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Jun 15
2008

Poker & Unlicensed Contractors


Posted by C. Mason Hearn in value, select contractor, repairs, renovation, remodeling, contractors
 

Who thought the interest in gambling would be so great that the World Series of Poker would be televised on ESPN?  Obviously, somebody's watching.

An interesting point in that regard, quoting Pug Pearson, 1973 World Series of Poker champion, made this observation about human nature:

"The real thing to know is that folks will stand to lose more than they will to win.  That's the most important percentage there is.  I mean, if they lose, they're willin' to lose everything.  If they win, they're usually satisfied to win only enough to pay for dinner and a show..."

I was thinking about this recently as I watched a significant ongoing remodel job across the street, performed by a couple of guys - whom I know to be unlicensed contractors.  I'm sure that the homeowners' math for hiring these fellows must have included obtaining a low price for the work.  So that's their prospective "winnings"- likely a few hundred or thousand dollars.  What about their risk?

 

The use of unlicensed, uninsured contractors is a very common practice.  Despite (perhaps due to) the soft real estate market conditions, we find that more people are resolved to staying put, and therefore making long-neglected improvements to their homes.  This market for relatively-small remodeling projects is booming.  At the same time, homeowners are holding-onto their wallets, and seeking the best deal to achieve these things - sometimes via engaging "side work", "moonlighters", or whatever you want to call it.

There are probably more, and bigger, risks than most people are aware, when hiring an unlicensed contractor.  Indeed, let's review how such engagement is truly going "all-in" (a poker term, meaning "betting the farm") for the reward of a relatively small potential gain.

First, the practice is illegal.  For them, the Code of Virginia states:

§ 54.1-1103. A. No person shall engage in, or offer to engage in, contracting work in the Commonwealth unless he has been licensed under the provisions of this chapter.

For the hiring homeowner, established law provides that, the homeowner is legally the contractor, and these workers become his statutory employees.  Therefore, the homeowner essentially becomes liable for all of their actions and consequences of their work.

Certainly, the homeowner has no assurance that the unlicensed contractor will be reporting his wages to the IRS, and making all of the required payments thereto, these are some other potential statutory liabilities:

When hiring an unlicensed worker who is working for wages that are not going to be reported to the IRS as income, you (technically) become that worker's employer and (technically) you become responsible for income, Medicare, social security and unemployment taxes at the Federal level and, depending on the state you live in, may be responsible (technically) for some of the above...again...at the state level.

I suppose that the typical homeowner in this situation is thinking "it's OK for him to duck the IRS, and for me to be complicit in this little tax evasion thing" - gambling that nobody will ever be caught.  What about other liabilities?
 

  • Unlicensed individuals are considered your employees. That means you are required to provide them with workman's compensation insurance. If you do not provide this insurance not only are you in violation of the law, you could be held responsible for paying their salary for the rest of their life should they get hurt.
  • Unlicensed individuals have no liability insurance. That means no protection of your investment from faulty materials or workmanship. Theft from the job site isn't covered and a worker's carelessness that leads to injury or property damage could leave you holding a very large bill.
  • Unlicensed individuals leave you unprotected against a mechanic's lien. If the contractor you hired to do the work doesn't pay his suppliers they can put a lien on your house.
  • Individuals not licensed do not have bonding protection on their jobs through the state fund, which means you don't have this protection.
  • Unlicensed individuals can not apply for permits on the job you hired them for. Without a permit, not only are you again breaking the law, you are afforded none of the protections the permitting process offers you.
  • Your job will not be covered by your homeowner's insurance because insurance companies won't cover bootleg work.
  • You may encounter problems when you attempt to sell your house. Some counties may even require you to rework the job, costing you twice.
  • Officials can, and do, even require the entire removal of the non-permitted structures.
  • Permitting is done to ensure that the building codes are met. Building codes are there to ensure that the job is done correctly. The unlicensed individual probably doesn't even know what the codes are, and is even less likely to follow them.
  • If the codes aren't followed and the job isn't done correctly severe injury to you or your family could result from using the incorrect materials or through faulty workmanship.
  • People often "poo-poo" the building codes when it comes to "simple" projects like a deck or garage but it is no laughing matter when an improperly built garage or deck collapses, leaving a family member buried under five or six hundred pounds of wood.

Excerpted from American Contractor's Exchange, www.homerepair.org

Let's review the prospect of hiring an unlicensed contractor.  What if this "contractor" presented in complete disclosure, a flyer that described his offerings as follows:

  • I am not committed to operating lawfully, and will ask that you do some things that are ummm... in the "grey" area, legally, to work with me
  • I am not subject to professional regulation, including the Board for Contractors nor their Contractor's Recovery Act
  • I am unlikely to  pay taxes and/or arrange-for other requirements of proper employment, potentially leaving you liable for the same
  • I am completely uninsured, therefore creating almost unlimited liability on the part of the homeowner - should we burn-down your home through our own negligence, or break my neck falling off your roof - I obviously have no means to handle this, so it's your problem!
  • I have no substantial credit, equity, nor financial stability
  • I am not likely to be in business in the near future, to respond to any concerns you may have regarding the work (heck, not really "in business" today)
  • I have no office, no management nor administrative support, and no means of contact other than my cell phone or home answering machine (which numbers I could easily change tomorrow)
  • I will save you a few bucks!

 

You already knew most or all of these things, right?  Will you invest in home improvement, or gamble?  Does the "bet" sound like a good one?

 






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