| HOME IMPROVEMENTS AND REPAIRS
Legal Protections
Q. Which federal laws are applicable to remodeling projects?
A. Federal Trade Commission (FTC) rules address the problem of
false advertising. It is
illegal for a vendor to advertise any product or service for less than
it really costs or to
engage in the old bait-and-switch tactic. This happens when you are "baited"
by an ad for
a product or service, then told that one isn't available and "switched"
to another, more
expensive version. The law requires vendors to offer a rain check whenever
demand for an
advertised bargain exceeds supply, unless the limited supply is clearly
stated in the ad.
The federal Truth in Lending law protects consumers who obtain outside
financing
for their projects. A lender must prominently state the annual percentage
rate (APR) of
interest you will be charged. So whether you finance your home improvement
through a
bank, a credit union, or the contractor himself, at least you will know
what the interest rate
is. Note that even if the terms appear reasonable, it is a bad idea to
have the contractor
secure financing for your project and in some areas it may also be illegal.
Even though he
may approve you as a credit risk when a bank won't, he has good reason:
his guarantee
that you will pay him back is ultimately your house. It is probably worth
a lot more than
whatever you are doing to improve it. So if you cannot pay for work right
now, try to
postpone it until you can.
These laws help keep most contractors honest, but they can't keep the
bad apples
off the streets. Even if you report violations to the Federal Trade Commission
in
Washington or one of its ten regional offices, the FTC is not likely to
prosecute a small
contractor. Federal enforcement tends to concentrate on major violations
or patterns.
Q. What protection do I have once I sign a contract?
A. Given the number of scam artists working the streets, your
best federal protection may
be the cooling-off period mandated by the Truth in Lending Act. Called
a "right to
rescission," the law gives you three business days to cancel any
contract that was signed in
your home (or any location other than the seller's place of business)
that implies any kind
of financial claim to your home. This occurs, for example, when the contract
gives the
contractor the right to file a lien against your home to enforce payment.
This law also
applies to any contract that involves the borrower making four or more
payments, such as
when the contractor finances a project by using your home as collateral
for a second
mortgage.
Contractors pay attention to this law because if they don't comply, you
have the
right to rescind for three years from the date on the contractor—or
until you transfer
interest or sell the property.
If circumstances entitle you to a cooling-off period, the contractor must
give you
two copies of the Notice of Right of Rescission at the time you sign the
contract. It must
be separate from the contract—not buried in fine print—and
a copy given to each owner,
because any one owner may cancel. The notice must identify the transaction,
disclose the
security interest, inform you of your right to rescind, tell you how to
exercise that right,
and give you the date the rescission period expires.
Q. What kind of state and local laws apply to contractors?
A. State laws often are modeled after federal laws, and states
and local agencies are much
more apt to pursue a small contractor who may have violated them. If you
suspect that a
contractor is breaking the law, get in touch with your state attorney
general's office or
local department of consumer affairs.
Some state laws specifically target dishonest contractors. For example,
Illinois'
Home Repair/Fraud Act, strengthened in July, 1992, makes it a crime to
misrepresent the
terms of a home repair contract, deceive people into signing one, damage
someone's
property to drum up home repair business, or charge an unconscionable
fee for home
repair services. A contractor who preys on disabled people or those older
than sixty may
be committing aggravated home repair fraud, a felony punishable by three
to seven years
in jail and a fine of up to $10,000.
Localities also can impose tough laws against unscrupulous contractors.
A local
law in Putnam County, New York, provides such punishments as suspension
or revocation
of the contractor's license, both criminal and civil penalties, and punitive
damages against
the contractor.
For information about legal protections and enforcement options in your
state,
contact your state or local consumer protection agency, or the consumer
fraud division of
the local prosecutor's office.
Q. What's the best way to guard against swindlers?
A. Despite all the statutes, if you have to rely on the law to
get your money back from a
shoddy contractor, you will have to wait a long time. Take matters into
your own hands by
carefully checking the reputation of any contractor ahead of time. Be
wary of contractors
who:
• Claim to work for a government agency. Check it out.
• Offer free gifts. Ask the following questions: What exactly are
the gifts?
When will you receive them? Can you get a price reduction instead?
• Engage in door-to-door sales or try to get your business by telephone
solicitations. Be
especially wary if the sales pitch demands an immediate decision to take
advantage of
prices that won't be available tomorrow. Most reputable contractors don't
engage in
such tactics.
• Offer an unsolicited free inspection of your furnace or basement.
Rip-off artists use
this ruse to get into a home and either fake a problem or damage a sound
furnace and
good pipes.
