Key takeaways:
- The best protection against a bad contractor is research before you hire one.
- Before filing a lawsuit, try to resolve the dispute directly.
- Documentation determines whether you recover your money.
Contractor disputes are common. At the lower end, the work is sloppy, overbudget or behind schedule. At the higher end, a contractor collects a deposit, does little or no work and disappears. Many homeowners absorb the loss and move on. Others choose to pursue recovery.
Getting your money back is rarely quick or simple, but homeowners who document everything and use the right combination of legal, regulatory and public pressure tools have a reasonable chance of recovering some or all of what they lost.
Prevention is the best strategy
The most effective way to avoid losing money is to research the contractor before you hire one.
- Verify the license through your state's contractor licensing board
- Check for liens, lawsuits and complaints filed against the business
- Read reviews across multiple platforms, not just the contractor's website
- Ask for references from recent customers and call them
- Find out whether the contractor pays suppliers on credit or cash-and-carry. A contractor who cannot get credit may have financial problems that put your project at risk
- Get everything in writing. A detailed contract that specifies the scope of work, payment schedule, timeline and conditions for final payment is your most important protection
If you have already hired a contractor and the relationship has gone wrong, the following options can help.
Withhold further payment
Many contractors use funds collected from one customer to pay for work on another project. If the contractor has walked off the job or failed to complete certain phases, withholding the remaining balance is one of the most effective tools available to you.
Make sure your contract specifies the conditions under which payments are due and that those conditions have not been met. A payment schedule tied to completion milestones protects you in this situation.
File a claim with the contractor recovery fund
Most states operate a contractor recovery fund, sometimes called a homeowner's recovery fund, that compensates homeowners who have suffered direct financial losses due to a licensed contractor's fraud, deception or failure of performance.
In most states, you must have exhausted every other legal avenue before filing a claim. The fund will not necessarily reimburse the full amount of your loss, but it can recover at least a portion for many homeowners. Search online for your state's fund to find eligibility requirements and filing procedures.
File a complaint with the state licensing board
Every state has a board that oversees contractor licensing. These boards investigate complaints and have the authority to suspend or revoke a license. Filing a complaint does not directly recover your money, but it creates an official record and can pressure the contractor to resolve the dispute.
You can typically file a complaint by calling the board to request a form, submitting one through the board's online portal or downloading a form from its website. Search online for your state's contractor licensing board to find the correct procedures.
Contact the Better Business Bureau
The Better Business Bureau accepts complaints and attempts to mediate a resolution. A complaint on its own may not recover your money, but the report it generates serves as documentation in court that you attempted to resolve the issue through available channels.
Sue the contractor
If all else fails, the legal system can compel the contractor to act. If the amount is relatively small, you can file a case with your state’s small claims court system. You represent yourself with documentation, photographs, your contract and any other evidence. If the sum is large, you can file in a district court.
Suing your contractor should not be your first step to resolving the dispute, said Brett Johnson, owner of New Era Home Buyers in Greenwood Village, Colorado.
“Court is the last place I want to end up,” Johnson said. “Winning a case and actually collecting on the judgment are two very different things.” Call the contractor first and give them a chance to fix their work, he said.
“If you did your homework up front and actually called the references instead of just looking at them, bad work is often a screwup, not a scam,” Johnson said. “Most decent contractors don't want their name tied to a bad job, and they will usually come back and fix it.”
Johnson recently had a dispute with a contractor over repairs to a bathroom. “One honest conversation, standing there and pointing out exactly what was wrong, was enough to get it fixed within a week,” Johnson said.
Make sure the contractor is insured, he added. Ask for their certificate of insurance before getting started.
How to strengthen your case
If your contractor disappears or stops communicating, start documenting immediately. The strength of any claim depends on the quality of your records.
Document all communication. Save every text message, email, letter and voicemail. Send certified letters with return receipt requested to create a paper trail proving you attempted to resolve the issue. Note the date, time and content of every phone call.
Keep a journal. Record the impact the unfinished or defective work is having on your daily life. Did rain enter through an unfinished roof? Did utility bills increase because of exposed insulation? Did other systems fail as a result of the construction? Write down the date, the time and the specific issue in plain, factual language. If the case goes to court, the judge needs to see that you have been reasonable and specific.
Track every recovery effort. Keep a record of every complaint you file, every review you post and every response you receive. Even efforts that do not directly recover money contribute to the overall record and demonstrate to a court or recovery fund that you have been diligent.
Even if you decide not to pursue the contractor, file complaints with the licensing board, the BBB and any other relevant organization. Your complaint may be the one that triggers an investigation, revokes a license or warns the next homeowner before they make the same mistake.