March 2003 "Watch Out For Sharks On Your Doorstep"
Planning For Wealth & Security
By Attorneys Jennifer & Jeff Hawkins
WATCH OUT FOR SHARKS ON YOUR DOORSTEP
Remember those scary sharks in the “Jaws” movies from the 1970’s and 80’s? Like those vicious great white sharks, con-artists prey on unsuspecting Hoosiers every day. Unlike the salt-water sharks, however, vigilance, boldness, and common sense can repel the two legged sharks.
Home Improvement Fraud
Spring is a time for repairing leaky roofs, cleaning out and replacing rusty gutters, complying with modern sewer connection ordinances, painting or re-siding houses, and repairing rotten wood on porch floors and railings. We are well blessed with honest, qualified contractors in our community. Unfortunately, sharks lurk in the shadows of all legitimate industries.
Indiana Code Chapter 24-5-11 limits the enforceability of home improvement contracts. The law appears on the Internet at http://www.in.gov/legislative/ic/code/title24/ar5/ch11.html. If a contract does not describe the contractor’s services and fees correctly, the law may prevent the contractor from enforcing the contract completely. However, homeowners should not use the law to cheat contractors, because judges enforce legitimate contracts.
The best fraud defense is to see con-artists coming and turn them away. Generally, a contractor that runs a door-to-door sales campaign may be a con-artist. Most reputable contractors have so much work backlogged that they have no time to solicit new business on door-to-door campaigns. Many home improvement con-artists require substantial fee down payments. Many homeowners pay fees in advance, watch jobs begin briefly, and wait in vain for crooks to return to finish work. Con-artists often move to other counties or states after the first day on the job to repeat the scams before the police can catch them.
A contractor should provide names and phone numbers of past customers as job references. A homeowner should contact the references and determine whether the contractor’s workmanship and business practices satisfied the former customers. Again, a quality track record is a homeowner’s best assurance of a contractor’s quality workmanship.
Home Equity Loan Sharks
Remember the days when you had to visit a loan officer at a downtown bank to apply for a loan? Today, banks and mortgage companies flood the mail, internet, television, radio, and newspapers with solicitations for home improvement loans. Most traditional banks and many mortgage companies regulate their own conduct with good lending policies and practices. Unfortunately, however, many lenders hurt homeowners by rewarding loan officers for selling loans at any cost, even if the loans are made sloppily or fraudulently.
Basic lending practices require a lender to determine a borrower’s home value. The loan should be repayable from the borrower’s earnings or the sale of the borrower’s home. Fraudulent home appraisal is one of the most abused aspects of the home equity loan industry. Reputable lenders use reputable appraisers that value homes reasonably. Sleazy lenders use appraisers that exaggerate values to justify ridiculously large loans. Criminal lenders use false information.
Indiana Attorney General Steve Carter identifies the following warning signs that a loan transaction may be predatory or unwise:
• The initial contact with a lender or mortgage broker is unsolicited;
• The loan value exceeds the value of the home; or
• Information on any document a consumer is asked to sign is false or incomplete.
The Attorney General recommends further that consumers make lenders answer the following questions before signing any loan documents:
• How much are costs, fees, and payments?
• Does the payment include insurance and taxes?
• Will the payment increase during the life of the loan?
• Can I payoff the loan early without penalty?
Most importantly, a homeowner should think about her income and expenses and decide whether she has enough extra income to pay the mortgage payments as they become due.
A fraud victim may contact the Indiana Attorney General’s Consumer Protection Division by telephone at 1-800-382-5516. A victim may also contact the Better Business Bureau on the internet at www.indybbb.org or by telephone at 317-488-2222. Unfortunately, con-artists usually spend the spoils of their crimes and leave nothing for victims to recover. Therefore, the best repellant against these sharks is to be alert, use common sense, and turn away or walk away from a contractor or lender that you do not know and that does not appear to be completely legitimate.
THIS ARTICLE IS NOT LEGAL ADVICE. ALWAYS CONSULT AN ATTORNEY DIRECTLY BEFORE RELYING UPON THIS ARTICLE OR CHANGING AN ESTATE PLAN.
© HAWKINS & HAWKINS LLC 2003. All rights reserved.