Contractor Theft

Over the past four years I have seen an interesting way that a couple of contractors have earned a little extra income. In one case it was tax free.... for a while.

This technique could be considered nefarious by a district attorney. In the state where I reside there is, tucked away in the State Statutes on Construction Liens, a section on contractor theft. Contractor theft is, without getting too technical, defined as using money or material from one job on another or somewhere else.... like maybe a Casino???. If Builder Bob is building a dwelling for Sue and talked her into an up front payment for materials of $2000 and then he took that money and paid for materials he bought for the project he’s doing for Frank, in this State that is contractor theft. Same goes for if he paid himself before he paid for your materials, that too is contractor theft.

Pretty nifty, huh? Try to track where your money is going and try to get a DA to prosecute... and what harm is there if Builder Bob pays for the materials on another job with your cash as long as he does your job to your satisfaction?

(As a side note, if a contractor asks for money up front, try to get the name of the lumber yard on it too. Like “Pay to the order of Jack of all Trades and Home Lumber”. If the contractor won’t accept a check like that then why does he need it with just his name on it? As a 2nd try just put the name of the material supplier on it.... and the address of where your project is. If you think that is a little over the top, read on.)

My sister lives in Australia and over there they “cook tea” which is our equivalent to “making supper”. Yup “tea” is a meal and a drink... Over here in the good old USA, there are individuals that “cook the books”. More on that bit of culinary genius later.

What happens when a contractor manages a job so poorly that after he pays himself there is not money left to pay the subcontractors or for the materials? And then the subcontractors legally place liens on your property? Isn’t that a great way to find out that Bob’s new ATV should have been Plumber John’s payment.

And then there is Builder Bob not paying for the materials he used on your job. The lumber yard is now seeking somebody’s cash and they “know” Bob and want his future business so they, in this State and others, can legally place a lien on your property.

Now it becomes obvious why that section on contractor theft is slipped into the statutes on construction liens.

But some contractors are smarter than the law. Take one that was building a very nice, half log sided home ... strike that ... mansion. The owner makes a few minor changes and then the contractor claims that he had to buy more siding. The owner of course is not totally up on the cost of materials. But he did notice a pile of siding that “disappeared” . With a little bit of poking around and in talking to a couple of the workers he finds out that the builder took that siding to another job. When the owner finally had it up to here with “extras” he dug a little deeper and found out that the “another job” was the builder’s “cabin”. Now this type of activity does not fall under the statute section in Construction Liens about contractor theft.

That was simply Jessie “Hammer” James.

After contacting an attorney and finding out how hard and costly it would be to prosecute Jessie Hammer James because the burden of proof would be on the owner, the attorney suggested a call be placed to 1-800-829-1040 . Lets see how that works and how to get even with Jessie. Jessie is using your money that you paid income tax on to buy materials for his cabin. That is the same as receiving income that Jessie decided he didn’t want to pay taxes on. In other words that was tax evasion. You did catch the last four digits of that phone number didn’t you? 1040   , think April 15th if that helps.

You see when you work you get paid and pay taxes on your income. If you get compensation and hide it and decide not to pay taxes, that is tax evasion, a.k.a. tax fraud or “cooking the books”. The owner had evidence that the builder, Jessie Hammer James, was not paying taxes. The IRS is always looking for crooks and loves to do audits where they know what they are looking for. It makes their life so much easier. Add a witness that will vouch for the nefarious activities of others and Mr. CONtractor gets a free audit and fines and penalties. And if he’s not so lucky he gets what Al Capone got.  They finally nabbed Al Capone on tax evasion.

All this with a simple phone call and filling out some simple IRS forms (yes they are simple compared to doing your taxes)  to report tax fraud . No lawyer to pay, not even a long distance phone call charge, and you feel like you are finally getting something for your tax dollar..... Can you imagine the hassle the builder now has trying to get all his receipts, invoices and other financial papers together for his trip to the IRS office.

Now the other way to handle things is to try to negotiate with the builder AFTER you get his final bill and then threaten the 1-800-829-1040 call. Most nefarious builders will call your bluff. But at least you warned him.

In another case where the builder left the State with unpaid subcontractors, the DA tracked him down and brought him to trial but did it in such a way that the DA had the other State hold the guy until he paid up and then extradite him back to stand trial. Kudos to that DA !

Did these builders have good references. Sure they DID.....

One last thing. If you, as owner, has a construction lien placed on your property and it isn’t a truthful, legal lien, it will cost you dearly to get that lien removed unless the contractor sees the light and removes it . That is not typically the case because the contractor had to pay to file that lien in the first place.  And if a subcontractor places a legitimate lien on your property it will mean a delay in getting permanent financing and time is money....

Not enough can be said about staying in control of your project from day one and as Barney Fife would say, “Nip it in the bud!”