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Scams and Fraud

Articles, Case Studies, & News Reports on different scams perpetrated by "contractors". Updated regularly with additions marked "New". Keep one step ahead of the crooks by learning about their scams here first. If you read newspaper reports of contractor scams please send them to us and they'll be posted here for the benefit of others. Report a Scam

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General Warnings

  "Travelers" are back
"Travelers Door-to-Door Elderly Scam"
Asphalt Paving - Driveways
  "Travelers"- Driveway paving scam
"Offer to-good-to-pass up", driveway scam on elderly        (Arraigned)
Impersonations-False Representations
  Handyman claiming to be licensed contractor
Con-artist poses as building official-demanding fees/work
Busted-Caught-Jailed
  Alabama-Man convicted & jailed for home repair scam
Caught-Defrauding elderly out of $250,00 in Driveway scam       (Arraigned)
Mfg. "Refunds"-"Pay me now, you'll get refunded later"
  Class Action suit-Masonite siding mfg. refund bogus
"Home Improvement Loan" scams
  Fraudulent Home Equity loans offered by contractors
Equity Striping - Loan companies cashing in on scams
Hidden Loan Terms-The Balloon Payment
"Loan Flipping"-The lender refinancing
HUD tackles Title 1 Home Improvement loan scams
Chimney Sweeps
  $29.00 cleaning becomes "serious life-threatening problem"

Warning: Current Scams by so-called "Travelers"

The annual migration of unlicensed con-men known as "Travelers" has once again begun. These "Travelers" come out to the west from the Midwest and as far east as New England each winter looking for unsuspecting homeowners and businesses in need of roofing, painting or asphalt paving work. The elderly are a prime target of these "travelers" and they often intimidate seniors into paying excessive prices for substandard work.

Often, these con-men will just show up at the victim's home or place of business and "offer a great deal. "They tell the property owner that they "just happened to be in the neighborhood", or that they "just finished a job in the neighborhood and have some extra material left over on their truck". The "travelers" then will use defective materials and usually change the size and price of the job. When the property owner protests about the cost or size of the job, the "travelers" often become very demanding and intimidating.

Property owners who want to pay by check are often required to accompany the "traveler" to the bank in order to get the check cashed immediately. This prevents any possible "stop payment" of the check. These scam artists then move on to other areas of the city or state, looking for new victims.

Property owners who are approached at their home or place of business by such individuals are urged NOT to agree to have such painting, roofing or asphalt paving jobs performed. Travelers will use a very friendly initial approach with their victims, in an attempt to gain their confidence. Once the victim agrees to have some work performed however, the "traveler" takes control. The travelers have been around for generations. These cons and scams, in many cases, have been passed down from fathers to sons, and improved upon every year.

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"Travelers" and Home Improvement Scams

WARNING NOTICE TO HOMEOWNERS

Recent fraudulent home repairs reported in Maricopa county and Coconino county via "door-to-door" solicitations. Typically, the elderly are targeted and suspects often peruse the obituaries in order to determine those most vulnerable and who may have recently received insurance and/or government checks.

Avoid door-to-door solicitors who offer to perform various "reduced cost" home repairs (painting, roofing, driveway paving) or who advise they have left over materials from a previous job and can offer a great deal.

The suspects involved in these cases usually drive a new pickup truck or van; often with out-of-state license plates.

Suspects can be described as Caucasian males; clean cut; charming personality when they first introduce themselves, and usually travel in groups of 2 - 4. The perpetrators often may possess a slight Scottish - Irish brogue and may mention in their conversation that their family (usually father or grandfather) had performed prior home repairs at your residence, in order to gain your confidence.

Unfortunately, what initially appears to be a great deal for the homeowner, often becomes a nightmare, as the work performed turns out to be bogus and the materials used in the job are defective.

Remember, if a deal sounds too good to be true, it's probably a scam!

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"Travelers" and Asphalt Paving

According to the preliminary reports, asphalt paving and repair of driveways and parking lots have been the most recent crimes reported. Business owners and homeowners have lost thousands of dollars in bogus repairs. In one of the reported cases, the owner stated that the crew of 5 -6 men were intimidating and he felt threatened to pay them or face possible consequences. As it turned out, the perpetrators attempted to extort $10,000.00 for a shoddy repair job on a parking lot, however, finally accepted $1000.00 and left the premises.

Members of the travelers organization target the elderly, promise quality workmanship and possibly a 20 year written guarantee, however, the final results usually prove to be inferior construction services at increased costs for the consumers.

