How Homeowners Can Prevent Construction Fraud

We have all heard the expression, “Fool me once, shame on you. Fool me twice, shame on me.” But, how do we really know when we are being fooled? Though Construction Fraud was not listed in Investopedia’s Most Common Types of Consumer Fraud article, Construction Fraud is more common than you would think. Normally, when one thinks about the term “fraud”, you think of your credit card being compromised, but did you ever think of Construction Fraud, and ways you can prevent it?

According to, the sole definition of Construction Fraud is “The involvement of deceit in the performance of construction work, often involving home repairs. Basically, promises are made that are intended to be relied on, and that reliance leads to harm or loss when the promise fails to be fulfilled.” Just like any obstacles you may pass, there are steps you can take to ensure you are not another victim.

Below are four simple steps that can prevent harm from your contracting company.

Use a licensed Contractor / Sub Contractor: Using a licensed Contractor means that they hold the appropriate liability and protection insurances, just in case something was to happen on the job. Always request copies of your contractor’s liability and workman’s compensation contracts, for your protection.

Review THEN sign your contact: Reviewing your contract before signing it plays a major role in understanding and agreement. The party understands which work will be done and agrees to pay the negotiated price. Nothing more, nothing less. Homeowners are encouraged to seek and obtain qualified legal counsel to review and approve construction agreements, to ensure their concerns are presented and addressed.

NEVER PAY CASH: Paying cash as an unrecorded transaction is extremely dangerous for both you and your contractor. If you have a job that is $5,000.00 and you pay your contractor $5,000.00 cash – if he/she felt like it, your contractor could easily lien you and your home for the “remaining $2,000.00 he never received”. Even though you paid every cent due. Should any payments be made in cash, make sure to request and obtain receipts for the transactions, stating the amount paid and date paid on the invoice.

Make sure your work is inspected: Making sure your work is checked and inspected afterword ensures that everything is safe and up to code. Once this is finished, you can proceed in paying off your contractor. This can only be done when the owner files an application for a building permit for the work that is being done. You can file building permits at your local Building Department. You should never proceed with finished work without a permit or proper inspections.

Thinking you were a victim of fraud and proving fraud in court are two different things. When accusing one of construction fraud, you need to prove that there was harmful and malice content. Though once caught, your contractor would be in a whirlwind of trouble. Fraud in the United States is taken very seriously and can result in heavy payment penalties and even prison sentences.

In 2012, New York City’s oldest Contracting Company, Lend Lease, was accused of routinely paying labor foremen for one or two hours of overtime every day that they never worked. This scheme carried out by the company defrauded government agencies and private developers of an estimated $19 million. Lend Lease was fined $56,000,000.00 in restitution because of their 10-year over billing conspiracy.

As you can see, being victim to Construction Fraud is preventable, and can save you from non-agreed upon expenses. In today’s day and age of the cyber city, finding reviews on your contractor can be very simple and quick. Personally, searching for reviews and consumer reports on your contractor before a hire is the safest option to find the most reliable contractor for your job.

The author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: [email protected] or (631) 608-1346.

The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.  Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.  No reader, user, or browser of this site should act or refrain from acting on the basis of information on this site without first seeking legal advice from counsel in the relevant jurisdiction.  Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.  Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client relationship between the reader, user, or browser and website authors, contributors, contributing law firms, or committee members and their respective employers.

Amy Fontinelle “The Most Common Types of Consumer Fraud” Investopedia (.com) November 10th, 2018.

Tiffany Couch “Detect and Prevent Construction Fraud” Construction Executive (.com) April 16th, 2018

 US Legal (.com) 1996-2016

William K. Rashbaum “Company Admits It Bilked Clients on Big Projects”. The New York Times. April 24th, 2012

RSS “Bovis Lend Lease Fined $56 Million for Fraud” Reuters (.com) April 24th, 2012