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 overcharged for shoddy work and unnecessary repairs.
Contractor fraud costs insurance companies a lot of money. In fact, the National Insurance Crime Bureau says property and casualty insurance companies paid up to $9.2 billion more in disaster claims due to insurance fraud in 2021. But ultimately, this cost ends up getting passed on to insureds like you in the form of higher premiums. This is one of the reasons Florida homeowners rates are increasing.
What Is Contractor Fraud?
Contractor fraud is when an individual contractor or a contracting firm purposely deceives another party over services. Some examples of contractor fraud include:
- Asking for an upfront payment and never completing the work.
- Making unnecessary repairs.
- Inventing problems that cost extra to fix.
- Charging for repairs they don’t make.
- Passing off used materials as new.
- Overcharging for services.
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. Fraudulent contractors may even sue the insurer on your behalf when it refuses to pay the padded bill.
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:
- Approach you about damage you didn’t know you had. If a contractor claims you have damage, make sure they show you evidence.
- Promise free repairs. A contractor might swear that you can get a free roof through your insurance company.
- 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.
- 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.
- Require full payment in advance. A contractor may ask for some money upfront to cover materials, but 10 percent of the total estimate is the norm. Asking for 50 percent or more is a sign that something is amiss..
- 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.
- 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.
- 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.
- 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.
- 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.
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.
However, you may find that you need to refuse to pay your contractor until your questions are answered. Ultimately, you may have to contact the Better Business Bureau or the state contractor licensing authority.