Although the travelers and other similar groups offer to provide a variety of home improvement services, the most notable trades include painting, roofing and asphalt paving services. The method of operation is the door-to-door solicitation, usually offering low costs utilizing "so called left over materials."

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Scam Warning: Hawaii

Consumer Affairs in Hawaii Warns Homeowners to Check Credentials before Hiring Contractors

The Department of Commerce and Consumer Affairs is urging Hilo property owners to check the license status of the persons and businesses that they may hire to make repairs to flood-damaged property. "Although there is a natural tendency to want to rebuild as quickly as possible, it is important to check the license status of the person or business you hire to do your repairs," said Jo Ann Uchida, Complaints and Enforcement Officer of the Department of Commerce and Consumer Affairs Regulated Industries Complaints Office (RICO). "It is worth the time to make one phone call to reduce the likelihood of problems with an unlicensed contractor at a later date."

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Building Official Impersonation

Persons charged with impersonating building officials after recent hurricane.

Impersonating Officials--Con artists may pose as building inspectors and order immediate repairs which they can do on the side. They may also pose as government officials and demand a fee for processing emergency loan documents.

Tip--Ask to see identification for anyone representing themselves as a government official. Phone the government agency to verify the identity if there is any payment of money involved.

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Contractor sentenced to Prison

February 9, 2001

Alabama Attorney General Announces Prison Sentence For Home Repair Fraud

(MONTGOMERY)-Attorney General Bill Pryor today announced that a Shelby County man was sentenced to prison and ordered to repay $247,000 to compensate for his extensive fraudulent home repair scheme against 17 consumers. Jack Davidson, age, 64, of Hoover, pleaded guilty to two counts of first-degree theft of property and was ordered to pay restitution to all 17 victims.

"My office has become all too familiar with Jack Davidson in recent years, having first convicted him in 1997 and gained restitution for the victim, only to see him persist in repeated home repair frauds over the next few years," Pryor said. "We brought charges again in 1999, and as the defendant's illegal acts continued, we returned to the grand jury to add additional charges yet again. I am pleased that the court has now ordered Davidson to spend time in prison, and trust this will put an end to his criminal career. After serving at least two years in prison, Davidson will face the threat of up to 18 more years in prison if he does not abide by the law or violates his probation. I want to commend the diligence and hard work of Assistant Attorney General Dennis Wright and Special Agent Danny Billingsley, who have followed this case for years to bring Davidson to justice and protect the consumers of Alabama from such abuses. I promise the citizens of Alabama that my office will persevere against such habitual offenders as long as necessary to stop them."

Davidson was sentenced in Shelby County Circuit Court on January 25 for his November 13, 2000, convictions. He was sentenced to 10 years imprisonment for one conviction of first-degree theft, with the court "splitting" that sentence and requiring him to serve two years in prison and the succeeding five years on probation, and to repay all victims named in the indictments returned against him by a Shelby County grand jury. For the second conviction of first-degree theft, the Court sentenced Davidson to another 10-year term to be served consecutively with the first, but suspended that sentence and placed him on probation for five years. Davidson was also sentenced to six months imprisonment for illegally operating without a homebuilders license, a class A misdemeanor. The six-month sentence is to be served concurrently with the other sentences, and to include one year of probation.

An investigation by the Attorney General's Office revealed evidence of an elaborate scheme in which Davidson suggested repairs to his victims, claiming they would be reimbursed for what they paid him through a class action settlement for Masonite siding products that would pay for not only the replacement of siding but also various unrelated repairs Davidson proposed. He told consumers he had a contact with Masonite and had gotten such refunds for others, but that Masonite required consumers to pay him up-front for the repairs. He said he would process the claims, and would refund consumers' money personally if there were any problems.

While there was, in fact, a private nationwide class action settlement that could provide compensation for the replacement of Masonite siding due to defects in a particular type of that product, none of these consumers had Masonite siding on their homes and thus would not have qualified for the settlement anyway. Davidson was not associated with Masonite, filed no claims with the company to reimburse consumers, and refunded no money.

The Attorney General's Office first prosecuted Davidson in 1997 for misrepresenting to a Montevallo couple that their home needed extensive repairs, and then not performing the work. At that time, he was sentenced to one year in jail, which was suspended under the condition that he complete one year of probation and pay $30,000 in restitution to his victim. Davidson continued to falsely represent himself as a licensed contractor doing business in Jefferson and Shelby Counties as Alabama Professional Remodeling, Inc., and Alabama Professional Corp. He falsely claimed affiliations with the Better Business Bureau and the Alabama Home Builders Association, and in fact has never been licensed as a residential contractor in Alabama. Following his first conviction in 1997, new complaints of fraud and theft were lodged against him with the Attorney General's office regarding transactions occurring in late 1998 and 1999. These allegations were the subject of the additional indictments returned by Shelby County grand juries in May and September of 1999, and a third indictment in October of 2000.