• Claim your house is dangerous and needs immediate repair unless
you already know it
does. Have a company name, address, and telephone number and other credentials
that can't be verified. Fly-by-night operators often use a mail drop and
an answering
service while hunting for victims.
• Promise a lower price for allowing your home to be used as a model
or to advertise
their work. (Has the price really been lowered? What does the "use
of your home"
entail?)
• Engage in bait-and-switch tactics. After luring you with an ad
that offers an unbeatable
deal on a job, these contractors tell you the materials aren't available
for that job but
they can give you a bargain on another, more expensive, job.
• Leave delivery and installation costs out of their estimates.
• Offer to give you a rebate or referral fee if any of your friends
use the same contractor.
• Insist on starting work before you sign a contract.
Hiring a Contractor
Q. How do I find a reputable contractor?
A. After thinking through what you want and what you can afford,
ask for
recommendations from people who have had similar work done and talk to
building
inspectors, bankers, and trade association representatives—people
who should know firsthand
the work and reputation of contractors in your community.
For a large job, interview and solicit bids from two or three contractors
from your
list, but make sure they are bidding on exactly the same job to allow
comparisons. The
lowest bid is not necessarily the best, because a contractor with a reputation
for excellent
workmanship and for standing behind the work might be worth more. Even
if the job is
small enough to warrant only one bid, take time to check out your contractor's
reputation
and credentials.
Make sure a contractor's references had similar work done. For a kitchen
remodeling, for example, ask for former clients who have had kitchens
done by the
contractor. Chances are any such references provided by the contractor
will be happy
clients, so try to go a step or so beyond "He's a great guy"
and "No problems at all." Ask
exactly what the contractor did, and how this person found out about him.
Jot down any
more names that are mentioned, with addresses and telephone numbers. Was
the client
comfortable with the way things were left at the end of a day as well
as at the end of the
project? What does the client wish he had done differently to make the
job go even more
smoothly? What did the client's spouse (or roommate, neighbors, or children)
think about
the work and the construction process? What is the next project this person
wants to hire
the contractor to do?
Q. What kinds of certification should the contractor provide?
A. If you are satisfied with a contractor's reputation, check
his credentials before signing
the contract. Ask if he is licensed and bonded. Although not all states
require licensing for
home contractors, those that do have at least a record of each contractor's
name and
address, compliance with insurance laws, and agreement to operate within
the law. If the
company is a corporation, the state has a record of the individual responsible.
While some
states only require contractors to register their names and addresses,
quite a few require
them to have some experience and pass an exam.
A state license doesn't ensure that the contractor will do a good job,
but it is an
indication that he has made an effort to comply with the law. Check with
the state
Contractors Licensing Board to see if the license is current. Some states
will also tell you
if there have been complaints against a given contractor and whether they
proved to be
valid; otherwise you can get that information from the local Better Business
Bureau or
Office of Consumer Affairs.
Being bonded provides important protections for you, but be aware that
the word
has two meanings. "Fully insured and bonded" generally means
the contractor's insurance
coverage protects against his employees' theft, vandalism, or negligence.
If you have
valuables to consider, ask to see a certificate or letter certifying such
a policy.
A performance bond is an insurance company's assurance that the contractor
can
finish the job as stated in the contract. If he defaults, the insurance
company will pay
another contractor to complete the work. Contractors must take out a separate
bond for
each job, so bonds are usually limited to jobs of $25,000 or more, and
contractors pass on
the cost to the owner. It is an expensive proposition, up to 10 percent
of the contract price
for a residential swimming pool; but a contractor who has been approved
by a bonding
company is a very good risk. You're the one who decides whether to require
(and pay for)
a bond.
Make sure that the contractor carries workers' compensation insurance,
to cover
injuries he and his workers might sustain on the job. If he doesn't carry
it, you could be
responsible for some hefty bills. Ask if he belongs to a trade association.
Many
associations require a contractor to have been in business a certain length
of time, to have
passed a credit check, and to meet all legal requirements of their state.
It wouldn't hurt to
call the association to make sure the contractor's membership is current
and inquire about
complaints.
Also ask if there is a warranty on his work and materials and the time
limit on the
warranty. Make sure any warranty is included in the contract. (Even if
there is no specific
warranty, most jurisdictions recognize an implied warranty of good workmanship
that
gives you some protection.) For an additional fee, some contractors offer
an extended
warranty such as the five-year policies available through the Home Owners
Warranty
Corporation.
To check whether any civil judgments or lawsuits are pending against the
contractor, call the local clerk of court. If someone sued the contractor
over something like poor workmanship, consider it a warning. Likewise,
you might want to check with the nearest federal bankruptcy court to see
whether this contractor has ever filed bankruptcy— a strong indication
of financial instability.
