Home Improvement Scams Bloom in Spring

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GDO Report

Elderly homeowners are the most frequent targets of traveling handymen who appear unannounced, often with a vague story about doing other work in the neighborhood. They offer to perform such chores as gutter repair, driveway paving and landscaping.

Often, the handyman asks for advance payment for supplies, then leaves, supposedly headed for the hardware store, never to return. In other cases, a price is agreed upon but when the work is finished, the handyman presents a bill that is much higher than expected.

Intimidated by the handyman or confused by the explanation for the higher charges, the homeowner often pays the inflated bill. Later attempts to reclaim the overcharges are nearly always futile, since the handyman has long since disappeared.

There's no surefire way to avoid being a victim of home improvement scams and even the most well-intentioned contractor or handyman can run into problems that may run up the cost of a project, but here are a few tips to keep in mind:

Don't deal with any itinerant handyman who comes to your door. If they are insistent, ask them to leave. Call the police if they don't do so.
Be sure the work is really necessary. Don't take the word of someone who comes to your door.
Do not permit itinerant handymen to examine your house so they can give you an estimate. This is often the set-up to a scam or burglary ... or worse. Ask them to leave immediately. Call the police if they don't.
Ask neighbors and friends to recommend a good handyman or contractor. Don't rely on leaflets stuffed in mailboxes or posted on bulletin boards.
When interviewing a contractor, get a written list of work he or she has done in your area. Then go examine those projects or contact the previous customers.
Draw up a written contract, including the work to be performed, the time frame and the agreed-upon cost of supplies and labor. If the handyman doesn't have a contract form, you can get one at your local library.
Don't let the contractor finance your project. This almost always results in unnecessary charges. If you need financing, contact a bank or credit union.
Demand to see the contractor's city or county business license and insurance certificate. Do not take no for an answer. Refuse to deal with anyone who will not provide this information.
Always be certain you have the contractor's complete name, business name and his or her street address. Don't settle for a post office box.

6 sleazy home improvement scams
 
It's time for less talk and more action.

Like most homeowners, you probably spent the winter months talking about the various home improvements you'd like to make. Now that spring is here, it's time to act on those remodeling impulses. After all, spring is a time of renewal, change and new beginnings.

Unfortunately, it's also a time when crooked contractors come out of the woodwork to prey on innocent homeowners. "Some are actual scam artists, while others are just incompetent or unethical," says Ellis Levinson, a consumer reporter and author of the book "Hiring Contractors Without Going Through Hell."

The good news is you can protect yourself against these scams. In fact, many scams are easy to detect if you take the time to become an educated, savvy consumer. "Compare prices, call references, and research the project you're undertaking in advance," says Bruce Johnson, author of "50 Simple Ways to Save your House." It seems simple but many people find this process overwhelming.

Levinson calls it emotional laziness. "It's amazing to me how much time people will put into buying a TV because it's fun. But when it comes to remodeling a kitchen, people have no time. They see it as drudgery," Levinson says. Ultimately, he says, doing the research to protect yourself is much easier than paying for the consequences.

To help you differentiate a scam from the real deal, Bankrate has compiled a list of the most common remodeling scams. Beware of the following key phrases, and remember, if it sounds too good to be true, it probably is.

Key phrases to beware of:
 
 
• "I just happen to be working in your neighborhood."
• "I have materials left over from another job." 
• "I need the cash up front." 
• "I have a special offer that's good for today only."
• "I can help you finance the project."
• "I want to use your home as a model."
 

"I just happen to be working in your neighborhood."
You'll hear this when contractors appear at your home unsolicited to inform you they noticed some problems with your home's (insert: chimney, driveway, windows, plumbing, etc.) while working on a neighboring home. For example, the contractor might say he or she was on the roof of your neighbor's home and noticed missing shingles on your roof. This may be the case -- but often no repair is needed.

More important, legitimate, established and reputable contractors tend to find enough work through word-of-mouth referrals that they don't need to go door to door to attract customers. Be especially skeptical if the contractor drives a vehicle with no company name, no phone number or with out-of-state license plates. "Do not let these people enter your home," Johnson warns. "Often they want to be invited inside to see if something is worth stealing." 

Also, be sure to ask for proof that he or she is insured, licensed and bonded. "Homeowners that check out contractors beforehand and research their credibility are usually more satisfied with the job than if they abruptly chose a contractor," says Jeremy Zidek, communications coordinator for the Better Business Bureau in Alaska.

