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How to fix home-improvement headaches

Bill creating a contractor bond would help consumers recover money

It’s become a familiar story: A home improvement contractor takes money from several homeowners but leaves behind nothing but broken promises and unfinished projects. Even if lawsuits are filed and judgments ordered, sometimes no money is ever recovered.

How can this problem be fixed? The Iowa Attorney General’s office has proposed a bill with the Legislature to strengthen the law involving home improvement contracts. Under the bill, a contractor must file with the state a $75,000 surety bond before entering into a home improvement project. Consumers could file a claim against the bond. Here’s more information on the problem and our proposed solution:

What’s a surety bond?

A bond is a form of insurance to protect a contractor's customers if he or she fails to complete the job properly or fails to pay for permits, subcontractors or other financial obligations.

Bonds are common for commercial and public construction projects. Iowa car dealers must carry a $75,000 bond to do business legally. And many states require bonds on home-improvement contracts. In Iowa, all contractors must register with the Iowa Division of Labor Services, but no bond is currently required.

To obtain a surety bond, a contractor would pay a small percentage of the full amount of the bond. The cost depends on the applicant’s credit score, experience, and other factors. This would help weed out contractors with a record of claims, judgments and complaints.  It would also prevent contractors from taking consumer money and then closing their business, just to start right back up under another business name.

Contractors who violate the requirement to obtain a bond would be guilty of a simple misdemeanor and in violation of Iowa’s Consumer Fraud Act. In addition, the Iowa Division of Labor would cancel their contractor registration.

What type of projects are included?

The bond would cover contracts to improve or repair existing residential property, including garages, sidewalks and other features. It does not include contracts for less than $200 total.

How could a consumer make a claim?

Under the bill, a customer who is damaged by a contractor’s breach of home improvement contract or by fraud can sue directly against the bond and may recover actual damages, court costs and reasonable attorney fees.

The attorney general may also make a direct claim on a bond on behalf of consumers.

How big a problem is this?

Among the 3,495 written complaints the Consumer Protection Division received in 2018, home improvement complaints were the third most common category, with 286 total complaints. That represents a 28 percent increase over the previous year.

Our attorneys and investigators work with contractors and homeowners to resolve disputes that involve a misunderstanding between the parties. In cases in which a contractor has committed a deceptive act or unfair practice, the Attorney General’s Office may sue under the Consumer Fraud Act seeking consumer reimbursement, an injunction against future bad conduct, and up to $40,000 in civil penalties for each violation.

In the last few years, the Attorney General’s Office has sued many contractors who have cheated dozens of customers. The office has won judgments of $100,000 or more and gotten contractors banned from doing business in Iowa. Unfortunately, many of the defendants in these lawsuits are unwilling or unable to pay and have no assets that can be seized to pay a judgment.

Why can’t those contractors be charged with a crime?

They can, but proving theft is difficult under existing law. Court rulings have held that down payments for construction projects are not held in trust and therefore do not necessarily qualify as taking of property. In addition, a prosecutor must prove that the contractor intended to commit fraud when signing the contract.

Bills introduced in the House and the Senate this year would make home improvement fraud a criminal offense. Under the bills, the contractor would be guilty of home improvement fraud if, among other acts, he or she intentionally fails to use a customer’s money to complete a project within a prescribed time period. The Iowa Attorney General’s Office supports the legislation.

How can I avoid problems in the first place?

Here’s advice in getting the job done right: 

Make your plan clear. Before looking for a contractor, think about your project. Consider writing down a proposed project description, including the quality of materials that you expect the contractor to use, so a contractor is clear about the scope of project and type of materials. Check with your city or county on required inspections and building permits.
 
Check references before you sign a contract or make a down payment. The best kind of reference comes from someone you know and trust. Ask who they have hired for their projects and whether they were satisfied. Ask the contractor you’re thinking of hiring for local references and contact them. Check for complaints filed with the Consumer Protection Division (515-281-5926 or 888-777-4590) and check the Better Business Bureau’s complaint database at www.bbb.org. It’s a red flag if a contractor is not listed in the local telephone directory or provides only a post office box and not a street address.

To see if a contractor has been sued or filed a lawsuit, go to: www.iowacourts.state.ia.us. To verify a contractor’s registration and bonding (which does not guarantee quality of work or payment of damages if a dispute arises with the contractor), go to: www.iowaworkforce.org/labor. Ask the contractor for a copy of a liability insurance certificate.
 
Get the contract in writing. Before work begins, agree on a written contract. Include the work to be done, the brand and/or the specifications of the materials to be used, the price, who is responsible for obtaining permits and scheduling inspections. Insist that all change orders must be in writing and establish who is responsible for cleanup. Include start and completion dates, and the remedies if the contractor fails to meet them. (Example: The contract could be nullified if the contractor doesn't start on time.) If you’re filing an insurance claim to cover the costs of damages, negotiate the details of the repairs with your insurance company directly and not through a contractor. If you sign a contract somewhere other than the contractor's regular place of business, such as at your home, you have three business days to cancel the contract without penalty. Most important, read the contract before you sign it.
 
Look into financing through local banks or credit unions rather than a contractor. Compare loan terms, and don’t let anyone pressure you into signing a loan document. Do not deed your property to anyone.

The Attorney General’s website contains more advice on avoiding home-improvement problems.

If you feel you’ve been wronged, file a complaint with the Iowa Attorney General. Call 515-281-5926 or 888-777-4590 (outside of the Des Moines metro area) or email consumer@ag.iowa.gov.


 
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