractors inflate their costs and bill the insurer after they have the AOB in hand. The contractor may even sue the insurer.
Fraudulent contractors: Red flags for homeowners
Nobody wants to be the victim of an assignment of benefits scam, or any type of contractor fraud for that matter. To help you avoid schemes, we’ve compiled a list of red flags for homeowners.
Beware of contractors that:
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Approach you about damage you didn’t know you had. If a contractor claims you have damage, make sure they show you evidence.
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Promise free repairs. A contractor might swear that you can get a free roof through your insurance company.
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Begins repairs before your insurer inspects your damages. While you do want to mitigate your damages, you have to remember that loss inspections are a typical part of any claims filing.
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Seem unprofessional. You want to be wary of any contractor who has contracts with typos and grammatical errors, who can’t provide basic business information, or who won’t show you their business insurance.
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Require full payment in advance. A contractor may ask for some money upfront to cover materials, but 10% of the total estimate is the norm. Asking for 50% or more is a sign that something is amiss..
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Don’t pay suppliers. At least some of your down payment should go towards labor and materials. Contractors who don’t pay the suppliers may be taking that as profit for themselves, leaving you to deal with the supplier on your own.
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Are from another state. Contractors sometimes flock to disaster areas looking for work. However, working with out-of-state contractors is risky because they may not be licensed in your state.
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Continually find new problems. It isn’t uncommon for a contractor to find another issue when they open up walls and get behind cabinets, but finding several problems may be a red flag. If possible, get a second opinion to make sure it really is an issue that needs to be dealt with.
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Say they don’t need permits. Permits exist to protect you and make sure that the work meets building codes and city ordinances. Legitimate contractors will always pull a permit for major work.
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Requires cash. Reputable contractors are usually prepared to take checks or credit cards. If a contractor says they’re a cash-only business, then demand a receipt.
These signs indicate that something is wrong with your contractor, but they’re not the only red flags. In general, you want to trust your gut.
Tips to avoid post-disaster contractor fraud
In addition to calling your insurance company before you hire a contractor, as a general rule, if you didn’t request the work, don’t accept it.
These pointers can help you find a reputable contractor when you are ready to get repairs on your home underway.
DO
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Get more than one estimate so you can compare rates and timelines.
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Get all promised work in writing, including all repairs, cost, timeline, payment schedules, and work warranties.
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Ask for references, read reviews of the contractor’s work, and look up their business on the Better Business Bureau or Angie’s List.
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Check the contractor’s driver’s license and write down their license number.
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Ask for the contractor’s insurance certificate and licensing.
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Review all documents sent from the contractor to your insurance provider.
DON’T
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Sign an incomplete contract or a work order with blanks.
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Pay a contractor in full before work is finished.
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Sign a completion certificate before the work is complete and inspected for code compliance.
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Hire a contractor because they pressured you.
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Let a contractor decide what your policy covers.
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Let a contractor dissuade you from talking to your insurer.
Why homeowners need to avoid contractor fraud
You might be asking yourself, “So what? Who cares? Isn’t this the insurance company’s problem?” Oh, if wishing made it so.
Contractor fraud has significant effects on homeowners who fall victim to the scam. These homeowners end up with poor claims histories that can lead to homeowners seeing drastic rate increases – or even difficulty getting coverage at all. In fact, AOB benefit scams in Florida are one major reason why rates are so expensive in that state.(AOB scams have gotten a lot of attention and Florida’s Senate Bill 2A has taken aim at the problem in an effort to reduce the scam’s frequency and effect.)
Another reason you want to avoid contractor fraud is because you may face legal consequences if your insurer finds you were in any way complicit or had reason to suspect one fraud.
Insurance fraud also has significant impacts on the broader economy as well. When one homeowner in a particular area falls victim to a scam, it can increase the cost of coverage for others in their area. Depending on the size and scale of the fraud, these effects may be amplified as local businesses and property values are impacted.
What to do if you suspect contractor fraud
Your first step if you suspect that a contractor is trying to scam you is to start documenting your concerns. Record the work that’s been completed and hold on to any paperwork between the two of you, such as contracts, receipts, and canceled checks. Then talk to your contractor about your concerns. Your contractor may have legitimate reasons for delays and is willing to work with you to make sure your repairs are completed.
If you think you’ve been solicited by an unlicensed contractor or adjuster or have been asked to fabricate an insurance claim, contact your insurance company immediately. You can also call the NICB hotline at 1-800-835-6422 or text your information and “FRAUD: to TIP411.