"I have materials left over from another job."
Sometimes contractors will offer a discount for the job under the pretense that they have extra materials and want to use up their supply. The truth is good contractors order enough supplies to meet the needs of each job, as often the price for supplies is typically included in the contract. Further, if a contractor has materials left over from a previous job and is making them available to you, he either didn't finish the job or is cheating the previous customer. Or, he may have never had a previous job but has materials to make it look like he did. 

"I want cash up front."
This contractor will take your money and disappear before or (even worse) after your project gets under way. It can be frustrating trying to chase after him, getting him to come back and finish the job, or hiring someone else to clean up a messy work site.  Don't ever pay in full for a project before any work has been done. Note: You may be expected to pay a down payment. "The contractor may not want to block out time in his busy schedule without some money up front," Levinson says. He recommends creating a payment schedule with the contractor at the start -- wherein you pay some portion only upon completion of a project. Johnson swears by the one-third theory. "The most I will ever give somebody up front -- after I have called references and checked him out -- is one-third of the money," he says. He gives them another third when the project is halfway done. "Their profit is in their last payment because that's what going to keep them on the job."

"I have a special offer that's good for today only."
If a contractor is offering a "special deal," ask him or her to legitimize what they are offering. While this is a common sales technique, you can ask them for documentation of this bargain -- a flyer, for example, that the contractor has mailed or delivered in the past. Or one from another contractor at a higher price. "Any time a contractor puts pressure on a homeowner to act quickly about making a remodeling decision, that's a red flag," Zidek says. Remodeling decisions should be made carefully, not hastily. 

"I can help you finance the project."
Sometimes a contractor will suggest you borrow money from a lender the contractor knows. This could indicate a home improvement loan scam, as the contractor may be getting kickbacks from the lender. Homeowners may believe they're financing a small remodeling project loan, when in fact they're signing for a much larger loan, if not completely refinancing their home. Never finance through your contractor without shopping around and comparing loan terms.

"I want to use your home as a model."
The scam centers on the idea of using your home as a vehicle or "show home" to advertise their services in return for a hefty discount. Established contractors should have completed enough previous projects that they won't need your job as a demonstration.

Still more scams
While any part of your home could be a target, many scams tend to center around driveways, roofs, chimneys and furnaces.

Driveway Sealant Scam: If a contractor offers to seal your driveway for a heavily discounted price, find out what materials will be used as sealant. Cheap, inferior substances may look great initially but will wear off in three months. 
Chimney Repair: These scam artists often lure their victims via advertisements in local newspapers offering gutter cleaning at a cheap price. Once the work is performed, they claim the chimney is in dire need of structural repairs. To provide so-called evidence of this, they will make it look like the chimney is in a state of decay by removing bricks and mortar from the chimney. Note: There might be decay if you burn a lot of wood and don't get your chimneys inspected every year. Another chimney scam is when a contractor says there's a threat of carbon monoxide poisoning if the chimney is not repaired immediately. This is a serious concern, so if you are unsure about whether to trust this person, get a second opinion from a reputable contractor.

Hot Tar Roofing: Contractors send mailings, telemarket, or go door to door in this scam, offering a price that sounds too good to be true and want to do the job immediately. They often use substandard materials. You may not realize you've been duped until heavy rains cause the roof to leak, resulting in damage to the building's interior. Sometimes you can't determine the quality of the job until after it has been completed. "If you're having major work done, ensure that your contract has a hold-back clause where you withhold the final payment until 30 days after completion of a project," Levinson says.
Furnace repair: Once they inspect your furnace, they may claim it is leaking dangerous gases or is about to explode. Ask your utility company to come inspect your system. Also, be wary if a contractor tells you the unit is too small or needs a complete overhaul. When choosing a contractor, always get several estimates on the needed repair.
Duct Cleaning: In very unusual circumstances ducts must be cleaned. The scheme is called a "blow and go" because the scam artist will use a small vacuum cleaner with no special filters to stir up the dust, pollen, mold and other contaminants instead of removing them. Duct cleaning can be necessary if there is mold in the house or if the heating or air conditioning has been running with inadequate or nonexistent filtering. If you change filters regularly, your ducts don't need to be cleaned.

Consumer Concerns for Older Americans
Home Improvement Scams Alert
Many low-income elderly homeowners are targeted by scam artists who use high pressure tactics to sell unneeded and overpriced contracts for "home improvements." Often these scam artists charge more than their quoted prices or their work does not live up to their promises. When the senior refuses to pay for shoddy or incomplete work, the contractor or an affiliated lender threatens foreclosure on the senior's home. In an effort to fight such scams, the National Consumer Law Center focuses this issue of Consumer Concerns for Older Americans on the practices of unscrupulous home improvement contractors.

