Homeowners: beware those repair deals that seem too good to be true

The opening gambit varies. Maybe the salesman at your door has a load of asphalt or some paint left over from a job completed down the street. Pay him the bargain price today, and he and his work crew will pave your driveway or paint your house first thing tomorrow morning.

Or perhaps after taking up his offer of a free inspection of your roof, furnace, or basement, you are told that major repairs are needed at once for the safety of your home and family. Fortunately for you, he is ready to start work.

The result, all too often, is a job that is overpaid and only partly begun, badly done, or never even started.

At a time when many Americans are deciding to put their dollars into fixing up and adding onto their homes, rather than replacing them with new ones, complaints about problems with the home improvement industry have reached a new high.

The Better Business Bureau earlier this year reported a "dramatic" increase in complaints.The National Association of Consumer Agency Administrators and most state attorneys general who do much of the policing of the industry, echo the finding. The Illinois attorney general's office recently filed suit against 10 different home improvement companies in one day.

The Consumer Federation of America (CFA), which in July issued a major report on the subject for the Department of Housing and Urban Development, calls it the No. 1 consumer fraud in the nation in terms of dollars and describes the problem as "growing worse." The CFA has called for a major federal investigation to find out just how much of the $42 billion spent by consumers on home improvements annually -- a two-thirds jump from 1975 -- is lost through fraud.

Most home improvement contractors, it must be said, do a competent, honest job. But those who do not are proving increasingly hard to crack down on. Sometimes the contractor does only a piece of the job and declares bankruptcy or moves on to another state. Authorities are left with few legal tools to help the consumer who is left behind. Even if the contractor is taken to court and ordered to pay, the legal order does not in itself lead to collection.

"We can put some of these people out of business, but we can't always recover the money," says Tom Knapp, a lawyer with the Illinois attorney general's office.

"The home improvement industry is more open than most to the incompetent and the dishonest," says CFA executive director Stephen Brobeck. "For many types of work little capital or expertise is needed, and home improvement companies are freer than most other businesses to avoid sanctions by moving operations to a different city or state or by declaring bankruptcy and reincorporating [under another name]."

To some extent, the problem is fueled by rising unemployment. Some see home repairs as a lucrative source of income that requires few skills beyond those of the average home handyman.

"The major problem really is naivete and incompetence," says Esther K. Shapiro, director of the consumer affairs department for Detroit, a city that has an unusually high percentage of small-home owners. "We have hundreds of cases of unfinished and sloppy work. I don't think the contractors deliberately start out to defraud the consumer. They just find they can't do the job or that it costs a lot more than they expected. Sometimes they panic and take off. If they're unlicensed, as most of these are, there's nothing you can threaten them with."

Often those taken for the most money on such jobs are elderly consumers whose homes are paid for and stand as their most cherished possessions. They cannot always easily clamber up to the roof or down to the basement to check beforehand on the need for the job or afterward on its quality.

Some such consumers have even trustingly lent life savings to those they hired. One Chicagoan, a retired elevator operator, paid $3,700 to a contractor for chimney work never completed and made a business loan of $75,000 to the same contractor. The money has been used for personal expenses such as cars and gifts, and the Illinois attorney general's office is trying -- without much success -- to get the senior citizen's money back.

"It's not really a loan if it's obtained under fraudulent pretenses," says Illinois Assistant Attorney General John Maher.

Many schemes vary according to region. Furnace and chimney replacement, often unneeded, is a favorite ploy in cold weather areas. Basement waterproofing is a frequent contract job in areas of heavy rainfall. (A common solution is to pump clay or chemicals into the soil to seal basement walls against leakage. Most experts consider the method highly unreliable and inappropriate in some regions.A new Maryland law tries to pin down the need by requiring an engineering analysis of soil conditions before a company can use that method.)

It is the traveling work crew, going door to door, that is the worst offender in home repairs and improvements, say most state authorities. Usually this contractor guarantees his work, leaving phone numbers and addresses that look more reassuring than they prove to be. Often his prices, too, are cheaper than that of more established local contractors.

"We tell people the best buy is not always the cheapest and that they should watch out for any deal too good to be true," says Sylvia Spencer, director of the consumer protection division in the Arkansas attorney general's office.

She tells of a consumer in eastern Arkansas who contracted for a new roof from a traveling repair crew for $2,400 because he preferred the price to a higher $3,000 bid made by a local contractor. But two months after the installation when a large leak developed and the consumer tried to make good on his warranty, he found that the telephone number listed was a phony one. Soon the roof was too far gone to patch up and he had to pay another $3,000 to get a new one that would hold up.

That Arkansas consumer is not alone in paying twice for the same job. Those who supply services and materials to home improvement contractors often under law have a lien on the customer's house to assure payment.If the contractor takes the customer's money without paying his own bills, the subcontractors can use the lien leverage -- which could lead to a customer's home being sold at public auction -- to force the consumer to pay them directly. It happened in Camden, Ark., among other places, when a traveling work crew repaired roofs on 10 homes after a tornado. The chief contractor, who had fled with the full payment, was caught and charged with theft by deception, but consumers still had to pay up once again.

Consumer advocates say they would like nothing better than to change such lien laws but have had little success. It is one reason most of them urge consumers to put down as small an advance deposit as possible.

To some extent, better laws can make a difference. A new Maryland law allows a contractor to collect no more than one-third of his work payment in advance and allows the consumer who wins a dollar judgment against a home improvement contractor to go directly to his bonding company to collect. The CFA suggests that home improvement contractors should be required to purchase bonds and insurance or put payments in escrow as protection for consumers against the completed job. In California, bonding for such contractors was recently doubled but, as Deputy Attorney General Ron Reiter says, "It's pretty easy these days to do $5,000 worth of damage."

Often legal authorities are not contacted until it is almost too late for them to act. And going to court can be more costly and time consuming than the rewards.

Most consumer advocates and legal authorities in the home improvement field say that better laws are no substitute for vitally needed consumer education. Licensing or registration of contractors, while common, is of no particular use, they say, unless consumers are aware of it. It is up to them to complain when a job is improperly done (many reportedly are afraid or embarrassed to do so) and to check before hiring someone to see if others have complained about his work.

Similarly, the law allowing consumers to cancel any contract within three days of sgning it does them little good if they do not know about it. At the very least, these authorities say, any consumer considering a home improvement job should get two or three estimates of the cost and the need, check out the references of satisfied customers supplied on request, and ask community and state consumer agencies if any complaints have been lodged against that contractor.