How to avoid home remodeling contractor scams!

Avoiding the Home Improvement Loan Scam

Have you heard of the home loan improvement scam? Here’s the normal scenario: A contractor calls your house or knocks on your door and offers to remodel your kitchen or upgrade your roofing for a fair price. You tell the contractor that you are interested, but you can’t afford the renovations at the moment. The contractor responds by saying that it’s ok if you can’t afford it, he knows of a lender you can finance through. You oblige and the contractor begins working on the remodeling project. After the contractor starts, he will ask you to sign many papers. The papers may appear to be blank or not completely filled out and the contractor may rush you to sign before you have time to read them. You sign the papers. Later on, you find out that the papers were a contract for a home equity loan. The interest rates and fees are exceedingly high. To make matters worse, the work being done on your home isn’t being completed right, and the contractor who has been paid by the lender, now has no interest in completing the work to your satisfaction.

Here’s how you can protect yourself from home improvement loan scams:

DO NOT:

• Agree to any home loan if you do not have the money to make monthly payments.
• Sign any contract or paperwork that is not completely filled out. Especially if you have not read what you are signing!
• Give into pressure of someone making you sign a document. Usually someone forcing another person to sign a document has ulterior motives.
• Deed your property to anyone you do not know. Consult an attorney, a family member, or someone else you know and trust.
• Agree to financing through your contractor without researching the lender the contractor is recommending, seeing interest rates and fees and comparing loan terms with other home equity lenders.

Written contracts are a must. Even if your state does not require a written agreement for remodeling projects, ask for one. A contract is a safe net for you because it outlines who, what, where, when, and the cost of your remodeling project. The agreement should be specific, concise, and complete in entirety. Before signing any remodeling contract, make sure it contains the following:
• Contractor’s name, address, phone, and license number (if required)
• Estimated start and completion date.
• Payment schedule for the contractor, the subcontractors, and their suppliers.
• Contractor’s obligation to obtain all necessary permits.
• Change orders – how will they be handled? A change order (which is very common on most remodeling projects) is a written authorization to the contractor to make a change or addition to the work outlined in the original contract. It will affect the project’s cost and schedule. Contractors often require payment for change orders before work begins.
• A detailed list of all materials that will be used: color, model, size, brand name, quantity, cost, etc.
• Outline all warranties covering materials and workmanship. Provide the names and addresses of the parties honoring the warranties (contractor, distributor or manufacturer must be identified). The length of the warranty and limitations (if any) must be outlined as well.
• Outline what the contractor is responsible for. Is debris clean-up included in the price? Ask the remodeling contractor for a “broom clause.” A broom clause makes the contractor responsible for all debris clean-up, including any spills or stains.
• Oral agreements should be included in the contract. This is necessary to avoid any unfilled promises.
• A right to cancel clause. This gives you the right to cancel the contract within 3 business days. The contractor must give you two copies of a right to cancel form (one for you to keep and one for you to send to the contractors company) alongside a copy of your contract. The contract must be dated, show the name and address of the contractor, and explain your rights to cancel.

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