What are the most common general contractor scams?

Five general contractor scams account for the highest dollar losses in residential construction. Each has a specific defense.

1. Progress-payment fraud (paying ahead of completed work). The classic GC fraud pattern: contract specifies 30% upfront, 30% at framing, 30% at drywall, 10% at completion. The homeowner pays 30% upfront. Work begins. The GC reaches 20% completion and claims to be at the "framing milestone," requesting the next 30%. The homeowner pays. Work continues to 30%. The GC claims "supplier issues" and needs the third 30% to advance-pay subs. The homeowner pays. Then the GC disappears — 60% paid, 30% complete, project abandoned. Subs file mechanics liens for unpaid work. Defense: tie payment milestones to permit inspection sign-offs (rough electrical, rough plumbing, rough framing, drywall, final), not to the GC's verbal claim of completion. Get an independent inspection at each milestone before paying. Use joint checks (homeowner + GC + sub) for large sub payments.

2. Undisclosed subcontractors who file mechanics liens. The GC signs the contract but uses unnamed subcontractors. If the GC doesn't pay the subs, the subs file mechanics liens against YOUR property — even though you paid the GC in full. You may be forced to pay twice (once to the GC who pocketed it, once to the sub to clear the lien) or face foreclosure. Defense: contract must name all subs with license numbers, require unconditional lien waivers signed by every sub at every payment milestone, and require the GC to provide a list of suppliers (lumber yard, HVAC distributor, plumbing supply) with monthly account-current confirmations.

3. Phoenix-company evaporation. The GC's LLC was formed 6 months ago. The qualifying party's prior LLC had judgments, mechanics liens, and BBB complaints — but the new LLC has a clean record. The same operator is escaping prior debts behind a new entity name. The pattern repeats every 2-3 years. Defense: search Secretary of State by the qualifying party's PERSONAL name (not the company name) to surface every entity they've operated. A pattern of LLC formation and dissolution every 2-3 years is the signature phoenix pattern. Groundcheck phoenix detection automates this lookup.

4. Large upfront deposits. California caps GC deposits at 10% or $1,000. North Carolina, Florida, Arizona, and most other states have similar consumer protection caps. A GC asking for 30%+ upfront is operating outside legal limits. Defense: cap deposits at the legal limit. If the GC insists on more, walk away — operators who require large upfronts are typically using new deposits to cover gaps in prior projects, the textbook pre-failure pattern.

5. Change-order inflation. The contract specifies $80,000. Three months in, change orders have inflated to $135,000. Some change orders are real (homeowner requested upgrades, undisclosed conditions like rotted subfloor). Most inflation is the GC discovering profit on padding hours, marking up materials 30-40%, and treating ambiguous scope as "additional work." Defense: require written change orders with specific scope, materials cost, labor hours, and homeowner signature BEFORE the additional work starts. No "we'll figure it out at the end" change orders.

6. "I know a guy" referrals to unlicensed trades. The GC announces that for the electrical, plumbing, or HVAC work, "I know a guy" who can do it cheaper. The guy turns out to be unlicensed. The work fails inspection or, worse, passes initial inspection but fails at sale 5 years later. The homeowner pays to redo the work through a licensed trade. Defense: contract must require all subs to be licensed at the state level for their trade, with license numbers documented.

7. (Bonus) Allowance manipulation. The contract has "allowances" for fixtures, finishes, appliances. The GC sets the allowances low ($800 for kitchen faucet, $4,000 for kitchen cabinets) so the bid looks competitive. The homeowner then exceeds every allowance (because the real price is $1,500 / $12,000), and the project comes in $40,000 over budget. Defense: review allowance amounts against current retail pricing before signing. Realistic allowances or fixed-spec line items eliminate this.

8. (Bonus) Insurance certificate manipulation. The GC provides a certificate of insurance (COI) that was canceled three weeks before the project starts. Defense: call the insurance carrier directly and verify the policy is current. A PDF COI is worthless without a carrier-confirmed verification.

Groundcheck (earthmove.io/trust) verifies the state GC license, runs phoenix-company detection by qualifying-party name, surfaces court records (mechanics liens FILED against the GC, judgments, lawsuits), OSHA citations, and BBB. For state-specific GC licensing thresholds, see earthmove.io/trust/license/general-contractor/[state].