Contractor Fraud: Don’t Let Disaster Strike Twice
When a natural disaster or other calamity strikes, businesses and individuals collectively lose millions of dollars due to property damage and lost income. Yet for some, losses may also be attributed to fraud. From contractor price gouging to insurance scams, fraud perpetrators have invented plenty of ways to profit from the misery of others. Protecting yourself and your business starts with knowing about common disaster frauds and their red flags.
Why Victims Are Vulnerable
When you or your business experience a disaster, such as a hurricane, tornado or wildfire, your first concern is for the safety of your family or your employees. Once they’re secure and basic needs are covered, you may start thinking about repairing or rebuilding your home or reopening your business. Unfortunately, in the rush to make things right again, many disaster victims let their guard down. They miss the warning signs that they’re dealing with a con artist in the form of a contractor.
Unscrupulous contractors know that professionals with the time, skills and expertise to handle the types of structural damage associated with catastrophic events are in limited supply. So they swoop in to disaster zones and convince home and business owners to hire them. They might warn owners that if they don’t engage the contractor’s services, their neighbors surely will. Or they make “limited time” offers at rates far below those of the local market. However stressed you might be, don’t fall for these lines! Take time to thoroughly vet potential builders.
What the Schemes Involve
If they secure a job, fraudulent contractors might grossly inflate fees associated with the project. Or they may include in the contract a stipulation that all insurance proceeds be signed over to them. In such schemes, the shady builder usually disappears immediately after the insurance check is disbursed, but before the rebuilding work is complete. Other contractors might complete the work but use substandard materials and building techniques to boost their own profits.
Not all contractors committing fraud have ill intentions — at least not at first. Some builders end up cheating owners when they become overstretched and overcommitted, which is common in hard-hit disaster zones. That’s when they neglect to return deposits for the work they didn’t deliver.
How to Protect Your Interests
Many home and business owners want to get the rebuilding process started as soon as possible and may be tempted to hire a contractor who appears unsolicited on their doorstep. However, the best policy is to work with your insurance company to select a qualified contractor. It may take more time for an insurance company to assign a loss adjuster to your claim. But unlike you, most adjusters have reviewed hundreds, even thousands, of contractor bids in their careers and know what’s reasonable and what isn’t. Some insurance companies, in fact, require policyholders to choose from a list of preapproved contractors.
If your insurance company doesn’t require you to use a specific builder, tap your personal and professional networks for referrals. Be sure to check the references provided by contractors and request a copy of their state license and proof of insurance coverage.
Another option, particularly if your insurance company is dragging its feet or has denied your claim, is to hire a public adjuster. They help policyholders with insurance claims — from the initial filing to the selection of contractors. Note, however, that some public adjusters can be just as corrupt as fraudulent contractors. So if you go this route, get a referral from someone you trust, such as your attorney or accountant. And, as with contractors, check out the adjuster’s background and confirm the possession of any required licenses before you engage them.
Take Your Time
When you’re dealing with the aftermath of a natural or other disaster, the last thing you need is to be defrauded. Know that it’s better to delay rebuilding or reopening until you have the time to find the right contractor than it is to risk working with someone bent on cheating you.