How to Spot an Unlicensed Contractor

Sept. 6, 2011— -- The winds died down a week ago. And now Hurricane Irene's floodwaters are receding too. What's left is a big fat item on your "to do" list that YOU didn't cause. I hate that! Irene knocked some shutters off the front of my house, so I'm feeling this one personally, if in a small way. Make the wrong choice as you scramble to get repairs completed and you could make a bad situation worse.

Did you know you could be arrested for hiring an unlicensed contractor? It's a worst case scenario, but it's true. In states that require licensing, hiring an unlicensed contractor is illegal.

Did you know an unlicensed contractor who gets hurt on your property could sue you -- and win? Unlicensed contractors are unlikely to carry proper insurance, so it has happened.

These are the extremes. But even the average experience with an unlicensed contractor can be devastating. Most consumers who call me for help complain that the unlicensed contractor did shoddy work. Others report the contractor made off with their money and did no work at all!

Licenses are generally required for any work that affects the structural or electrical integrity of the building. I've done a couple different undercover investigations where we invited unlicensed contractors to give us estimates for roofing work. First of all, it was easy to find unlicensed contractors. We spotted their ads in local newspapers and found their business cards at home improvement stores. Not to mention the internet. Unlicensed contractors tend to use the cheapest possible means to market themselves.

When we confronted them we heard every excuse. One man said he couldn't afford a contractor's license, even though the state where he worked only charges $300. Another man said he was working "under" somebody else's license. That's illegal. Only bonafide employees are allowed to work under the umbrella of a licensed contractor. A third showed us a contractor's license for another state.

That doesn't count. The contractor must be licensed in the state where the work is to be done. Several guys presented us with occupancy licenses, which are just business permits that anybody can buy. They don't make a contractor legal.

If an unlicensed contractor nails you, you have next to no recourse. There's no license that the state can yank to threaten his livelihood. If you complain about him, he'll just change the name he does business under.

You can't tap into his insurance policy because he doesn't have one. Even suing an unlicensed contractor -- and winning—is often futile, because unlicensed contractors don't have deep pockets.

Know the signs:

1. Unlicensed contractors often go door to door claiming they "just finished a job down the street."

2. They may rush you and say if you act now, you'll get a special price.

3. Unlicensed contractors either neglect to pull construction permits or they ask you to do it for them. If you do, you are assuming liability for the project, including their mistakes.

4. Some states require contractors to list their license number on their vehicles, their estimates, their websites and their advertising. If a contractor has not done that, it may be a bad sign.

5. If you see a license number in an ad, and it has a different number of letters, numerals and digits than all the other ads, it may be a fake license number.

6. Be wary if a contractor provides only a P.O. box or pager number. That may mean he doesn't have roots in the community and plans to move on as soon as people start to complain.

7. Unlicensed contractors often ask for a lot of money up front. Try not to pay any money in advance. If you must, keep the amount minimal.

Do your homework:

1. Find out what the licensing requirements are for contractors in your state. Also check with your county. If you live in an area where contractors do not have to be licensed, you're going to have to be extra vigilant about who you hire.

2. Try to find your contractor through word of mouth. A satisfied friend or neighbor is a much better source than a free newspaper.

3. Ask to see the contractor's actual paper license. Unlicensed contractors often put fake license numbers in their advertisements.

4. Get the contractor's full name, company name and license number and double check all three with the county and state departments that license contractors.

5. Also ask those departments if the contractor has a history of complaints.

6. Don't be fooled by "occupancy permits" or business licenses. These pieces of paper are worthless to you. Any business owner can get one. When I say "licensed contractor" I'm talking about a person who has proven their skill in the field and been awarded a specialty license just for contractors. Hint: ask the contractor if he had to take a test to get his license. He should have.

7. If the contractor is licensed in another state, but not the one where the work is to be done, that's no protection. Some states do have reciprocal agreements, where a contractor with a license in one state can be "fast tracked" to get a license in another. Until he goes through that process, don't do business with him.

8. Also make sure the contractor is licensed to perform the type of work that you need. A licensed electrician cannot do plumbing work, for example.

9. If you hire a general contractor, make sure the specialists he hires -- like plumbers and electricians -- are licensed too.