The Importance of a Written Contract
Don't allow any work to begin until there is a signed contract one
that protects you. (Some
people might take a chance on very small jobs under $1,500, but it
is a chance.) Oral
agreements can be enforced in court, but it is difficult to prove
who said what if you don't
get it on paper. Ask to see an insurance certificate to make sure
the contractor is covered
in case one of his subcontractors is injured on your property. If
the contractor gives you a
standard contract to sign, take it home and study it carefully at
your leisure. Strike out
clauses you think are unreasonable and have both parties initial the
change. If you are
uncertain about the meaning of provisions and/or if it is a major,
expensive job, make sure
your attorney checks the contract. |
Q. What should the contract include?
A. A complement home improvement contract should address the
following:
Preamble An introduction that states names, addresses, phone numbers,
and the
date the contract is executed. It should specify whether the contractor's
business is a sole
proprietorship, partnership, or corporation. (If it is a partnership or
corporation, make sure
the person who signs is an authorized representative.) The preamble should
also state that
the remodeler is an independent contractor, not your employee. Otherwise,
you might be
responsible if the builder injures someone. For another layer of financial
accountability,
add the contractor's social security number. The contract price should
state the total dollar
amount, including sales tax, to be paid by the homeowner for services
agreed to in the
contract.
Starting and completion dates. No contractor is likely to begin until
after your
right to rescission has safely passed. Specify an end-date, stating exceptions
such as
weather, strikes, etc. You may want to add a bonus-penalty clause if the
date is critical.
Specify a daily starting time if that matters to you. Consider interim
completion dates for
key phases of big jobs.
Scope of work. Contractors may shy away from a clause as broad as "all
labor,
materials, and services necessary to complete the project." But don't
allow them to be so
specific in the work listed that anything else becomes an "extra"
or a "change order,"
which may be billed separately.
Description of materials. See that complete descriptions of agreed-to
products
including brand names and order numbers are listed. Plans, bids, estimates,
and all other
documents relating to the project are part of the scope of work. Make
sure that copies of
these are attached to all copies of the contract before you sign it.
Permits, licenses, and zoning. Specify that the remodeler will obtain
all necessary licenses and permits and satisfy all zoning regulations
and building codes, and indemnify the homeowner in case he fails to do
so.
Cleanup policy. Will the contractor clean up daily? After each project?
Only at the end? Where is refuse to be placed?
Storage Specify where materials and equipment will be kept. You are probably
liable for damage to materials and equipment from fire or accidents, so
be sure to check your homeowner's policy and make sure these are covered.
Parking. If it is a problem, arrange for the contractor's vehicle as well
as subcontractors'.
Noise. Some is inevitable and may even provide a safety valve for workers,
but
place limits on time and volume, according to local laws and neighborhood
needs.
Theft. Building materials are often stolen. The contract can make either
the contractor or the owner responsible.
Damage. What if the retaining wall collapses when they're digging for
the new swimming pool? You'll want the contract to state that the contractor
is responsible for damage to your property.
Change orders. Very few jobs go exactly as planned, which requires that
the contract have a provision that enables it to be amended simply and
easily. The contract should provide that change orders can be written
up, signed by both parties, and attached to the contract as plans change
or delays occur. See the sample for specific wording of this contract
clause.
Warranties. The contract should assure that the materials are new, and
that you
will receive all warranties from manufacturers for appliances and other
materials used on
the job.
Progress payments. Contractors don't expect to be paid entirely in advance,
but
they also don't expect to wait until all work has been done. It is customary
to pay one-third
upon signing a contract to allow the contractor to buy supplies and get
started. In smaller
projects, two payments may suffice. In larger ones, plan to make payments
after
completion and approval of major phases of the work. In all cases, make
your final
payment as large as possible, usually at least 10 percent. DO NOT MAKE
FINAL
PAYMENT until all work is completed, inspected, and approved; subcontractors
are paid
and any liens canceled; and warranties are in the proper hands.
Financing contingency. If your ability to proceed with the project depends
on
securing outside financing, include a contingency clause stating that
the contract is not
binding if you are unable to secure the needed funds on acceptable terms.
Suppliers and subcontractors. Ask for a list of subcontractors and suppliers
and
attach it to the contract with their addresses, telephone numbers, and
social security
numbers. Although you are not their boss, they probably have a right to
place a lien on
your home if the contractor does not pay them in full. It's only fair
that you know who
they are, should legal action become necessary. If you prefer, arrange
to pay suppliers and
subcontractors directly.
Troubleshooting the Project
Q. Who should obtain building permits and when should they do it.
A. To find out whether you will need building permits, contact
your local building
department. Some municipalities require permits for just about anything;
others require
permits for only major remodeling projects. The person who takes out the
permit is
considered liable for the work, so follow the usual custom of having the
architect or
contractor obtain it. As a homeowner, you don't want to be responsible
if the work doesn't
conform to standards or codes, but you need to know which permits are
required and make
sure they are obtained.
