How do I avoid contractor fraud?

Contractor fraud patterns are well-known to state licensing boards and the FTC. The five most common frauds and how to avoid each:

1. Down payment theft — contractor takes a large deposit and disappears or does minimal work. Prevention: in California, B&P Code §7159 caps down payments at 10% or $1,000 (whichever is less) — any contract demanding more is illegal. Most other states have similar 10-25% caps. Pay subsequent draws only after documented milestones pass inspection.

1. Lien waiver fraud — contractor pockets your payment, doesn't pay subcontractors, and subs file mechanic's liens on your home. Prevention: require unconditional lien waivers from every sub + supplier before releasing each draw. Most state mechanic's lien statutes (California CCP §8132, Oregon ORS 87.010, Washington RCW 60.04) require pre-lien notice from subs — ignore those notices at your peril.

1. Unlicensed contractor fraud — "contractor" isn't actually licensed. They may not carry workers' comp. If a worker is injured on your property, you become liable. Prevention: verify license and workers' comp on the state board's website (not on the contractor's website). Print the lookup page.

1. Bait-and-switch bids — initial bid is artificially low; change orders explode the price once work is underway and you can't easily fire them. Prevention: require a detailed scope of work with materials specified (brand, model, grade), a fixed-price contract where possible, and a written change-order procedure requiring your written approval before the work begins.

1. Storm-chaser fraud — after a fire, hurricane, or earthquake, out-of-state contractors solicit door-to-door with urgency pressure. Many aren't licensed in your state. Prevention: never sign same-day. Always verify state license. FTC's Cooling-Off Rule gives you 3 business days to cancel in-home contracts over $25.

Red flags that should stop the hiring process:

• Demands cash only.
• Shows up in an unmarked vehicle with out-of-state plates.
• Won't provide license number.
• Pushes you to finance through a lender they recommend — especially if the lender is a mechanic's lien specialist.
• Quotes arrive faster than a reasonable inspection would take.
• Contract is one page or less with no scope of work.

AskBaily's verification layer blocks every one of these patterns before you're introduced to a pro.