Unlicensed Contractors

What you need to know so you're not on the hook


Before you take the bait of a lowball price for a home remodeling project, make sure that you are working with a state licensed contractor, or that low price could turn into a financial nightmare.

Besides the potential of ending up with shoddy work, painfully long projects, increased costs from the original quote, and inferior materials, homeowners hiring unlicensed contractors open themselves up to incredible risk, liability and financial headaches, including the following:

1) Should a problem arise, you may not have any recourse, as a contract with an unlicensed contractor may not be legally enforceable.

floor flooded

2) Homeowner assumes financial responsibility should the project become problematic.

SCENARIO: Your contractor sends a guy to hang your siding who proceeds to strike a nail through your water pipe. Instant flooding. The sheetrock, insulation, carpet and hardwood floors now need to be replaced. You can scream all you want for the contractor to pay to replace the damaged areas, but if he does not have liability insurance, then he has no way to cover the loss. And without a state contractor’s license, it will be hard to sue him in a court of law.

3) Homeowner assumes liability should a worker be injured on their property.

fall

SCENARIO: The contractor sends an employee to work at your home who then falls off a ladder and breaks several bones. The contractor didn’t carry workers compensation insurance. An ambulance trip, emergency room visit, surgery bills, and doctor fees all become part of your remodeling project price because you are legally liable for the injured party. Angie's List reminds us that "homeowner’s insurance might help cover some of the cost to pay that worker’s claim, after you meet your deductible, but that claim could result in an increase in your rates and make it more difficult for you to get insured in the future." And once again, you cannot seek retribution in court, as your contract may not be legally enforceable.

4) Homeowner assumes liability should the project not meet code.

failed

If the work does not meet local building codes, or the contractor doesn’t pull the necessary permits (which an unlicensed contractor cannot do), you will be responsible for making the repairs to meet code at an additional cost to you.

5) Homeowner assumes liability should project cause future damage to home.

Allowing work to be performed by an unlicensed contractor could also void your homeowner’s insurance policy, should a claim arise as a result of that work.

6) Homeowner assumes liability for payment to sub-contractors and is subject to liens.

lien

SCENARIO: You planned the project of your dreams at a price that was much lower than the other two bids you received. You gladly pay the contractor his requested cash up front for the reduced cost.  Sub-contractors begin working on your project and about half way through they begin asking you for  payment. You are confused because you already paid your contractor. He has not paid his subs. The subs stop coming. The project is unfinished, yet paid for in full and the sub-contractors keep demanding payment from you and threaten to place a lien on your home. Once again, you may not have legal recourse because you are working with an unlicensed contractor.


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How State Licensing Protects Homeowners

In order to protect homeowners and release them from project related risk and liability, most states require contractors performing remodeling projects exceeding $2,500 to be state licensed.

Becoming state licensed is no simple task and it definitely separates the good from the bad contractors. Licensed contractors undergo a rigorous process proving character, integrity, ability, financial responsibility, and financial solvency, requiring that all company bank statements, tax returns, and financials be scrutinized. Here are some of the key specifics contractors must have in order to qualify for state licensure:

Minimum net worth of $25,000

Minimum line of credit of $25,000

Active general liability insurance of $500,000

Active workers’ compensation insurance

Minimum of 4 years residential contracting experience

Pass exam on business & process management, code regulations, and construction materials & installation

Maintain licensure and insurance coverage; any lapse in insurance or licensure will mean immediate suspension and could lead to non-renewal.


How to Verify that a Contractor is State Licensed

Before you take the bait of a lowball quote, ask to see a contractor's license. Remember, a business license is not a Contractor's License. Better yet, verify them for yourself by going to the city and/or state's government websites to search their license for youreslf.

If the contractor you are considering is licensed, then you know that you are protected and are working with a good contractor. If he is not licensed, then ask yourself if opting for the lowest quote is really worth the risk.

EXOVATIONS has all required local and/or state licenses required by law to serve the State of Georgia.


what you should ask a contractor
1) Are you a licensed contractor? Be sure to verify that you are working with a State of Georgia licensed contractor. Many unlicensed contractors will tell you that they are licensed when they are not. Remember, a business license is NOT the same as a State of Georgia Contractor's License. DO NOT TAKE THEIR WORD FOR IT. You can do a simple check online to see if they are indeed licensed. If the contractor is found to be unlicensed or their license is suspended, do not hire them, as you will not be protected.
2) May I have the name and phone number for your company insurance agent? Ask for your contractor’s insurance agent and add yourself to the contractor’s policy as “additional insured”. Any contractor can show you an insurance policy or certificate, but that policy could be expired. DO NOT TAKE THEIR WORD (OR PAPERWORK) FOR IT. The only way for you to be protected is to call the contractor’s insurance company agent and ask to be added to the policy as “additional insured”. That way you will know for sure that their policy is enforce and you are protected. And if there is an issue, you now have the right to file the claim with their insurance company by being listed as “additional insured”. Insist on making that call yourself; otherwise it will not happen.
3) Will you provide me with all subcontractor and vendor lien releases? A lien release will protect you from subcontractors and vendors placing a lien on your home for money due to them by the contractor you hired and paid for the project. DO NOT TAKE THEIR WORD FOR IT. Licensed contractors will gladly provide you lien releases from all suppliers and subcontractors. A lien release from the contractor does not absolve lien rights for subcontractors and vendors who supplied material and labor for your project.
4) Will you pull the required building permits for my project? If a contractor insists that you pull the permits yourself, DO NOT DO IT, as that process will legally name you as the general contractor, removing liability from your hired contractor and placing it on you. Only licensed contractors are allowed to pull building permits on behalf of the homeowner.
5) Will you provide me a written contract? A good contractor will have a good contract. Contracts are the legal documents that give you clear rights and remedies. A good contract details the specifications of the project. Handshake deals are basically costly battles waiting to be fought. Remember when you go to court on a "handshake deal" it's your word against the contractor's and you should not be surprised to see how much your memory disagrees with what the other side believes. Avoid large up-front payments. Some deposits are reasonable if required by a contractor when items are special ordered or non-returnable. If possible, use a credit card to make payments so that you may avail yourself of additional legal protection.

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