A Case Example

Mrs. T is an 80 year-old homeowner living on a fixed income. Although money is tight, she takes great pride in her home and garden. Until his death five years ago, Mrs. T's husband handled the majority of the home maintenance.

Last fall, Mrs. T was approached by a friendly contractor who told her that some of her roof shingles looked water-soaked. Since Mrs. T had noticed a small leak in her bedroom, she asked for an estimate. The contractor went up to the roof, pulled off some roof shingles, and put up a tarpaulin. He told Mrs. T that he had found a major leak and that he needed to replace some roof beams as well as the entire roof. When Mrs. T expressed concern about the cost, the contractor told her that he would give her a senior citizen discount price of $8,000 and arrange for "market rate financing."

The contractor began work the next day and pulled off much of the roof. A few days later, he brought Mrs. T a loan contract from "We Care Finance Company." Mrs. T discovered that the loan was for $27,500 at 16% interest. When she reminded the contractor that the price was supposed to be $8,000 financed at a market rate, he told her that the work was more extensive than he had originally thought and that the finance company had imposed some "points and fees" that raised the price of the loan. He claimed that since the work was "half done," she had to sign the loan contract to pay for the work. He threatened to "abandon the project and put a mechanic's lien on the house." Since winter was coming, Mrs. T panicked and signed the papers presented.

Six months later, the new roof is leaking more than the old one ever did. Mrs. T's floors and walls are damaged. She stopped making loan payments because the work was so bad. "We Care Mortgage" has sent foreclosure papers to the home. An employee of "We Care" told her, "You hired the contractor and we are not responsible. The loan you signed with us is a separate matter. You have to pay us and then sue the contractor for your money."

Deceptive Sales Tactics

Home improvement contractors use several methods of targeting seniors: high pressure phone calls, flyers, advertisements, and door-to-door sales. Unscrupulous contractors often employ one or more of the following sales tactics:

"bait and switch" - offering low prices for installed items like windows and home siding, and then telling the senior the item is out of stock and can only be replaced with a high-priced substitute;
misrepresenting the urgency of a needed repair
claiming the item is more expensive than advertised because it has to be "custom made" to fit the senior's home;
misrepresenting that the consumer is receiving a discount because the home is selected to model the repair when, in reality, the consumer is paying market price or more;
misrepresenting the energy savings, health benefits, and value added to the home;
misrepresenting the terms on which financing is likely to be arranged.
Deceptive Financing Schemes

Unscrupulous contractors often use deceptive tactics to hide the true cost of paying for the work.
These tactics may include:

using more than one contract for a single repair in an attempt to confuse the home owner;
claiming that there is a "cash" contract that doesn't contain financing terms although the deal is intended to be financed;
adding extra hidden charges above the negotiated price;
providing expensive (high rate) financing or arranging with a third party to finance the work;
obtaining hidden kickbacks from lenders or loan brokers for referrals.
Problems with Contracted Work

In the end, consumers are often left with:

shoddy work or
unfinished work even though the homeowner has fully paid.
ISSUES TO CONSIDER WHEN PROBLEMS OCCUR

Mortgages and Liens: When a Senior's Home May Be at Stake

Home improvement sales often result in the contractor or a related lender obtaining a mortgage on the consumer's home as part of the credit sale. Even where the contract doesn't provide for a mortgage, the law generally gives the contractor a right to put a lien against the property. The most common of these liens is called a "mechanic's" lien. In either situation, if the senior refuses to pay because of a dispute, the contractor or lender will probably rely on the lien to try to force the senior to pay and may even try to foreclose. If a lien or a foreclosure is involved, state law regarding liens and foreclosures must be carefully examined.1 Remedies may be limited if a foreclosure sale occurs.

The Senior's Ability to Cancel a Contract by Giving Written Notice

Canceling a home improvement contract may be the consumer's preferred remedy, particularly where the consumer realizes that the contract is a bad deal, where the seller is slow or never performs, where the work is very shoddy or worthless, or where the seller takes a security interest in the consumer's home. The consumer has a number of alternative bases to cancel the contract.

