Can we talk about fraud for a moment?

We know, you’ve heard it time and time again, “Hacking and identity theft are on the rise”, “Protect yourself or you’ll be doomed!”…but let’s take a moment to talk about the old-school kind of fraud. The kind where a con-man comes out of the woodwork and makes his money off lucrative techniques of working the system. It’s easy to forget this type of common-fraud, especially when other types such as hacking and identity theft take the front seat, but contractor fraud is quite alive and prevalent today.

The problem lies in vulnerability, the con-man seems well intentioned and ready to lend a helping hand. However, it’s all an act, specifically, many of the criminals conducting fraud are targeting individuals who have suffered a recent natural disaster. These setbacks cause higher stress levels, and not surprisingly, a blurred emotional state making them  an easier target.

In the linked article, Matthew Morris the owner of Complete Construction Contractors, was charged with 119 counts of contractor fraud (you read that right, 119!). Exploiting his customers to steal (hundreds of) thousands of dollars, Morris had his fraud down to a calculated science.

By using the following techniques, Morris was able to collect unnecessary amounts of money:

  1. He stopped the project after demolition, allowing him to leverage for more money

  2. Directly collected all of the insurance claim payments from the insurance company

  3. Grossly over-billing for work that was not completed

But how? How can someone like Morris go about committing the same acts and get away with them? As mentioned before, he had it down to a science and knew exactly what points of the process he could challenge people on. Cases like these may cause you to ask yourself, how can I learn from this? How can I protect myself?

First, educate yourself according to your specific state’s laws and regulations.  For example, down payments for construction projects can be confusing.  In California, the down payment legal threshold is $1,000 or 10% of the project, whichever is LESS.  Morris collected a $13,000 down payment on a $66,000 project putting the property owner at risk. Understand this law and crunch some numbers on your end, it can give you leverage to ask questions and push back.

Second, protect your personal financial information, including your property insurance policy and coverage. Although the contractor might seem trustworthy, they don’t need access to that information, and it should remain in your hands. The risk being that contractors can take advantage of that information to inflate figures to the policy’s maximum coverage and/or try to directly insert themselves as the payment recipient, cutting you out of the loop.

Lastly, become knowledgeable about how the property lien process works in your state. Crooked contractors will threaten to file property liens to leverage for more money, or worse, actually file a property lien without sufficient work completion to justify the lien. Having a well written construction contract that clearly spells out the costs for the project as well as the payments schedule is one way to safeguard yourself. Protect yourself by creating absolute transparency with your contractor from the beginning. If the contractor doesn’t want to play ball, it might be a good idea to do business with somebody else.

Nobody should have to deal with con-men like Morris, do your research, vet your contractors, and keep transparency as the number 1 priority so that all parties involved are on the same page.

2017-12-29T03:37:04+00:00 Construction Finance, Financial|