Another charge against Davidson is pending in the Bessemer Division of Jefferson County Circuit Court. The Attorney General's Office presented evidence to the Bessemer grand jury that resulted in Davidson's indictment* last October for first-degree theft of $34,000 from this victim. A trial date is not set. (*Note: An indictment is merely an accusation. The defendant is presumed innocent unless and until proven guilty.)

"Home repair fraud unfortunately continues to be one of the most prevalent consumer complaints received by my office," Pryor said. "Our best weapon is for consumers to learn what questions to ask, to recognize warning signs, and to distinguish between con artists who should be avoided and reputable contractors who are licensed and experienced professionals." Consumers should be extremely wary of certain irregular or unscrupulous practices, the Attorney General warned. Most professionals do not solicit door-to-door, or require large payments up front. They do not pressure consumers by making offers good for one-day-only or declaring that the work is so urgent that one cannot give a project due consideration. Nor do they make false claims of special low rates that should be kept confidential. Such statements should alert consumers to ask questions and consider carefully whom they hire for work on their homes.

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Contractor to be Arraigned; Scams Alleged

Elderly homeowners defrauded with 'offers they couldn't refuse'

Thursday, September 9, SEATTLE POST-INTELLIGENCER REPORTER

Hal Keene paid $1,000 to have the driveway of his Shoreline home repaved in 1997. Now, more than a year later, the man who took Keene's down payment is in jail, accused of stealing more than $250,000 from trusting homeowners. Mahmood Mahtab, 51, preyed on the elderly, according to King County prosecutors. For the past three years, the Seattle man allegedly contracted for construction and landscaping jobs he never finished -- or even started. He is scheduled to be arraigned this morning in Superior Court on 18 theft charges and five counts of unregistered contracting. Prosecutors say Mahtab ran his scheme for three years, ripping off at least 16 homeowners, most of whom are in their 70s and 80s. This year, the average victim was taken for $29,000, according to prosecutors. Even so, Keene, 75, is forgiving. "I don't think he was out to bilk me," he said. "I think he was a poor businessman and he got in over his head." Several of Mahtab's references checked out, and his previous work looked good, Keene said. But Mahtab was not a bonded and licensed contractor, as the state requires. He drove by homes, offering his services. Keene said: "He came by more than once. The first time, I told him I wasn't interested. . . . Then he made me an offer I couldn't refuse.

"He seemed like a man who was diligently trying to earn a living. I thought I'd give him a gamble." But after he paid Mahtab the $1,000 down payment on the $2,063 job, Keene said he spent months trying to get him to start work. He said Mahtab offered one reason after another why he couldn't: bad health, labor problems, etc. Keene and other homeowners didn't know that Mahtab has been sued at least 30 times in the past two decades by businesses and creditors. Arrested Sept. 1, he is being held in the King County Jail on $100,000 cash-only bail. Mahtab faces up to four years, nine months in prison if convicted of all charges.

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The "Home Improvement" Loan

A contractor calls or knocks on your door and offers to install a new roof or remodel your kitchen at a price that sounds reasonable. You tell him you're interested, but can't afford it. He tells you it's no problem-he can arrange financing through a lender he knows. You agree to the project, and the contractor begins work. At some point after the contractor begins, you are asked to sign a lot of papers. The papers may be blank or the lender may rush you to sign before you have time to read what you've been given. The contractor threatens to leave the work on your house unfinished if you don't sign. You sign the papers. Only later, you realize that the papers you signed are a home equity loan. The interest rate, points and fees seem very high. To make matters worse, the work on your home isn't done right or hasn't been completed, and the contractor, who may have been paid by the lender, has little interest in completing the work to your satisfaction.

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Equity Stripping

You need money. You don't have much income coming in each month. You have built up equity in your home. A lender tells you that you could get a loan, even though you know your income is just not enough to keep up with the monthly payments. The lender encourages you to "pad" your income on your application form to help get the loan approved.

This lender may be out to steal the equity you have built up in your home. The lender doesn't care if you can't keep up with the monthly payments. As soon as you don't, the lender will foreclose-taking your home and stripping you of the equity you have spent years building. If you take out a loan but don't have enough income to make the monthly payments, you are being set up. You probably will lose your home.