The federal government, through the FTC Cooling-Off Rule2, and all states have passed laws designed to protect consumers from unscrupulous door-to-door salespeople. These laws may allow a senior to cancel a contract within a certain amount of time (usually 3 business days) after a sale in the senior's home by giving written notice to the contractor or lender. These laws usually require that a written notice of these rights and a cancellation form be given to the consumer at the time of sale. If the notice is not given or not given properly, the time to cancel may continue until 3 days after a proper notice has been given. Thus, the senior's opportunity to cancel may remain open. It is, therefore, important to determine at the earliest possible time whether the senior still has a right to cancel the contract.

Another source of consumer cancellation rights is the rescission notice required by the federal Truth in Lending Act3 (TILA) in most transactions where a creditor takes a security interest in the debtor's home.4 When applicable, TILA requires a very accurate disclosure of credit terms and requires the contractor to provide a notice of the senior's right to cancel the contract within 3 business days. This right remains open beyond the three days (but only up to three years) if the notice is not given or is defective. If the contractor violated TILA, the senior may be able to void the lien and reduce any amount owed. The senior may even be entitled to recover money from the contractor or lender as damages.

In 1994, Congress amended TILA by passing the Home Ownership and Equity Protection Act5 (HOEPA) which covers certain high cost loans.6 For loans that qualify as high cost, HOEPA requires that additional disclosures be given to the consumers. HOEPA also prohibits certain abusive practices. Violations of HOEPA's disclosure provisions may create rescission rights under TILA. HOEPA violations may also trigger TILA monetary damages and enhanced damages for some violations.

A UCC Article 2 rejection or revocation of acceptance is available where the goods in the transaction are defective and the court applies the UCC to that component, even where the transaction is predominantly a service. The consumer can then return the goods and eliminate liability for at least part of the purchase price.

Another ground for canceling a contract is fraud or misrepresentation. If the consumer was misled as to the nature of an agreement, that agreement is not enforceable under basic common law principles.

Warranties

The terms of the contract specifying the work to be done should be closely examined to see whether they contain any provisions that promise a standard of performance, materials or products, specifications, or a guarantee. Any of the above may give the senior a claim for the contractor's breach of warranty.

Even when a contractor does not make any oral or written guarantees regarding work quality, implied warranties apply. Generally, there is an implied warranty that the contractor will complete all work according to the standards of the trade or in a "workmanlike" manner. Part of this standard generally includes the requirement that all work must comply with applicable building codes. Failure to meet these standards could be grounds for the senior to refuse to pay the entire amount. However, if the contractor and lender have no business relationship, the borrower may in some circumstance remain obligated on the loan contract.

Unfair Practices

Every state and the District of Columbia have enacted at least one statute broadly applicable to most consumer transactions aimed at preventing consumer deception and abuse in the marketplace. UDAP statutes may be used to challenge unfair, deceptive or fraudulent practices. A contractor may have violated the state's UDAP statute by lying about the true nature, benefits or cost of a proposed job during the sales pitch; tricking a senior into signing a completion certificate or signing over the loan check before completion; or lying about cancellation rights. If any of the above occurred, the senior may have a claim against the contractor or a defense if the contractor is suing the senior.7

Third Party Lenders

Most home improvement contracts are financed. Often the contractor arranges for the senior to get a loan through a finance company or a bank. A common home improvement situation is a creditor attempting to collect payments for shoddy or incomplete work. Most home improvement loans state in the note that the holder is subject to all claims and defenses the consumer can raise against the seller. This notice is required by the FTC Holder Rule8 where the home improvement contractor is the originating lender or refers the consumer to the lender. Any holder of the note with this notice included is subject to the consumer's claims against the home improvement contractor.

If the notice is not included in the home improvement contract and was not required, the connections between the contractor and the lender must be examined in order to hold the lender liable for the contractor's deceptive practices. Things to look for include: (1) whether there has been an ongoing relationship between the contractor and the lender; (2) the frequency with which this lender finances this contractor's work; (3) documents by one party containing the other party's name preprinted into them; (4) knowledge by the lender of previous problems with this contractor's work for other customers; (5) commissions or kickbacks from one party to the other; (6) ownership of one party by the other.9

Home Improvement Contractor Litigation Tips10

Analyze a complete set of the documents and conduct a thorough client interview.11
Hire an expert (architect, engineer, local building inspector, reputable contractor, or other private building inspection expert) to look at the work for quality and compliance with specifications. The expert can also provide an estimate regarding the fairness of the price for work completed, the extent of physical damage, and its cost to repair.
Obtain detailed pictures of the work or damage left by the contractor.
Try to find former employees of the contractor/lender willing to testify as to its practices.
Try to find other customers of the contractor who suffered similar problems or who encountered similar sales tactics.
Preventative Counseling for Senior Homeowners

