During a busy period for residential construction around the nation, homeowners are eager to work on home renovation and development projects. However, some are finding that the process can become difficult and dangerous for consumers, as 2021 has seen a rash of charges of contractor fraud connected to home construction work.
California, Florida, Louisiana, and Texas — some of the most construction-heavy states in the country — have seen significant amounts of contractor fraud between April and July of 2021, and local governments are taking notice to try and protect homeowners from future losses.
Calcasieu Parish, Louisiana District Attorney Stephen Dwight even set up a task force in July 2021 to protect the parish’s residents from future fraud as the team investigates what it says are 250 possible cases of fraud that have been reported in the past months.
“The sheriff assigned, first two and now three, detectives to my office and we have a dedicated phone line,” Dwight said of the team.
“If it’s a criminal matter, we are going after them,” Dwight added. “All we really want is for them to get right with the victim. I don’t care if they go to jail. I know you do, but I want them to give your money back, to make you whole. It’s when they steal money that they make us a victim again.”
This focus may lead to significant legal repercussions for any people caught operating without a license or engaging in any contractor fraud — and people all around the country are experiencing the results.
In April 2021, a Floridian unlicensed contractor pled guilty to fraud and unlicensed contracting after taking money without starting or completing home construction jobs around Florida. They then had to pay a total of $62,820 in restitution to defrauded customers.
Officials have become especially focused on handling these problems with the current upward trend: “When someone calls with an alleged contractor fraud complaint, we listen,” said Calcasieu Parish Assistant District Attorney and Chief of Litigation Bobby Holmes of the rise in fraud.
“The caller sets an appointment with a detective who gets a statement from the homeowner. The homeowner brings in canceled checks, the signed contract, photographs, and other items relevant to the case. [We will] determine if it’s a criminal or civil suit.”
Scammers and ‘storm chasers’ have owners concerned
The Calcasieu Parish task force isn’t the only time this year that residents of the Southern area of the country have been concerned with contractor fraud — or even the only time that Calcasieu Parish has had problems.
Angela Guth, President and CEO of the Better Business Bureau of Southwest Louisiana, spoke in March 2021 of the impact that “storm-chasing” fraudsters have had on the area’s residents.
“I can’t even begin to tell you the number of phone calls we are getting daily on contractor fraud,” Guth said. “Anywhere from people giving $18,000 upfront and never seeing the contractors again, to paying their roofer and their roofer not paying the suppliers and the supplier is putting liens on the consumer.”
Similarly, contractors can get in significant trouble operating even for a short period of time without a license. In July 2021, contractor Steven Cantu — whose Artistic Backyard Creations LLC had contracts with over 12 homeowners — was charged with three counts of contractor fraud and two counts of misapplication of payments in Louisiana after operating with an expired license since June 1, 2021.
Part of the problem for homeowners — especially in situations following weather disasters — is proximity to states that don’t require the same types of licensure.
According to Guth, the Better Business Bureau of Southwest Louisiana handled 200 to 300 calls directly following August 2020’s Hurricane Laura, serving as a resource for contractors, plumbers, and tree removal. Though many contractors were vetted with a temporary work permit, Guth claims that the bureau later discovered that a number were unlicensed — noting that, for example, roofers in nearby Texas don’t have to be licensed to complete their work.
“There were contractors crawling like ants in this city,” Guth said to parish officials at the time. “What are your vetting processes to issue those work permits?”
Such issues are magnified by cases like the July 12, 2021, arrest of two Texas residents who reportedly were hired in August 2020 to complete tree removal and home repairs in Louisiana following significant weather. According to reports, the pair’s company, Southern Outfitters, received $28,000 upfront, and later billed an additional $80,000 for work never done on the property — all while not having licenses to actually do construction work in Louisiana.
Though this doesn’t automatically connect to potential scamming, it does put both contractors and consumers in danger due to the laws and penalties connected to improper licensing in each state.
