For years, unscrupulous contractors have manipulated homeowners into signing shady contracts that invariably lead to subpar repairs and fraud. The predatory practice not only victimizes consumers but also affects property values and drives up insurance premiums. 

Maryland is one of many states to seek a legal remedy and just yesterday approved a bill that will ostensibly deter the crime. In a move endorsed by The Coalition Against Insurance Fraud (the Coalition), Gov. Martin O’Malley signed a new law forbidding contractors from offering rebates.

“The door was slammed on a shameful ruse that lets crooked contractors invade a homeowner’s castle to do shoddy and inflated repairs,” says Howard Goldblatt, the Coalition’s director of government affairs. “Prosecutors now have a focused legal tool that can better sweep cheating contractors off the streets.”

Goldblatt deemed the law “a foresightful consumer protection,” praising both Gov. O’Malley and the Maryland legislature, noting that SB 736 overwhelmingly cleared the General Assembly this year.

Shady contractors often use rebates of insurance deductibles to convince homeowners to sign contracts. Once in the front door, quite literally, dishonest contractors are free to try and defraud homeowners and their insurers.

“The money that contractors steal through the repair project can earn an illicit and inflated profit that easily offsets the deductible they paid,” Golblatt explains. “Honest contractors with good reputations do not need to dole out backhanded bribes to earn repair contracts. Rebating is a last-ditch ploy by often-incompetent contractors who can’t earn business honestly.”

Post-Cat Cons

Rebating offers are especially common after storms sweep through neighborhoods and cause considerable home damage. Storm-chasing contractors, often unlicensed and out of state, typically seek business by knocking on doors, the Coalition notes.

The lure of saving hundreds of dollars can carry a cerain appeal to distressed homeowners, who may urgently need repairs to damaged roofs or other parts of the home structure.

“Once contractors gain access to the home, they may demand a large down payment and then disappear without doing any work,” Goldblatt says.

When inflated repairs are actually made, they can be shoddy, using substandard materials. In fact, the Coalition notes some contractors have even used tree limbs to enlarge holes in roofs and fraudulently inflate insurance bills.

Fixing up poorly executed repairs can obviously take an emotional toll on homeowners. Moreover, a homeowners’ insurance policy may not be obligated to cover the cost of fraudulent repairs.

Goldblatt stresses the importance of educating consumers about the flipside of rebates. It’s likely that other states may follow Maryland’s lead, too.

“Public and private agencies should continuously educate homeowners about the rebating ploy and other contractor scams,” Goldblatt says. “Educating consumers must happen well before storms strike. Once the storm hits and dishonest contractors swoop in, that may be too late.”