Seniors should take the following basic steps to prevent problems:

Never deal with any door to door contractors. Deal with local trades people recommended by friends or reputable building supply stores.
Before agreeing to hire any home improvement contractor, get at least a second estimate for the same work from another contractor.
Get references for the contractor and speak to those references. Ask about satisfaction and any problems that arose.
Take a look at other work performed by the same contractor.
Get a written contract describing explicit specifications of the work, the price (including details of any financing or credit terms), the responsibility for cleaning up, and the hourly rate for any added work. Ask for guarantees and other promises to be made in writing. Do not agree to final payment until the project is finished.
If the written documents are different from oral promises, do not sign them.
Remember the 3 day right to cancel that applies to door-to-door sales and home improvement loans even after the papers have been signed.
Do not allow a contractor to begin work until financial arrangements to pay for the work are complete
Never endorse the check over to the contractor before all work is satisfactorily completed. (Note: when a creditor finances a home improvement contract, the payment must be made either to the consumer or in a jointly payable instrument.
Do not consolidate other debts with a home improvement loan.
If problems with a contractor or home improvement lender arise, get help from a lawyer or housing counselor without delay.
Model Home Improvement Contractor Statute

State regulation of home improvement contractors varies widely. Not surprisingly, most states have significant gaps in their regulatory framework. In order to address the significant and widespread abuses committed against consumers by dishonest home improvement contractors, NCLC, in collaboration with AARP, drafted a model statute regarding home improvement contractors and summarized the state statutes. To order a copy of AARP's Home Improvement Contractors: A Model State Statute, contact AARP at (202) 434-3912. You can also access it on the web at http://research.aarp.org/consume/d16911_contractors.html.

References for Consumers

National Consumer Law Center, Surviving Debt: A Guide for Consumers (3rd ed. 1999)

References for Lawyers

National Consumer Law Center, Consumer Warranty Law (1997 and Supp.) National Consumer Law Center, Repossessions and Foreclosures (4th ed. 1999) National Consumer Law Center, Unfair and Deceptive Acts and Practices (4th ed. 1997 and Supp.) National Consumer Law Center, The Cost of Credit (1995 and Supp.) National Consumer Law Center, Truth in Lending (4th ed. 1999)

About NCLC

Since 1992, NCLC has received funding from the Administration on Aging to conduct the National Legal Resource Initiative for Financially Distressed Older Americans, intended to improve access to and the quality of consumer representation for older Americans. Founded in 1969, NCLC provides legal advocates with technical and expert assistance, training and publications that cover all major topics in consumer law. NCLC has established itself as the nation's consumer law specialist, making its legal expertise available to the attorneys for low-income clients. These services are now available to advocates representing older Americans.

Making Use of Consumer Law

Consumer law is a powerful shield but is very complex. In any given transaction, several defenses may exist against creditor or seller claims, but detailed research and calculations are required in order to spot defenses. With financially burdened clients, it is important to recognize that the emotional stress caused by indebtedness can impair decision-making or lead to other difficulties beyond the debt crisis. That recognition can help head off other legal problems which could quickly develop.

NCLC is available to consult with legal advocates for the elderly on a wide range of consumer issues, providing leading and local case law, analyzing contract documents for federal and state law compliance, defining factual and legal issues, identifying experts and legal resources to strengthen cases, and training attorneys in consumer law.

How to protect yourself from construction fraud

Oswego County Sheriff Reuel Todd has issued a warning about con men and dishonest home repair firms. Here are some of the sheriff's tips on how to avoid fraudulent home improvement and repair schemes:

* Be leery of offers to do an expensive job for an unusually low price.

* Be suspicious of high-pressure sales tactics.

* Shop around. Ask friends, neighbors or co-workers for references. Always get several estimates for every repair job and compare the prices and terms. Check to see if there is a charge for estimates before asking for one to be done.

* Before choosing a company, ask for references and check them out. When you find people you trust, stick with them.

* Check the identification of all "inspectors."

* Call the local Consumer Affairs Office or Better Business Bureau to check the company's reputation before you authorize any work to be done.

* Pay by check, never with cash. Arrange to make payments in installments, one-third at the beginning of the job, one-third when the work is nearly completed and one-third after the job is done.

"Sometimes you might not know you've been cheated until it's too late," Todd said in a news release. "If you don't report fraud, you're only helping the crooks; that's just what they want."

* Report fraud to police, as well as your local district attorney or the New York state Attorney General's Consumer Fraud Division.