A punishing Nor’easter storm moved through town in the early winter. Selena and Steve Simpleton braced for the worst.
The next day, a damage survey showed extensive damage to their home. An old oak tree lifted straight out of the ground and landed on their deck. Shingles ripped off the roof and siding of their home, and large cracks formed in their bay window.
The resulting mess startled and depressed the Simpletons. They called their insurance broker to see what their homeowner’s policy covered.
While they cleaned debris from their driveway, a ‘Rick’s Residential Repairs’ truck pulled up. A man jumped out of the truck and revealed that he worked in the area for years.
“I know how devastating and expensive storm damage can be,” he suggested.
He was “basically their neighbor,” Rick assured them. He could extend the Simpletons very favorable rates to repair the home. They only needed to show him around so he could draw up an estimate of costs and begin making repairs.
Steve hesitated. He did not know or trust Rick. With Selena’s encouragement, however, the two showed Rick around and pointed out the storm damage. Rick had a clipboard and scribbled notes as the threesome walked the property.
Rick told the Simpletons he could make all the repairs—and do it at a fraction of the cost the “big guys” would charge. He also told them he would provide a full punch list of all the work he did, allowing them to fully recoup the costs from their homeowner policy.
Selena and Steve were eager to allow Rick to start work on the project. Rick’s scare tactics encouraged the Simpletons to move quickly. This was a professional scam.
I bet you can guess where this story is going, and it’s not pretty.
Using a fancy-looking form contract, Rick entered an estimated price for repair. The final estimate total was $4,500.
Rick told the Simpletons that he could “inflate” the price to $5,500, which would cover their $1,000 deductible. This, he claimed, made his services free—they could recover the full out-of-pocket costs from their insurance company.
When they looked hesitant, Rick assured the Simpletons that he had been doing this for years. He knew what he was talking about, and he knew how to “work the system”.
Of course, Rick required up-front payment. (This is a huge red flag.)
Rick justified the up-front payment as pay for his crew and for materials in advance. He’d cut them another deal—$3,500 to get started.
Sign the contract.
Make payment by a swipe of their credit card (right on his phone).
Don’t worry about it.
Selena and Steve asked Rick for a few minutes to decide how they wanted to proceed. He agreed and went back to his truck to “call another waiting customer.”
Selena and Steve considered their options. They did not want Rick to leave, and they remembered that the insurance would cover the costs. They had nothing to lose, and they actually loved the idea that Rick would inflate the price to cover the deductible.
Who else would do that?
When Rick came back from making his “call,” he had a revised contract and the Simpletons (with barely a glance) signed on the dotted line. $5,500 for all repairs, plus a credit card receipt for the initial $3,500 deposit. Rick shook hands with the Simpletons. He said his crew would be back in “an hour or two” to get started.
Much like a school exam, I want to know, can you spot the issues here?
Question: What was the first sign that Rick was not trustworthy?
Answer: When Rick, the unsolicited contractor, appeared at the door. That was the first bright, red flag.
The Simpletons hadn’t even called their insurance company, but they agreed (and paid) to start repair work.
When faced with damage to your home (especially if you intend to make a claim for coverage) notify your insurance company first.
Make sure you understand your insurance policy, how to make a claim and when you can embark upon repairs. Your insurer will likely want to make an independent assessment of the damages.
The Simpletons should have obtained more than one estimate—from reputable contractors. The guy in a truck who appeared in their driveway is hardly reputable.
You have to demand references and you have to check them out. Ask for licenses and insurance certificates, or, at the very least, Google the business. Look at the reviews online and check with the Better Business Bureau.
Never sign a contract with blanks. This leaves room for extra terms to which you didn’t agree.
When you sign any contract you MUST get everything in writing.
Do not be complicit in a fraud. Wanting to “save” the deductible is understandable. Even so, taking action to cheat the insurance company is fraud.
Rick claimed that he completed the job. He had the Simpleton’s credit card information and agreement for payment in the contract. Rick ran the Simpleton’s credit card for the $2,000 balance agreed to in the contract (not the remaining $1,000, which was only a verbal agreement).
The Simpletons had no recourse. They signed a contract for $5,500, and Rick charged $5,500.
The insurance company balked at making any payment. They never received notice of the damage (as specifically required by the policy). Ultimately, the insurance claim was denied. The Simpletons called their bank to dispute the two credit card charges. In his defense, Rick provided the bank with the executed Simpleton contract.
Never let a contractor pressure you into being hired and never let one tell you what your insurance covers or discourage you from calling your insurance company. Never agree to pay more than you are told the job will cost. Never engage in fraud.
While stupidity is not a crime, insurance fraud is. While you may want to save a few bucks, are you a criminal? Fraud is a criminal offense.
Don’t let this be you.
“The difference between genius and stupidity is that genius has its limits.”
– Albert Einstein.
I’m a debt settlement and bankruptcy attorney who negotiates resolutions between clients and their creditors. I am also a real estate attorney involved in both sides of purchasing and selling distressed real property. I am passionate about teaching people about money and helping individuals of all ages achieve financial independence and success in a "no…
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