Legal Options Available to Homeowners Who Use an Unlicensed Contractor
UPDATED: August 7, 2013
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In every state, a person making improvements that are exceeding a certain dollar threshold is required to have a valid contractor’s license. Usually the amount is five hundred dollars ($500.00). Any work above this figure requires obtaining a contractor’s license issued by the state contractor’s licensing board. Failure to get a license typically has a drastic impact upon the person performing the work.
Working With Unlicensed Contractors
Every state requires a written contract for improvements typically exceeding five hundred dollars, and it must be dated and signed by the homeowner and the contractor. In addition, many state statutes require the contractor’s license number be on the contract with reference that any consumer complaint be directed to the state contractor’s licensing board. This should be conspicuously placed on the document with the address and telephone number of the board.
If an unlicensed contractor does a remodel or other improvement for a consumer where the costs of the services and materials exceed the threshold amount, 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 like California have statutes stating that individuals performing improvements where a contractor’s license is required cannot file a lawsuit for payment. State legislatures enacted the statutes to protect the public.They require the attendance at classes and passage of a state examination 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.
If a homeowner hired an unlicensed contractor to remodel a bathroom at a cost exceeding $500 and the installation was defective, such as the 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 of agreed payment to the unlicensed contractor. If an unlicensed landscaper installs the irrigation system without any flaws under a written contract for $4,500 and now wants to be paid the agreed amount, 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.
Success of Filing a Lawsuit Against an Unlicensed Contractor
If the homeowner and unlicensed contractor cannot reach an agreement to fix the job, the homeowner can generally file a lawsuit for damages. The problem with filing any lawsuit is collecting the amount awarded by a judge or jury. The unlicensed contractor may have very few personal assets, and once a dispute arises cannot be easily located. However, a reason to file a complaint is that the unlicensed contractor typically does not answer the complaint served upon him, and a default jugment is then issued by the court. The cost to get a default judgment early in the litigation process is quite small in terms of attorney's fees ($1,500 to $2,000 range) and the judgment can be renewed within ten years. The homeowner can then assign the judgment to a collection agency so that the homeowner does not have to bear the costs of trying to collect. If the collection agency is successful, 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. 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. The unlicensed contractor is never bonded and rarely works through a limited liability company or corporation unlike the licensed contractor who usually works through a limited liability company or corporation and is bonded.
If the homeowner does decide to file a lawsuit against his unlicensed contractor, he should consult an attorney experienced in construction law. The attorney is able to establish legal theories of recovery, can ascertain whether the homeowner is entitled to attorney's fees if the homeowner wins, is able to ascertain the existence of possible assets of the unlicensed contractor that could be levied upon after a successful award, and offers the knowledge that an unlicensed contractor cannot file a lawsuit for unpaid services and materials allegedly owed by the homeowner.