Fraudulent contractors use a variety of tactics and scams to steal money from homeowners and insurance companies. One of the most common approaches involves receiving payment for work they never complete.
In this article, we explore the warning signs your contractor might be trying to scam you, provide some advice for preventing this behavior, and walk you through the steps to take if you experience this form of fraud.
3 Warning Signs of Contractor Fraud
Contractor fraud takes many forms, and there are many different warning signs homeowners should lookout for. When it comes to a contractor disappearing without completing or even beginning work, you should be aware of a few common red flags.
1. They ask for a large down payment upfront.
Contractors who ask for a large down payment or even full payment before the work begins are often fraudulent. In many cases, they’ll take the money allotted to the project and never return to complete the job.
Keep in mind that some reputable contractors will ask for a downpayment to lock your project into their schedule. The key to deciphering between a scam and a legitimate request is to consider the amount they request.
Experts estimate most contractors will ask for a downpayment between 20% and 40% of the final project cost. You should approach any contractors requiring more than that cautiously.
Did You Know: The three types of homeowners most commonly targeted by contractors include the elderly, new homeowners, and those living in recently damaged areas.
2. They use high-pressure tactics to lock you in.
Some contractors use high-pressure tactics to lure homeowners into making uninformed or rushed decisions.
They may propose special offers if you sign a contract within the next day or hour. Others might offer discounted rates if you pay for the work upfront.
In many cases, they do this to prevent you from contacting your insurance carrier for a reputation check or researching to see if they’re in good standing. Instead, they’re trying to lock you into work they likely never intend to complete.
3. They seem overly interested in your insurance coverage.
If a contractor asks a lot of questions about the type of coverage you have, your previous claims, or your policy limits, they’re likely trying to take advantage of you and your insurance company. In these situations, they commit insurance fraud and pocket the funds intended for your project.
Keep in Mind: If a contractor offers to pay your insurance deductible, don’t hire them. This offer is often a red flag indicating they plan to commit insurance fraud.
How to Prevent a Contractor from Leaving Work Unfinished
Even if you haven’t experienced any warning signs listed above, it’s a good idea to protect yourself against this common scam. Here, we list tips for ensuring your contractor cannot abandon your unfinished project.
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1. Create a contract.
Begin by creating a contract in writing outlining what you expect from the contractor, including:
- The scope of the work
- The intended deadline
- Any payment terms and conditions
- The planned price of the labor and materials
For extra security, you can also include a section in your contract with a clause about delays or non-completion of the work.
Go over this document with your contractor before you make any payments, have them sign it, and keep a copy on file throughout your project.
Remember: A contract is a legal document, and you’re both bound by the terms listed.
2. Document everything.
When the project is underway, take photos of the contractor’s progress at each stage and label those photos with the date and time. These photos will be incredibly useful if you have a dispute about the progress or completion of the project.
You should also log any correspondence with the contractor, especially conversations about deadlines, changing prices, or unexpected alterations to the signed contract. For this reason, always aim to make big decisions about the work in conversations you can record via email, text, or letters. Discussions on the phone are hard to substantiate if the need arises.
Finally, keep track of all payment receipts, including the amount, date and time, and deposit date.
3. Keep your lines of communication open.
There’s always a chance an issue that arises with a contractor is miscommunication. Before jumping to conclusions, contact them (ideally in written correspondence) to try and reach a solution.
For instance, if you experience a delay or are concerned about non-completion of the work, reach out with a clear list of the issue(s) you’ve noticed. Then, ask for the date you can expect project completion, and note you’d like to formally discuss if the contractor foresees any additional costs.
If you’re met with any pushback or don’t receive a reply, you might want to take more drastic action, such as involving your insurance carrier or Department of Insurance, seeking a neutral third-party mediation, or hiring an attorney.
Contractor Fraud in Indiana
Although contractor fraud is a widespread issue nationwide, Indiana has seen an increasing number of cases in recent years. As a result, teams like Central’s Anti-Fraud Unit are teaming up with the Indiana government and other national partners to try and end this type of behavior.
If you’re an Indiana resident and have experienced contractor fraud like this, here are a few steps you can take to escalate a resolution:
- Get in touch with your insurance carrier. Insurance companies like Central have advanced analytics systems to track fraudulent contractor behavior across the country. By alerting your carrier you might have been scammed, they can help you navigate next steps and make an official record of your experience to try and help prevent future cases of insurance fraud.
- Report to the Indiana Attorney General. There’s an entire team within this office tasked with handling complaints against contractors. The Consumer Protection Division can investigate and take legal action if a contractor you report is deemed fraudulent.
- Consider the Indiana Home Improvement Contract Act. Per this act, all contractors must have a written contract for any work over $150, and those who don’t may not be entitled to collect payment for their work. If you didn’t create and sign a contract with your contractor, this might be a great way to address an abandoned project.
- File with the Better Business Bureau. Reporting a fraudulent contractor to the Better Business Bureau (BBB) is a great way of documenting behavior, identifying patterns, and preventing future homeowners from falling prey to scams. Central has a great relationship with the Indiana BBB—as well as BBBs across the country—and has worked closely with them to address many cases of reported contractor fraud.
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