A contractor calls and says he is working in the neighborhood, or he knocks on your door and may offer to repave your driveway or remodel your bathroom at a price that sounds quite reasonable. You tell him you are rather interested, but you can not afford it right now. He tells you there is no problem at all, he works with a bank or lender and will arrange easy financing through them.
You agree to have him do the project, and the contractor begins the work. At some point just after he begins, you'll be asked to sign a batch of papers. Some of the papers may be blank or the lender's representative will ask you to sign before you read what you are signing. But the contractor is doing the job so you sign the papers. Later on, you realize that the papers you signed are truly a home equity loan. The interest rate, points, and fees are higher than they should be. In addition, the work on your home isn’t done right or has not been completed. The contractor, having been paid by the lender, has little or no interest in completing the work or satisfying you.
You must protect yourself from these unscrupulous lending practices.
Agree to a home equity loan if you can’t make the monthly payments. Sign documents you haven’t read or any document with a blank space to be filled in afterward.
Let anyone pressure you into signing any document. Deed your property to anyone. Consult an attorney, or a knowledgeable family member, or someone else you trust. Agree to financing through your contractor without shopping around and comparing terms.
Always Get a Written Contract
Contract requirements vary by state and locality. If your state does not require a written agreement, ask for one. A contract spells out who, what, where, when, and the costs of your project. It should be clear, concise, and complete. Before you sign a contract, make sure it contains the contractor’s name, address, phone, and license number. If a corporation, make sure it includes the owner's and principal's name as well.
It must also include the payment schedule for the contractor, subcontractors, and suppliers as well as the estimated start and completion date.
It should also have the contractor’s obligation to obtain all permits, including a list of those needed and a clear definition of how changes to the order will be handled. A change order, common on remodeling jobs, is a written authorization for the contractor to make a change or addition to the work information described in the original contract. It may affect the project cost and schedule and should clearly spell this out. Remodelers may require payment for change orders before work begins.
It should have a detailed bill of materials listing everything needed including color, model, size, brand name, and product. Warranties covering both materials and workmanship should be there too. The names and addresses of the parties honoring the warranties, whether it is the contractor, distributor or manufacturer, must be clearly identified. The length of the warranty period and any warranty limitations should be spelled out.
You should create an agreed upon list of what the contractor will and will not do. For example, site clean up and trash hauling. Request a "broom clean clause." It makes the contractor responsible for all clean-up work, including spills and stains. Any oral promises should be included in the written contract.
The contract should include a written statement of your right to cancel the contract within three business days if you signed it in your home or at a location other than the seller’s permanent place of business.
During the sale, the salesperson (or contractor) must give you two copies of a cancellation form (one to keep and one to return to the company) and a full copy of your contract or receipt. The contract or receipt must be dated, show the name and address of the seller, and explain your right to cancel.