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Home construction turning into a money pit?

Homeowners share their nightmares with unlicensed contractors.

Last fall, a San Francisco single mother hired a contractor to do work on her home.  But instead of a finished basement, she says she was left with a rotting frame and plenty of rage.

After spending more than $100,000 dollars, she's broke and facing foreclosure.

Another man says the same contractor walked off with $89,000 and left his house a disaster.

Paul Flores, homeowner:  It’s a nightmare.  It’s the worst nightmare that any homeowner can go through.

The contractor had no license, but he did have a record for grand theft and 57 complaints on file with the state’s licensing board— something his client didn’t know.

The home contracting industry nationally does $200 billion in business each year. There certainly are many honest contractors.  But authorities estimate that millions of dollars are lost to unscrupulous ones. 

Investigator Rick Valluci says that in California, a big problem is contractors who operate without licenses.

Victoria Corderi, Dateline correspondent: They’re ripping people off?Rick Valluci, investigator:  I would say the good majority of them know that they’re ripping people off. If they finish the job, they finish, if they don’t they don’t.  They get all the money they can and take off.

Undercover operation
That’s why investigators for the licensing board are going undercover, posing as homeowners in a sting operation luring unlicensed contractors before they have a chance to lure consumers. They target the worst offenders.

Karl Vega, California state officer for licensing board:  We’re not waiting for the complaints to come in anymore.  We go out and do stings like this and try to catch the unscrupulous illegal operators.

The operation begins with calls to contractors who use phony license numbers in their ads in the yellow pages and on their trucks. Then they set up shop in a house  and wait to see who shows up.

They’ve called Thomas Pickering of Sacramento— a contractor who installed a faulty heating system for one retiree. Despite having 32 other official complaints and a revoked license, Pickering just keeps on working.

And he’s among the first to show up at the sting house.  He gives undercover investigator his bid. Meanwhile, police are waiting in a backroom listening. They hear the undercover investigator ask about Pickering’s license. Then they move in with the licensing board’s cameras rolling.

The license number Pickering gave them, it turns out, was not his. So he was arrested.  And yet, he didn't seem all that upset.

Thomas Pickering (on camera):  Ahhh And I was being nice and everything.  What do you want to see tears on the camera?

Two men who show up at the sting house work for a tree removal business. Neither one has a license.  Like eight others that day, they walk straight into the arms of the law.

They even caught a pot-smoking contractor. Investigators say, in a worst case scenario, if the unlicensed contractor doesn’t have insurance, the homeowner is taking a huge risk.

Jeff, California officer:  So there's no worker’s comp on the guy that’s going to be climbing your tree who’s high on pot. Corderi: So they can sue you if the guy who’s high falls out of tree?Jeff: If he falls out of the tree and lives, and knows anything about worker’s comp laws, he knows he can hire an attorney and sue the property owner for everything he has.

Catching workers with drugs is not unusual.  They say they’ve seen plenty over the years: marijuana, cocaine, Valium.

Valluci:   A lot of these unlicensed people are drug users, repeat offenders and have warrants for their arrests.  Some of them have a history of child molestation.

That’s why they want contractors to have a license—which in California means they have to pass a competency test and be subjected to a criminal background check.

Last year investigators arrested 19,000 unlicensed contractors in California. That's just a fraction, they say, of those who are out preying on homeowners.

But there’s a whole category of contractors that police may not be able to touch.  Because it turns out that even if your contractor does have a license, it may still not protect you from being ripped off.

Brian Sher thought he was doing everything right when he hired a contractor to build his new home. He made sure he had a license— and even got references.

Brian Sher, homeowner: Everyone was very complimentaryVictoria Corderi, Dateline: There were no complaints on his record?Sher: No complaints whatsoever.

So, then, why did things go so wrong?

Sher: I’ve been taken so badly and there’s nothing that I can do about it

First, Sher says, his contractor, Richard Martinez, fell way behind schedule. And worse, he botched the job.

Sher: How a guy can put a beam that should have been there and it says on the plan is absolutely unbelievable. 

Now the house has to be torn down. The contractor, he says, took the lumber and windows from the construction site and refused to give them back.

He says he’s been receiving bills the contractor never paid for things that had nothing to do with his project. 

Sher: Personal tools, candy bars, stuff which are just for himself, cell phones, cell phone holders.  He charges to my job site I have to pay it. I can’t do a thing about it.

Sher says in the end he’s out $200,000 dollars and may even lose his property. 

We went to his contractor’s house and he wouldn’t come out. But he did call us and leave a voicemail, on which he said he was the victim. We called him back, and Martinez agreed to an interview then didn’t show up.

Fooled by a good reference
If you think that’s an ugly situation, talk to Ed Shimmon and his wife.  They did what most homeowners do— very little homework. They got a good recommendation and went with that.