Q. What's the point of getting a permit, besides giving the town
money?
A. First of all, the point is to abide by the law. Second, the
inspector who checks your
house can assure you that the work you are paying for is safe. Plumbing
and electrical
inspectors, for example, assure that the work is done according to code.
Additionally, if
you have followed proper procedures, your house will be free of encumbrances
when you
want to sell it. In New York, for example, real estate inspectors can
stop property sales
when they find disparities between original and remodeled plans of a property.
Altered
fire-escape routes, often caused by a door or doorway altered without
permit and
inspection, can be dangerous. Such noncompliance puts the homeowner—and
buyer—in
an expensive bind.
If you live in a condominium or cooperative apartment, or other common-interest
property, your rights to renovate and remodel differ from those of single-family
homeowners. Check your condominium declaration—or check with your
board—to see if
your renovation will be permitted.
Q. What should I watch out for when the job begins?
A. Be sure to keep a handle on the documents that can help you
avoid problems later. In
consultation with your contractor, draw up a schedule of what will be
done when, and
make sure this is followed. If you don't have the wiring inspected before
the drywall goes
up, for example, the inspector may require you to tear out the drywall.
Contractors report that their biggest problems with homeowners arise because
owners request additional work along the way, then object when they see
the bill. The best
way to avoid misunderstanding is with a specific change order. This document,
signed by
both parties and added to the original contract, specifies the additional
work to be done,
the materials, and any change in the schedule. For a large project, type
up and duplicate
blank change-order forms to fill out as you need them.
Q. What happens if someone is hurt on the job?
A. If you are dealing with an independent contractor, his insurance
should cover expenses;
but if you hired someone down the street to paint your house, someone
who doesn't
maintain a separate business and who relied on you for tools and supervision,
that person
is your employee and any injuries are your responsibility. If someone
gets hurt later
because, for example, the new basement steps were not nailed down, your
insurance
company may pay the injured party but then go after the contractor responsible.
Q. What can I do if the contractor violates the contract?
A. If you believe there has been a contract violation, first
bring the matter to the attention
of the contractor with a telephone call or conversation. For example,
if you came home
from work one day and found that the new picture window was in the wrong
place, call
the contractor immediately. To protect yourself, make a note of the conversation,
summarizing your concerns and any agreements, and send it to him. Keep
a copy yourself.
Next, ask your lawyer to write a letter stating your concerns and asking
for the correction.
If that doesn't work, check to see if your contract specifies alternative
dispute
resolution (ADR)—that is, mediation or arbitration. That means you
and the contractor
will have agreed to call in a mutually acceptable third party to resolve
the dispute without
going to court. If your contract does not specify ADR, your initial letter
and the lawyer's
letter will provide you with a base for further action with a consumer-protection
agency or
a lawsuit, possibly in small claims court.
Either way, your options are to push for "specific performance"
of the contract,
which means forcing the remodeler to do the work as agreed, or for the
remodeler to pay
any extra costs you incur by having someone else do it.
Q. What is a construction lien?
A. Construction liens (also called mechanic's liens) are subordinate
to any prior mortgage
on your house, so it is a difficult route to payment. In some states,
contractors and
subcontractors must notify a homeowner if they intend to take out a lien.
In others, you
only learn about it after it is filed at the local recording office. If
you find out someone has
filed a lien, call your lawyer immediately
Q. How can I prevent a construction lien from being filed?
A. It is possible to add a clause to the contract stating that
the contractor agrees to give up
his lien rights, but the contractor may not agree to it. And, even with
a contractor's waiver,
any subcontractor or supplier who is not paid for his work or materials
by your contractor
can file a lien against your home. Unless your job is covered by a performance
bond, or
your state has some sort of fund to protect homeowners from paying twice
when the
contractor doesn't pay sub-contractors or laborers, your chief protection
against a lien is
holding back final payment until all work has been completed to your satisfaction
and
your contractor supplies proof in writing that he has paid everyone who
worked for him on
your job. A release-of-lien form is useful, because it provides places
for all the
subcontractors to sign. (This is one reason to have all subcontractors
and suppliers named
up front in your contract, so you can make sure everyone has signed off
on the release-oflien
form.)
Change/Order Clause
The following wording can be used to provide for a change/order clause:
Without invalidating this contract, the owner may order changes in
the work,
including additions, modifications, or deletions. Price and time will
be adjusted
accordingly. All such changes in the work shall be in writing, and
signed by the contractor
and owner and attached to this document.
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