Invest time researching contractors before you invest your money

Although most home repair and improvement contractors are honest, licensed business people, the Council of Better Business Bureaus in Arlington, Va., says that home improvement ripoffs rose nationwide by 10 percent last year, and as much as $1 out of every $15 goes into the pockets of home-repair con artists.

Suppose you hire a general contractor to build a family room on your house. The contractor charges the ordered materials to his bill but fills in your name as recipient of the order. When the work is complete, you pay the contractor in full.

Later, the court clerk notifies you of a mechanic's lien on your house. A lien can be filed by any contractor, subcontractor, or supplier providing work or materials for the job.

You prove you paid the contractor but discover the contractor didn't pay the supplier. As a result, the supplier demands payment from you. If you refuse, the supplier can bring suit against you. You want to sue the contractor but find that the company has gone out of business, left town, or declared bankruptcy.

Some states don't accept payment to a contractor as a defense against a lien unless the householder withholds the final payment till after the filing period of a lien (30, 60, or 90 days).

How do you avoid this ''sting''?

Get a waiver of lien (a paper renouncing the right to file a lien) from the contractor, subcontractors, and suppliers. Ask the contractor to sign a paper saying you have a complete list of what was purchased. Or you could make all the payments to suppliers and subcontractors yourself. Also, keep the final payment until after the filing period for a lien, and state your intention to do so in the contract.

The Council on Consumer Information, the Center for Consumer Affairs, and the Council of Truth in Advertising all give consumers planning home improvements some sound advice: Invest your time researching and checking before you invest your money!

Here are some tips:

* Check your contractor. A reputable contractor has a contractor's license, liability insurance, and worker's compensation numbers. You can use the license number as reference in any complaint against the contractor. The insurance covers the contractor's helper. If he isn't covered and someone is injured while working on your house, you could be held responsible.

Further, ask your county or city court clerk to see if any judgments or pending cases exist against the contractor. Write or call the above agencies, as well as your local Better Business Bureau.

* Find out how long the company has been in business. Watch for out-of-state license plates. Insist on references so you can contact them to inspect job quality. Ask where the company has credit for materials, and get permission to check these sources.

* Get at least three bids, and accept the contractor that checks out with the most favorable credentials.

* Sign your contract, but make sure it's not a ''lien sale'' contract, in which you put your house up for sale as collateral to guarantee payment to the contractor. If you should stop payment to the contractor, he may be able to foreclose on your house.

* The contract should specify the work to be completed, materials, completion date, on-site cleaning procedure, total cost, and schedule of payments.

* Pay by the job, not by the hour. Also, you could pay one-third before the work begins to cover the cost of materials; one-third when the work is half done; and one-third, less 10 percent, at completion of the job, the final 10 percent to be paid in 30 days to ensure your complete satisfaction. A reputable contractor will agree to this payment arrangement.

* The work-completion date can be subject to weather conditions, of course.

* If you should fall prey to a home-improvement fraud, get in touch with the local licensing board and complain to both the state and local consumer agencies , state attorney general, and district attorney's office. Make sure you have all the facts: bills, contracts, letters of agreement, canceled checks, and any other documentary evidence.

Consumer agencies tell countless stories about how home-improvement consumers can and do get swindled. Listen to a few of them to see if you could have avoided being the victim.