03/20/2013 01:13 pm ET Updated May 20, 2013

Avoiding Post-Disaster Scam Artists

Have you ever turned on the light in a dark basement and shuddered as cockroaches scurried away? I get that same sense of revulsion whenever I hear about unscrupulous swindlers taking advantage of the victims of natural and manmade disasters.

The Better Business Bureau has dubbed these human cockroaches "storm chasers" because they creep out of the woodwork after every major storm or disaster. In fact, because fraud was so widespread after Hurricane Katrina, the Department of Justice created the National Center for Disaster Fraud, a central information clearinghouse for more than 20 federal agencies where people can report suspected fraudulent activities tied to disasters of all types.

Common scams pulled by Storm Chasers include:

After a disaster, crooks pretending to be Federal Emergency Management Agency (FEMA) or Small Business Administration (SBA) employees may try to obtain your personal information (Social Security number, bank account, etc.) under the ruse of opening your claim or moving it forward. Keep in mind:

  • There are never fees to apply for FEMA or SBA assistance or to receive property damage inspections.
  • Always ask to see a government-issued photo ID and take a picture of it with your cellphone. In fact, they should volunteer to show you an ID.
  • Government workers will never ask for payment to perform their duties or offer to increase your assistance grant for a fee.
  • If private insurance adjusters and local building code inspectors visit your property, they too should provide identification on demand.
Another common scam is where supposed repair workers (or their sales people) blitz impacted neighborhoods, hoping to ensnare frazzled homeowners. Their typical line is, "We're really slammed but with a cash deposit you can ensure a spot on our busy schedule." Or, they'll scare people into thinking their home is dangerously unsafe, sometimes actually creating damage during their "inspection."

Often, these storm chasers just take the money and run. Or, if they do show up and make repairs, their work or materials are shoddy. This could leave you on the hook financially since your homeowners insurance probably won't cover unauthorized or fraudulent repairs.

Here are a few tips from the Better Business Bureau to avoid becoming a storm chaser victim:

  • Ask your insurance company about what's covered under your policy and specific filing requirements. Save receipts for food, lodging and other expenses that may be covered.
  • Ask your insurer to survey the damage and see if they have a list of approved contractors. If not, search the listings on the National Association of State Contractors Licensing Agencies (NASCLA) website.
  • Never hire a laborer or contractor on the spot; good ones don't need to solicit work door-to-door. Also, check with your neighbors to see if they suffered damage similar to what is being cited at your place.
  • For major repairs, get at least three estimates, based on the same specifications and materials. Check their references, licensing and registration information with NASCLA, and read reviews posted by the Better Business Bureau.
  • Require written contracts that specify work to be done, materials to be used, start and end dates, responsibility for hauling away debris, and costs broken down by labor and materials. Verify that the contractor's name, address, phone number and license number are included, as well as any verbal promises and warranties.
  • Never sign a contract with blank spaces. Unscrupulous contractors sometimes enter unacceptable terms later on.
  • Read the fine print. Some shady contracts include clauses allowing substantial cancellation fees if you choose not to use the contractor after your insurance company has approved the claim. Others require you to pay the full price if you cancel after the cancellation period has expired.
  • Ask your contractor to provide proof of current insurance that covers workers compensation benefits, property damage and personal liability. Depending on the size of the job, you may want a performance bond, which protects you if work isn't done according to the contract.
  • You'll probably be asked to pay an upfront deposit to cover initial materials -- one-quarter to one-third is reasonable upon delivery of materials to your home and once work begins.
  • Never pay in full in advance, and don't pay cash. Have the contract specify a schedule for releasing payments, and before making the final payment, ask the contractor to provide proof that all subcontractors have been paid -- if not, you could be liable for their fees.
  • If you suspect anyone -- whether an inspector, contractor, disaster survivor or someone posing as one -- of fraudulent activities in relation to a natural or manmade disaster, call FEMA's toll-free Disaster Fraud Hotline at 866-720-5721, or local law enforcement officials.

To learn more about safety and financial precautions you can take before a disaster occurs, read my previous blog, Prepare Now for Natural Disasters.

And finally, remember the adage, "If it sounds too good to be true, it probably is." If someone uses high-pressure sales tactics, requires full payment upfront, asks you to get necessary permits or offers to shave costs by using leftover materials from another job -- run. They're potentially disastrous to your bottom line -- and you've been through one disaster already.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.

To participate in a free, online Financial Literacy and Education Summit on April 17, 2013, go to Practical Money Skills for Life.