Ed Shimmon: I had the architect tell me he was a great guy, a great builder.  I’d be lucky to get him to build my house.

That great guy was contractor Covey Cowan.  And they hired him to build their multi-million dollar Silicon Valley mansion.

Annalise Shimmon: He seemed very sincere.  So it’s still hard for us to believe what’s happened.

What happened was a financial debacle. Shimmon says he was paying Cowan hundreds of thousands of dollars. But that as weeks passed, Shimmon says the contractor told him needed more.

Corderi: He would tell you he’s running out of cash?Ed Shimmon: Yes, he actually came to me and wanted to borrow a quarter million dollars.Corderi: Now, that doesn’t inspire confidence.Ed Shimmon: That didn’t inspire confidence at all.  I mean, here’s a multi-million dollar project and I know you’re signing up other multi-million dollar projects...—and now you want to borrow a quarter million dollars from me?

Shimmon’s wife, Annalise, says the stress was unbearable. One particular phone call between contractor Cowan and her husband, she says, left her shaken.

Annalise Shimmon: They screamed at each other for 45 minutes, I would say,  to an hour. I thought he was going to have a heart attack. The contractor had control of him and it was killing him.  It was killing him. Corderi: Why didn’t you fire him?Ed Shimmon:  I was afraid and I got to tell you I felt like I was a hostage.  If I didn’t give him money, he was gonna be angry with me and sabotage my project.  It’s like you’re just trying to be nice to him.Corderi: It’s almost as if he’s doing you a favor.Ed Shimmon: Exactly. That’s the best way I can describe it—he’s doing us a favor.Corderi: Which is crazy but—Ed Shimmon: That’s the way it is. As soon as that contractor starts your project and you give him money, you’re invested with him for the next until he’s done.

It turns out contractor Covey Cowan had a history of financial problems. In 1994, his business went bankrupt, leaving a trail of angry creditors. That was something Shimmon didn’t know. Neither did another homeowner until it was too late.

Corderi: When you hear the name Covey Cowan, what pops into your mind?Mimi Chang: He’s a thief, basically.

Mimi Chang hired the contractor to build her family’s home in the Tony Hills of San Francisco.

Chang: It was a disaster.

About six months into Chang’s project, Cowan delivered some very bad news.

Chang: He was very nervous. And he said that he was going out of business. Workhad stopped on our job the day before.  And that was it, he was walking away from the job.

Ed Shimmon says he got a similar call.

Ed Shimmon: I was shocked.  It was a 30-second phone call. I mean, it was like, “I’m shutting my doors.  I can’t make payroll.” And he hung up the phone.  It wasn’t no—

Corderi: "I’ll try to help you.  I’ll take care of it.  I’ll finish the project.  I’ll find somebody else."?Ed Shimmon: Zero.Corderi: What did you say?  Ed Shimmon: I was speechless.

Shimmon was speechless— until he began receiving bills for thousands of dollars from subcontractors: money he says he’d already paid Cowan to cover the supplies.

Ed Shimmon: So how does that make any sense that I had to pay the contractor a year ago and now the cabinet guy wants money from me?

Because it turns out, even though Shimmon paid Cowan, Cowan never paid the cabinet maker—or some of the other subcontractors.  Mimi Chang also began receiving bills she thought shed’ already paid.

They learned a potentially costly little secret of the contracting business: In most states, when you hire a contractor, it’s your responsibility to make sure all of the subcontractors get paid. If not, they can put a lien on your house, and in effect force you to hand over money or risk losing your property.

Now, Ed Shimmon says he’s facing lawsuits over unpaid bills. Yet, he is still forging ahead with the construction— this time he’s the contractor— managing the project by himself.

Cowan’s other former client, Mimi Chang, says she still can’t believe the contractor’s attitude toward her predicament.

Chang: I said, “Are you ever going to make this right for us?  Are you ever going to try to pay this back?” He looked at me and said “no,” basically. 

After much searching, Mimi Chang found another contractor willing to finish her home, but thanks to Cowan, she says her family has taken a devastating financial hit.

Chang: This was our money.  This was our retirement. It’s shaken us a lot. And it’s been a tough road.

We wanted to find contractor Covey Cowan to as why he abandoned the Chang and Shimmon projects, and you may be surprise to find out where we caught up with him.

We watched dozens of arrests when we tagged along on five different sting operations set up by the California state licensing board.

What happens to those illegal contractors? Most of them simply get a citation like a traffic ticket. It’s a misdemeanor to work without a license.

But often that’s not enough to keep unlicensed contractors from working. Remember Thomas Pickering, the contractor with numerous complaints and a revoked license? He was charged with a felony for using someone else’s license. He never even bothered to show up for his court date. On that day, we found him loading up his truck with tools and heading off to work. 

