Avoiding the Scam

Courtesy of USAA
September 15, 2007

USAA members James and Carolyn Butler did lots of things right when they hired a contractor to remodel two bathrooms in their Phoenix home. They chose a licensed professional, visited his company’s kitchen-and-bath showroom, checked with the Better Business Bureau (BBB), and got a written contract. Two years later, they’re still trying to settle a claim for incomplete work on the $11,000 job. Their biggest mistake? They paid in full before the project was completed. This scene is repeated across the country for many military families.

Beware the con
“We put 10 percent down, and the contract said we were to pay the balance when materials were delivered,” says Mr. Butler, adding that at the time the balance was due, workers had gutted one bathroom, left a sewer line open, and damaged the main water valve. “We needed them to finish. So my wife cut the check — and that was the end of the work.” Since then, Mr. Butler has tracked down 25 other homeowners duped by the same firm, now out of business. But that doesn’t make him feel any better. As an auto injury claims adjuster for USAA, he’s trained to detect insurance fraud. “This looked like something I could trust,” he says. “I didn’t have my guard up.”

Joining the crowd
The Butlers and other military families aren’t alone. Contractor fraud reported to BBB offices has jumped 31 percent since 2001. Last year brought 9,380 complaints nationwide. Better Business Bureau spokeswoman Sheila Adkins blames the spike, in part, on a rebuilding surge after recent hurricanes. The recent housing boom also encouraged homeowners to capitalize on increasing home equity through renovation projects. Over the past five years, home improvement contracting has ranked among the top three concerns in national consumer complaint surveys. “The industry does have its problems,” Ms. Adkins says. “Still, there are thousands of reputable contractors who deliver quality work on time and within budget.”

Everett J. Collier, a San Francisco certified remodeler and president of the National Association of the Remodeling Industry, acknowledges the bad apples. “They’re just crooks, not contractors,” he says. “Ninety nine percent are good-hearted Americans who do their jobs well and are just trying to make a living.” But awareness of the fraud issue and how to avoid it makes military homeowners savvier. Mr. Collier suggests getting referrals from family, friends, and base contacts to find contractors who have stellar histories in the business.

“Once you’ve identified a couple of reputable ones, bring them in, tell them about your project, interview them, and see if you have chemistry,” he adds. “The contractor is going to be in your sacred space, and you want to feel comfortable with him or her — and the team of subcontractors that might be hired.” Beyond that, the detailed written contract and clear communication make for a good working relationship. “Homeowners need to know what they want,” Mr. Collier says. “If you don’t fill in the blanks, the contractor will. If you’re unclear, the contractor isn’t going to be able to read your mind.” Preplanning can save you money and prevent changes in the middle of the project, which cause delays and drive up costs. And if you do decide in the midst of the remodel to order a different appliance, for instance, or to take down that wall in the family room after all, get the changes in writing and create a new written work schedule so everyone is on the same page.

Lesson learned
Today, the Butlers would follow such advice. Wiser and on alert, the couple finished that botched bathroom project themselves and now rely on a trusty handyman friends recommended for odd jobs. And Mr. Butler doesn’t condemn the entire industry because of one lousy experience. “There’s always an element of risk whenever you attempt any contracting project,” he says. His advice is simple: “Let the buyer beware.” This is especially true for military families where one of the spouses might be deployed.

Problems with your current contractor?
Here’s what to do

1. Talk through the issue directly. Jot down what you discuss and any promises made, and set a reasonable time frame for problems to be fixed — whether it’s 24 hours or two weeks.

2. Write a follow-up letter. Include the problem, a summary of your conversation, and how you want the issue resolved.

3. File a complaint. Write to your local Better Business Bureau or the Council of Better Business Bureaus at bbb.org. You can also inform the Federal Trade Commission at ftc.gov.

4. Take legal action. Your options:
-Contact the Judge Advocate General (JAG) office where you are stationed.
-Contact your state’s contractor regulatory agency, if there is one. To find out, check contractor-license.org.
-Call the consumer division of your state attorney general’s office.
-Take the case to a small-claims court.
-Contact an attorney for other professional advice.
Source: The Council of Better Business Bureaus; Federal Trade Commission

James Butler, a USAA employee and part-time minister, says he’s forgiven the contractor who took the money and ran. But he also filed a formal complaint with the Arizona attorney general’s office.

10 Steps to avoid rip-offs

James and Carolyn Butler checked out their contractor with the Better Business Bureau (BBB), which had no complaints on file. Another Arizona agency had one open complaint, but everything else seemed legit. Professional scam artists know how to get around the rules, but these guidelines can help you find someone reputable.

1. Seek referrals. Talk to friends who have done similar projects. Ask your county’s building inspector for recommendations. You can also check for reputable area contractors with the National Association of the Remodeling Industry at nari.org, the National Association of Home builders at nahb.org, or the BBB at bbb.org.

2. Check credentials. Call your local BBB to find out how long a company has been in business. If your state requires contractors to be licensed, registered, or bonded, contact the regulatory agency to make sure yours has met the requirements. How? Visit contractorlicense.org to find out.

3. Visit job sites. Are they clean? How do workers handle tools and materials? Are dust covers used to protect belongings? Remember, they’ll keep the same habits on your turf.

4. Ask potential hires to document insurance. Contractors should carry workers’ compensation, property damage, and personal liability insurance. Ask for the documents and look for expiration dates when they come to do your bid — you don’t want coverage to expire before your project is done.

5. Remember the subs. General contractors may hire others, called subcontractors, to work for them. If so, make sure they, too, have all of the necessary licenses and insurance. And have your contractor specify in the contract whom he or she hires.

6. Get written estimates. Get bids from at least three reputable contractors. If prices differ widely, find out why. Don’t automatically choose the lowest price. You might wish you’d paid more later.

7. Seal deals in writing. Make sure start and completion dates, scope, materials, costs, payment schedule, and all promises are in the contract.

8. Read and understand the document. Don’t assume anything. If you’re unsure about the jargon used or any of the wording, let an attorney review the contract for you.

9. Don’t pay a lot upfront. If a contractor asks for more than one third down, walk away. And whatever you do, don’t pay the final installment until the work is completed.

10. Never dole out cash. Use a credit card or check and keep receipts. That way, you have proof of payment all along the way.

USAA is a diversified insurance and financial services organization that has served the military community since 1922. USAA Financial Planning ServicesSM refers to financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency, and its wholly owned subsidiary.
USAA means United Services Automobile Association and its affiliates.