Contractor Fraud: The Red Flags You Need to Know

If you’re like most people, your home is one of the most important and expensive purchases you’ll ever make. From building a new home to renovating an existing one, you’re making a substantial financial investment in your property’s future. 

Thus, you inevitably rely on the integrity of your contractor, whether you’re remodeling or building.

Recently, Colorado’s attorney general shared that in 2023, nearly 1,000 consumers filed complaints related to home services and repair work. The increased prevalence of home improvement scams underscores the importance of verifying a contractor’s trustworthiness. 

In this article, I will provide tips on how to spot contractor fraud and what to do if you get scammed. 

Contractor fraud can take many forms, including the misappropriation of a construction project’s funds, failure to complete work agreed to be performed, substituting materials of inferior quality without homeowner approval, and performing unlicensed work, among others.

When you put money down for a construction project, the contractor should hold those funds in a trust to pay for subcontractors, laborers, and material suppliers. Colorado law treats unauthorized uses of these funds as theft. C.R.S. 38-22-127  

A violation of this statute can involve both criminal and civil penalties for the contractor.

The problem with contractor fraud is that victims often don’t recognize the scam until it has already happened. The good news is that most bad contractors tend to show the same red flags. The following are common red flags I see in my practice.  

It’s normal for a contractor to ask for a deposit before assuming work on a project. This lets the contractor know the client is committed to the project and can afford it. Initial deposits also help contractors hire subcontractors, order materials, and fund other necessary expenses. 

If you’re unfamiliar with the construction industry, you may not be aware of what’s considered a reasonable deposit. But there is a line, and bad contractors tend to cross it. Most contractors require an upfront payment of 10 to 25 percent of the total job’s cost. Anything more than that is a red flag. 

Paying half or all of the estimate increases your chances of getting ghosted, or at the very least, dealing with unnecessary problems like project delays. 

As a general rule of thumb, don’t accept a deal that requires you to pay for a service you haven’t fully received. Just because your contractor quotes you an estimate doesn’t mean they’ve earned it. 

No one likes a bait-and-switch. Unfortunately, many bad contractors quote one price and then invoice for much more. 

Cost creep in bad faith is contractor fraud. The Colorado Consumer Protection Act expressly prohibits contractors from inflating costs by failing to disclose terms and conditions at the point of sale. 

You have a right to know key details about the goods and services your contractor provides. If your contractor sends you a final bill that looks nothing like the initial quote, speak with an attorney. 

The problems that seem to appear out of thin air are one of the more apparent signs of a home improvement scam. Here’s why:

Initial inspections allow contractors to identify potential issues that could occur during the project. This helps them take measures to mitigate unforeseen problems.   

Fabricating sudden, “unforeseeable” problems to inflate costs is contractor fraud. 

If your contractor doesn’t ask questions or inspect the project area, you should consider withdrawing from the agreement before it’s signed. 

With home improvement scams on the rise in Colorado, property owners should be vigilant when hiring contractors. Our firm has seen clients scammed out of their savings by companies like Adamo Homes. Now defunct, this home builder out of Castle Rock has been sued dozens of times in the last year by casualties of the company’s fraud, including by some of our clients. 

While it may feel like these bad contractors have won, I can assure you they have not. Working with a lawyer who specializes in real estate litigation and contract law can help you recover your deposit and possibly more for your trouble. 

We have tons of legal tools in our toolkit to hold your bad contractor accountable, including: 

• Civil Actions – We can help you pursue civil remedies for contractor fraud. Whether it's failing to perform contracted work or misrepresenting project scope and related costs, we can apply the law strategically to your situation. In certain cases, you may be entitled to treble damages and an award of your attorney fees.

• Contract Rescission – With our support, you may be able to be relieved from your contractual obligations 

• Mechanic’s Lien – If a contractor misappropriated funds and did not pay a subcontractor or supplier, the subcontractor or supplier may file a lien against the homeowner’s property. We can assist you in mitigating the fallout of this action.

• Construction Defect – If the fraud resulted in property damage, we can file a claim under the Construction Defect Action Reform Act (CDARA). This action can apply to a wide range of construction professionals who may be responsible for the defect. 

• Criminal Prosecution – In the most egregious contractor fraud cases, an attorney can help their client file a criminal complaint with the appropriate law enforcement agency for theft. 

• Settlement Agreements – Negotiating a settlement to recover your losses and secure additional compensation is another option to consider, given that a judge can enforce the agreement if the contractor fails to comply. We can assist in drafting a comprehensive settlement agreement that is enforceable in court and protects your interests going forward.

An attorney will advise you on necessary procedural steps like required notices and statutory deadlines, giving you the best chance at recovery.

We understand the stress and frustration of dealing with a fraudulent contractor. Robinson & Henry attorneys leverage all the legal tools in their toolkits to help Colorado homeowners recover from scams. Call 303-688-0944 to begin your case assessment.