Some states require licensing where others don’t — and that may keep contractors and consumers alike from necessary protections
Contractor licensing varies greatly from state to state — certain projects don’t require a license in some states, while other areas take a much harder stance. There are also significant differences between the types of approval a contractor needs for projects in certain states, as contractors sometimes need to be registered, licensed, and certified to complete projects.
As Levelset’s Tom Scalisi notes, “Depending on where you live and work, you might need to carry a license and certification for certain projects, while other states may only require you to register your business to get to work.”
As per Levelset’s Scott Wolfe Jr., certain areas of the country have more strict requirements — and that can lead to serious problems for contractors who do legitimate work, yet are improperly licensed.
“While there are licensing and/or registration requirements in states all throughout the county, if a party is performing work in a western state there is a good chance a license is required,” Wolfe says. “Washington, Oregon, California, Nevada, Arizona, and New Mexico all have at least some licensing and/or registration requirements, and they can be very strict.”
Many of these states take issue not with the work done, but simply the licensing for the companies — meaning that even if there is no issue with a project’s completed work, a contractor can lose significant payment for improper licensing: “Not only can unlicensed contractors be denied payment in some states, but they may also be required to give back money already paid. That’s about the worst accounts receivable (or credit management) disaster there can be.”
Wolfe adds that “It is also worth noting that in some states an unlicensed contractor may be subject to fines and/or penalties, may be liable to the property owner for damages, and may be guilty of a misdemeanor or even a felony.”
These penalties have been put into play recently: In May 2021, a California man was arrested for the second time on charges of contractor fraud in Oregon after advertising services for residential and commercial flooring, decking, and painting installations — services he was not licensed to do, despite taking down payments from homeowners.
Contractors with improper licensing may not have as much protection from state to state, but there are some where projections still exist. 27 states allow contractors without a license to file a mechanics lien, while an additional 12 states allow this depending on the situation.
For example, in states like Louisiana, unlicensed contractors are allowed to file mechanics liens — however, the contractors will still be penalized in some way.
Though penalties for unlicensed work range from state to state, it’s worth it for contractors and owners alike to understand licensing and lien laws in their particular state.
Unlicensed contracting can lead to significant fines and even jail time in certain states. In Colorado, Florida, Louisiana, and Nevada, for example, unlicensed contracting leads to misdemeanors and felonies.
Steps can be taken for owners to protect themselves from unlicensed contractors, scammers
Though it can be difficult for owners to get protection after becoming victim to contractor fraud, there are avenues which can help consumers properly vet the contractors they work with.
The Federal Trade Commission (FTC) provides a number of signs which homeowners can use to spot scammers.
Contractors who go door-to-door looking to secure business, or who say they have materials left over from previous jobs, should raise concern. Additionally, any measures used to avoid “official” interactions should raise red flags, like asking homeowners to get any required building permits — something that is the responsibility of the contractor.
Financial concerns may also cause an issue. The FTC notes that a contractor might not be reputable if they ask for all payment up front, all payment in cash, or suggest that homeowners borrow money from a lender that they know — especially if the contractor tries to pressure an owner into making a quick or immediate decision.
The FTC’s guide reinforces that only contractors who are licensed and insured should be considered for jobs. Individual states often have means with which a homeowner can search whether a contractor has proper licensing.
Individual states also have consumer protection officials which are in place to help owners vet potential contractors, as these officials can provide information about prior work and any complaints the contractor might have received in the past. Local chapters of the National Association of Home Builders can also provide help with reviewing contractors for residential construction.
It’s similarly important for homeowners to carefully review any contract before signing, as contract requirements can vary significantly from state to state. Levelset has guides that detail what is legal in contracts from state to state, as well as the requirements and limitations in states like Texas, Arizona, and Florida.
Additionally, some states can actually limit the amount of money that a contractor can ask for as a down payment, making the details of any contract important to review — and possibly illegitimate if contractors ask for payment out of the bounds of what’s allowed.