Contractor Done You Wrong? Get Cash Back

One of the silver linings of the recession is that many contractors are willing to work for less right now because construction work has dried up and they need income. So if you are fortunate enough to have a stable job and available funds, it could be a great time to remodel your house or tackle smaller projects you've been itching to do.

Of course, you should make sure you hire a licensed contractor. (If you live in a state that does not require contractors to be licensed, I feel for you. That makes it much harder to assure you are hiring knowledgeable professionals.) I've preached early and often about how dangerous unlicensed contractors can be. But here's one much more enticing reason to hire a licensed one: the possibility of getting your money back if things go wrong.

Many states stockpile funds to compensate people who've been wronged by licensed contractors. States call their contractor kitties different things -- construction recovery fund, contractor guaranty fund, construction industries fund -- to name a few. I call it a coup for consumers. The only bad thing about these funds is that not enough people know about them.

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I once interviewed a woman who wanted to build an apartment onto her son's house, so that as she got older she could be near family, but still be independent. She and her children scraped together a $13,000 down payment and hired a contractor. The contractor had some plans drawn up and cleared some trees, but then months passed and he never returned.

Beatrice didn't want to sue the contractor, because she figured that would cost more money than she had lost in the first place. I told her about her state's contractor guaranty fund and the state paid her back because she had had the foresight to hire a licensed contractor.

Here's how it works. Every time a contractor renews his license he has to contribute to the fund. That pool of money covers shoddy, incomplete and abandoned work. In some states, you can apply directly to the fund for compensation. In other states, you have to file and win a lawsuit first. Typically, the state investigates and tries to mediate with the contractor first. If the contractor won't pay up, then you get a hearing. You can usually represent yourself at the hearing. You don't need a lawyer -- but be thorough. If you prove your case, the state gives you the cash.

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Different states have different caps on the amount of money they will give you. I know of one state that limits each homeowner to $10,000 and another that awards up to $50,000. Some states require you to demonstrate that you've tried everything to get the contractor himself to pay you back -- like suing him and taking out liens against his personal property. Other states specify that their funds are only meant for situations where the work was not done up to code. Statutes of limitations for making a claim also vary.

In this economy, losing money is particularly galling. So spread the word about the money many states have available to compensate people for crummy or crooked contractors.

Do Your Homework

If your state or county requires contractors to be licensed, make sure you hire a company licensed to perform work in your jurisdiction. A license from another state or county is not valid.

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