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Hidden Loan Terms: The Balloon Payment

You've fallen behind in your mortgage payments and may face foreclosure. Another lender offers to save you from foreclosure by refinancing your mortgage and lowering your monthly payments. Look carefully at the loan terms. The payments may be lower because the lender is offering a loan on which you repay only the interest each month. At the end of the loan term, the principal-that is, the entire amount that you borrowed-is due in one lump sum called a balloon payment. If you can't make the balloon payment or refinance, you face foreclosure and the loss of your home.

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Loan Flipping

Suppose you've had your mortgage for years. The interest rate is low and the monthly payments fit nicely into your budget, but you could use some extra money. A lender calls to talk about refinancing, and using the availability of extra cash as bait, claims it's time the equity in your home started "working" for you. You agree to refinance your loan. After you've made a few payments on the loan, the lender calls to offer you a bigger loan for, say, a vacation. If you accept the offer, the lender refinances your original loan and then lends you additional money. In this practice-often called "flipping"-the lender charges you high points and fees each time you refinance, and may increase your interest rate as well. If the loan has a prepayment penalty, you will have to pay that penalty each time you take out a new loan.

You now have some extra money and a lot more debt, stretched out over a longer time. The extra cash you receive may be less than the additional costs and fees you were charged for the refinancing. And what's worse, you are now paying interest on those extra fees charged in each refinancing. Long story short? With each refinancing, you've increased your debt and probably are paying a very high price for some extra cash. After a while, if you get in over your head and can't pay, you could lose your home.

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HUD Tackles Home Improvement Scams

Cuomo Announces Homeowner Protection Initiative to End Construction Rip-offs in HUD's Home Improvement Loan Program

WASHINGTON -- Housing Secretary Andrew Cuomo today announced a new homeowner protection initiative designed to end fraud and abuse in a loan program that has victimized thousands of American families and cost taxpayers millions of dollars. He also announced enforcement sanctions against 16 bad contractors.

To end the scam, Cuomo said the Department of Housing and Urban Development has initiated rule-making to shut down the contractor-originated portion of the Title I home improvement loan program.

HUD insures loans under Title I to help finance home renovations and repairs. More than half of the homeowners are low-income families.

HUD's rule would prevent contractors from working directly with homeowners to provide HUD-insured financing for home improvement loans through approved lenders. Instead, homeowners would deal directly with lenders. Loans originated by lenders would not be affected by the new rule.

Cuomo said a four-month HUD review of the 63-year-old Title I home loan program found that unscrupulous contractors are performing shoddy work, falsifying documents, overcharging homeowners, and circulating deceptive advertising.

Cuomo said HUD is taking complaints from the public about contractor fraud under the Title I program on a toll-free telephone line: 1-888-466-3487. "These people are not legitimate contractors," Cuomo said. "They are moneychangers. They have led homeowners down a path of deception. They promised beautiful homes, but instead delivered shoddy work and overpriced materials. They literally ripped up homes and then ripped off homeowners and the public."

Problems with the Title I program are not new. A 1986 Inspector Generalūs audit raised problems with the program. In 1989, HUD recommended terminating the program, but Congress suggested more mandatory and tougher sanctions. The problems have persisted.

There are two types of Title I loans. Dealer loans are originated by contractors who act as middlemen between homeowners and lenders. Lender loans are made directly to homeowners.

Because HUD insures Title I loans, it loses money every time a homeowner defaults. From 1987 to 1996, HUD paid $114 million in claims on contractor-originated loans.

"We want to eliminate the fraud but protect the service to homeowners," Cuomo said.

"Elimination of contractor loans will not impact the ability of homeowners to get their services," Cuomo said. "Homeowners still will be able to obtain home improvement loans directly from Title I lenders -- loans that are not often available to working, low-income families in the conventional market. However, these families will be protected from unscrupulous contractors; there will be greater accountability, and the cost to taxpayers will be reduced." Title I loans range in amounts from under $5,000 to a maximum of $25,000. The Secretary also announced enforcement action against 16 contractors as part of a crackdown on Title I rip-offs.

HUD barred these four Texas contractors from doing any business with the federal government for a year: National Homes Services, American Applicators and Texas Remodelers of Houston, and American Eagle of Hockley.

In addition, HUD barred these 10 contractors from participating in the Title I program for a year and levied civil penalties of up to $5,500 against each: Landmark Building and Remodeling, Inc. of Little Rock, AR; Fort Bend Builders and Supplies, Inc., of Stafford, TX; Modern Exteriors of Houston, TX; Classic Siding, a division of G.R.B.D., Inc., of Beaumont, TX; Lane's Home Improvement Co., Inc., of North Kansas City, MO; Lone Star Remodeling of Texas of Friendswood, TX; First Capital Home Improvements of Memphis, TN; Five Star Ventures of Houston, TX; All Town Construction of Manahawkin, NJ; and First Choice Siding and Windows, Inc., of Kansas City, MO.