Corderi (Dateline footage): Mr. Pickering, I’m wondering why you’re still working even though you no longer have a license?(Pickering drives off)

The contractor who walked off his projects
And what about that contractor who did have a license and abandoned the projects of these homeowners?

You might be surprised to find out what the contractor is doing now.  He’s back on the job working on another multi-million dollar project just 20 minutes from those houses he abandoned.

We watched Covey Cowan for weeks managing the building of a $8 million 6,000 square foot home. As the first to arrive and last to go home, he seemed to be in charge again. We confronted Cowan on his business history.

Corderi: My name is Victoria Corderi and I’m with Dateline NBC and I had a couple of questions. I was wondering how you’re working on this project if you’ve abandoned other projects. Because there are families who are out hundreds of thousands of dollars.  And they’re wondering where that money is. Can you tell us?Covey Cowan:  Uh... Uh...I don’t think I really need to have any conversation with you.Corderi: Can you give them an explanation.  Do you think they deserve one?Cowan:  Uhhh...  I’ve given my explanation to all those people.Corderi:  No, you haven’t.  The last thing you said to them is you’ve going bankrupt and you walked away.Corderi:  Doesn’t it behoove you to give them an explanation for that since you’re obviously working again?  Cowan:  Well, yeah but I still got to put bread on the table don’t I?Corderi:  So do they.Cowan:  Yeah.  Uh. You know, I did the best I could and I ran into some tough breaks and I couldn’t keep the business going.

The contractor disputes homeowner Ed Shimmon’s version of what happened, including that he asked for a loan. To hear Cowan tell it, he says he’s a victim of circumstance.

But his former clients allege they’re the victims— that Cowan used their money to pay bills from other projects. That’s illegal in California. Cowan didn’t address that allegation, but did admit he didn’t run his business properly.

Cowan: You know, in this business, every now and then contractors are gonna find themselves upside down.Corderi: By "upside down," do you mean taking money from one job and putting it into another job?Cowan: Corderi:  So that meant you were asking for money and using it elsewhere.Cowan: Uh-uh. Instead of paying the bills at 30 days, I was paying it at 60 days. Corderi:  But it was worse than that. What these people feel like is that they’ve been defrauded. How do you see it?   I’m just trying to understand..Cowan:  Cost overruns.Corderi:  That you don’t account for. That’s so bad you have to leave families in the hole?Cowan:  (nods in agreement)  I wish...Corderi:  Cost overruns are a normal part of contracting right?Cowan nods yes.Corderi: How did it become a runaway train?  Were you just incompetent? Cowan:  There was just a lot of them at the same time.  A lot of things that were difficult to foresee.

And what does he have to say to the homeowners he abandoned?

Corderi:  So what? So it’s over now for you? You’ve declared bankruptcy, these people owe hundreds of thousands of dollars, end of story?Cowan: If there was something I could do to make it right, I would do it. I’m not in a position to make it right.

Cowan says he’s no longer the contractor on the construction job where we found, and that the owners are paying him a salary just to manage the project.

Corderi: Do these people know everything that happened?Cowan:  Oh yeah.  Corderi: And that hasn’t affected your business relationship with them?Cowan:  We did the best we could with the situation.  You know.?  By me staying on here.  It helps to mitigate their loss.

We spoke to the owners of the house and they say although Cowan cost them hundreds of thousands of dollars, they felt they had little choice but to pay him to finish.

They agreed to sit down for an interview but cancelled when they say Cowan said he would walk off the job if they cooperated with Dateline. 

As for Ed Shimmon and his family, an 18-month project stretched into 3 years and they say the contractor’s mismanagement forced them to spend $1.5 million dollars more than they’d planned.  Their house still isn’t finished. And neither is Mimi Chang’s home.

Learning from costly mistakes
All of these people learned some tough and costly lessons about the contracting business. There are some measures you can take to avoid repeating their mistakes:

  • Check the contractor’s license and business history for red flags such as bankruptcy. Ed Shimmon did almost no homework. "I didn’t even check the guy had a business license or a contractor’s license.  I mean, stupid, it’s triple stupid," he says.
  • Also, never give more than 10 percent as a down payment and only make payments in scheduled increments.  Some experts even recommend paying subcontractors directly to make sure they get paid.
  • Finally, consider requiring the contractor to furnish a bond—a kind of insurance policy.  If the job isn’t finished, you’re covered.

In the end, taking precautions may prevent a dream home from morphing into a money pit... or worse.

"Everyone talks about the money. Not that the money is not important," says Ed Shimmon. "It’s the time and the energy and the stress that it puts on the family."