In all states in this country, a person doing improvements that are exceeding a certain dollar threshold is required to have a valid contractor’s license. In most states the dollar threshold is five hundred dollars ($500.00). Any work above this threshold requires a contractor’s license issued by the state contractor’s licensing board. Failure to have such a license typically has a drastic impact upon the person performing the work of improvement.
Unlicensed contractors
The laws of all state require a written contract for improvements typically exceeding five hundred dollars ($500.00), dated and signed by the homeowner and the contractor. Many state statutes require the contractor’s license number to be on the contract with reference that any consumer complaint be directed to the state’s contractor’s licensing board conspicuously placed on the document with the address and telephone number of the board.
If an unlicensed contractor does a job for a consumer -- be it a remodel or some other improvement-- where the costs of the services and the materials exceed that threshold amount (typically $500), the homeowner under varying state statutes is not obligated to pay the unlicensed contractor for services and materials rendered. The reason is that many states have statutes (
State’s legislatures enacted the statutes to protect the public. They require the attendance at classes and passage of a state examination in order to become licensed in that state. This assures that the person doing contracting work has the minimally required training, education and experience to perform as a licensed contractor and is aware of the standard of care and the accepted custom and practices in the construction industry.
For example, if a homeowner hired an unlicensed contractor to remodel a bathroom at a cost exceeding $500 and the installation was defective -- tile was not properly laid with a moisture barrier as required within industry standards --not only is the homeowner legally entitled to not pay the unlicensed contractor, the homeowner can hire a licensed contractor to fix the defective tile work and bring a lawsuit against the unlicensed contractor for the costs for the bathroom remodel that exceed the amount the unlicensed contractor agreed to be paid for.
Another example is the case of an unlicensed landscaper who is to install a new irrigation system in the back yard of a homeowner for a flat fee of $4,500. This unlicensed landscaper installs the irrigation system without any flaws under a written contract and now wants to be paid. Under the laws of most states, the homeowner is not legally obligated to pay any portion of this $4,500 to the unlicensed landscaper . Worse yet, many states have statutes prohibiting this unlicensed landscaper from even suing the homeowner for the $4,500 amount. The end result in this example is the homeowner gets a free irrigation system valued at $4,500.
Filing a lawsuit against an unlicensed contractor: Is it worth it?
If the homeowner and an unlicensed contractor cannot reach an agreement to fix the job, the homeowner can generally file a lawsuit for damages (usually with the assistance of an attorney experienced in construction law). The problem with filing any lawsuit (and more so against an unlicensed contractor) is collecting on the amount awarded by a judge or jury.
Many unlicensed contractors have little personal assets and once a dispute arises, cannot be easily located. The issue is whether or not filing a lawsuit against an unlicensed contractor who performed improperly a work of improvement is worthwhile from a cost benefit analysis to the homeowner.
One benefit is that typically most unlicensed contractors do not answer the complaint served upon him or her where the result is a default judgment. The cost to get a default judgment early on in the litigation process is typically quite small in terms of attorney's fees ($1,500 to $2,000 for example) and the judgment can be renewed usually before the passage of ten years. In such a situation, the homeowner could assign the judgment to a collection agency so that the homeowner does not have to bear the costs of trying to collect; the collection agency does. If the collection agency is successful, then the homeowner receives a percentage of the collected amount. If the homeowner never collects upon the default judgment, there may be certain tax advantages regarding writing the judgment off. However, only an experienced tax preparer would be in a position to make that determination.
The downside of suing an unlicensed contractor for faulty work is that expenses for the litigation will be incurred and if a judgment is awarded for the homeowner, the homeowner may never collect. Most licensed contractors have a limited liability company or a corporation that they work under and are bonded. Unlicensed contractors rarely work through a limited liability company and are never bonded.
Should a homeowner file suit against an unlicensed contractor, it is best to hire an attorney experienced in construction law for many reasons: (1) the knowledge that an unlicensed contractor cannot file a lawsuit for unpaid services and materials allegedly owed by the homeowner, (2) establishing legal theories of recovery, (3) ascertaining whether the homeowner may be entitled to attorney's fees if the homeowner wins, and (4) ascertaining the existence of any possible assets of the unlicensed contractor that could be levied upon after a successful award is made.
Most homeowners simply do not have the experience, training and resources to file a lawsuit on their own, serve it upon the unlicensed contractor, wade through the court process and then collect upon a judgment if one is awarded.