Two more contractors -- Classic Exterior Designs of Mobile AL, and A&W Siding & Window of Denver, CO -- were barred from Title I participation for a year. Cuomo said additional enforcement actions will be taken against contractors after HUD's review is completed in other states with high contractor/dealer activity, such as California, Pennsylvania and Illinois.

"This scam is really three crimes in one," Cuomo said. "Homeowners get suckered, scam contractors get off Scot-free, and taxpayers get stuck with the bill. Since at least 1989, Congress and HUD have tried to correct these problems through various laws and regulations, to no avail. Enough is enough. We want to end this."

Joining Cuomo in today's announcement was Bernice Shepard, a member of the Board of Directors of the American Association of Retired Persons. Many borrowers under the Title I program are older Americans. "AARP supports the regulatory reforms being announced today by Secretary Cuomo to end the potential of abuse by dealer/contractors and to increase the responsibility of lenders to ensure that Title I funds are made available for proper purposes," Shepard said.

Typical contractor abuses include:

  • False advertising by contractors and their implication that loans had been pre-approved.
  • Contractor failures to complete work, falsifying work as completed, and contractor coercion of borrowers to get them to claim work was completed.
  • Contractors working with borrowers to falsify financial information -- such as income, assets, and liabilities.
  • Contractor-originated loans to borrowers who didn't earn enough to repay loans.
  • Contractor falsification of loan documents to allow borrowers to exceed their borrowing limits.

This "path of deception" costs taxpayers millions of dollars because the claim rates for loans originated by contractors are consistently higher than for lender loans.

HUD's analysis of the loans originated from 1987-1994 shows a claim rate for contractor loans of 6 percent, compared with 3.5 percent for lender loans. This rate means borrowers failed to pay on 6 percent of the loans originated by contractors. Most of the contractors that HUD is acting against are based and work primarily in Texas, the state with the largest number of contractor-initiated loans, also known as "dealer" loans.

Contractor loans are made by contractors that advertise their services through newspaper ads or door-to-door marketing. The loans provide HUD-insured financing through the use of an installment sales contract, which is purchased by approved Title I lenders.

FHA first began offering home improvement loans in 1934 in an effort to assist low-income families with home repairs and renovations. Since that time, almost 35 million loans have been made to homeowners. From 1987, 790,000 loans have been made -- 43 percent by contractors, and 57 percent by lenders -- totaling $2.9 billion in contractor loans and $5.1 billion in lender loans.

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Chimney Repair: Beware of the Scams That Can Burn Unwary

By Noreen Seebacher
Before you spring at that $29.95 furnace cleaning special you just received, fall back on some important safeguards.

Carmel Weems, a spokeswoman for the Better Business Bureau, warns that low-price furnace cleanings often escalate into expensive repairs. Every year as the weather cools, innocent homeowners -- many of them elderly -- get burned by companies they hire to keep them warm.

Most of them end up in debt after responding to furnace cleaning and maintenance offers. Weems said they call the companies to inspect their furnaces just as a precaution. When the repairman arrives, he'll claim to find a serious problem. The suggested answer: expensive repairs or on-the-spot replacement.

Many times, a repairman will stress the potential dangers, including risk of fire. Because of the risk of danger, otherwise smart consumers will spend too much -- or pay for work that was unnecessary in the first place -- on the basis of a single estimate from a furnace cleaning or chimney repair company.

Some questionable contractors will run a screwdriver along the heat exchanger and scratch a line. To the customer, it can look like a crack in the furnace. Others will say the furnace is leaking carbon monoxide. The salesman will warn that the whole family could die unless repairs are made.

Chimney repairmen often claim the whole chimney is at risk of falling down. Weems said to carefully consider any suggested repair.

* Always get a second opinion, even if a repairman insists the work should be done immediately. Show the repairman the door, leave the house and go stay with a friend or relative while you arrange for other bids.
* Call your local utility company. Michigan Consolidated Gas offers customers a service plan for their furnace and other appliances. It costs $5.99 a month to protect a furnace, slightly more if you add other appliances, like water heaters, dryers and ranges, to the plan. David Coulter, a spokesman for the utility said: "We think it's a good deal. If your furnace or other covered appliance malfunctions, we'll come out and fix it free." Call (800) 513 8661 for information.

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