Beware of Unethical Contractors

The eve of hurricane Irma’s arrival and destruction is a good time to remind folks to beware of shady contractors. Several adjectives describe them: incompetent, dishonest, unethical. Most of us do not have the necessary experience to distinguish between good and bad contractors, which provides unscrupulous contractors–and unlicensed people posing as contractors–the opportunity to exploit homeowners.

This post is not an overview of Florida construction laws. Rather, it contains practical suggestions aimed at helping folks avoid being victimized by unscrupulous contractors and impostors.

Florida law generally favors contractors and the suppliers who furnish materials to contractors. By following the simple steps set forth in Part I of Chapter 713, Florida Statutes, a contractor or supplier can file a lien against a  homeowner’s property and then sue to foreclose the lien within one year. If they succeed, contractors and suppliers may also be able to recover their attorney’s fees from the homeowner under section 713.29, Florida Statutes. Disreputable contractors know this and file liens in order to coerce or extort a settlement from homeowners who cannot afford fight.

Fighting a construction lien can easily cost $40,000 or more in attorney’s fees alone. The cost of expert witnesses, testing, court reporters, and other expenses is extra. Some attorneys may be willing to represent homeowners on a contingency fee basis, but many are not willing to do so because unethical contractors often have no assets or have their assets protected one way or another. Unless the attorney is confident they can collect a judgment against the dishonest contractor, the attorney is unlikely to work on a contingency fee basis.

Even when an incompetent contractor carries liability insurance, the existence of an insurance policy may not help a victimized homeowner. The reason is that insurance does not cover breaches of contract. Sometimes a contractor’s workmanship may be so bad that it falls into the category of negligence. Insurance coverage usually extends to negligence, but even then the insurance company may be able to avoid paying by arguing that the contractor only breached a contract or that the negligence did not damage other property.

Bottom line: homeowners cannot be too careful when investigating and hiring someone to work on their home. Organizations like the Better Business Bureau (BBB) and Angie’s List are a worthwhile first step for investigating potential contractors, but those should never be the only step. Why? Because con artists know how to play the system.

Checking a potential contractor’s license and status with governmental agencies is also a good idea. But here again it should not be the only or last step. The reason is because governmental agencies play a limited role. For example, government building inspectors look for building code compliance, not quality. Frankly, the same may even be true for inspectors hired by the homeowner’s lender or insurance company. And under Chapter 455, Florida Statutes, complaints lodged with the state are confidential unless probable cause is found to exist or the subject of the investigation waives the privilege of confidentiality. Why does that matter? Because the Florida Department of Business and Professional Regulation (DBPR) will not pursue a complaint against a contractor if it feels the complaint concerns only a breach of contract. So shady contractors will go to great lengths, perhaps even lie, to convince the DBPR that the homeowner is simply upset about a breach of contract. When that happens, DBPR will not even share the contractor’s response with the homeowner in order for the homeowner to refute the contractor’s statements.

What, then, is a homeowner to do if the BBB, Angie’s list, building inspectors, and governmental agencies provide no guaranteed protection against unethical contractors? Dig, dig, dig. Then dig some more. Unfortunately, there is no bulletproof formula. Sometimes con artists are so slick as to avoid detection.

If I had to hire a contractor I knew little or nothing about today, here are the things I would do:

  • Ask someone I trust, and whom I know has recently worked with a contractor, for referrals;
  • Look to see which contractors neighbors are using, ask the neighbors about their satisfaction, and ask the neighbors to show the finished work;
  • Search the county’s official records to see which contractors most frequently file building permits, then drive by some of the addresses listed in the permits to view the workmanship and perhaps to ask that homeowner about their satisfaction;
  • Run the contractor’s personal name through Sunbiz, a website run by the Florida Department of State, to see how many different corporations, limited liability companies, and fictitious names the contractor has created and used. If a contractor has operated under multiple names or business entities, that is a red flag. Starting a new company is also a way to obtain clean slate with organizations like the BBB.
  • Search the online dockets maintained by the clerks of court. Clerks of court in all Florida counties have websites with links that allow the public to search court records. Search both the contractor’s name and the real and fictitious name(s) of the contractor’s current and former companies. Litigation is another red flag.
  • Search the county’s official records for liens filed by the contractor. Again, search both the contractor’s name and the real and fictitious name(s) of the contractor’s companies. A habitual lien filer waves another red flag.
  • Consider contacting some of the homeowners involved in lien disputes or litigation with the contractor. They will probably be biased, but they may be willing to share valuable insight.
  • Scour the internet. Placing the contractor’s name in quotation marks narrows the search results by returning only entries with the exact name entered. As before, run the real and fictitious names of all of the contractor’s current and former businesses, and place those names in quotation marks as well. Search the  contractor’s address(es), too. Be creative with the searches. Used correctly, the internet is a wonderful tool and often yields helpful information.
  • Obtain multiple bids.

After exhausting some or all of these steps, I would probably be comfortable talking to prospective contractors, but I still wouldn’t be ready to sign on the dotted line. Instead, I would meet with the contractors to discuss the scope and cost of the project. If I sensed a contractor was acting oddly or giving excuses, I would follow my gut and keep looking. Likewise, if a contractor quoted a price substantially lower than the other contractors, I would eliminate the low bidder from further consideration. If the price sounds too good to be true, there is a reason–and it’s probably not a good one. “In with a spoon and out with a shovel” is a phrase I’ve heard used to describe low bid tactics.

Upon selecting a contractor I would obtain the contractor’s agreement to reduce the terms of the project to a written contract, and I would ensure that the contract is as clear and unambiguous as possible. If the contractor presents a contract that I did not understand or that did not reflect in writing what had been verbally agreed to earlier, I would not sign the contract. That circumstance is another potential red flag. At a minimum I would ask an experienced lawyer to review the contract and look into the contractor’s background.

Finally, I would make sure the contractor has obtained all required permits and inspections. And I would not pay the contractor until they satisfactorily performed the work tied to that payment and provided partial lien releases from the contractor and all suppliers and subcontractors involved in that part of the project. Final lien releases should be obtained from the contractor and all suppliers and subcontractors before final payment is made. Lien releases are an issue beyond the scope of this post. Just know they are important and that the homeowner should consult legal counsel if a bank or insurance company is not taking care of that issue for the homeowner.

I would never pay a contractor in full up front. Some contracts provide for payment of a small percentage of project costs up front, but any advance payment should be carefully negotiated, and what the contractor does with that payment should be monitored. Most reasonable contracts provide for payment at specified benchmarks; four or five are reasonable for an average home project.

In sum, homeowners should never rush to hire a contractor. The search for a reputable and competent contractor should be methodical. Their credentials should be vetted and verified. A clear and unambiguous contract should specify the scope of work and how and when payments will be made. The more specific the contract is, the better. Because Florida law tends to favor contractors, and because disputes with contractors often cast gloom over the home, homeowners must take all possible care to maintain control and bargaining leverage over the contractor.

Be safe. And beware of rotten contractors.

By | 2017-09-09T20:13:01+00:00 September 9th, 2017|Commentary|Comments Off on Beware of Unethical Contractors