If Your Contractor Committed Tax or Fraud Crimes: How That Affects Your Home Sale

When Your Contractor or Adjuster Has a Criminal or Tax Conviction: Immediate Risks to Your Home Sale

Hook: You’re trying to close fast — but you learn the contractor who did your repairs or the public adjuster who handled your claim has criminal or tax convictions. Does that derail your sale? Short answer: it can. From disclosure obligations to title clouds, insurance headaches and buyer walkaways, criminal or tax crimes by service providers create real, practical problems at closing. This guide explains what to do next, step-by-step.

Why this matters now (2026 context)

Regulators and prosecutors increased enforcement of contractor and public-adjuster fraud in late 2024–2025, and early 2026 cases show more aggressive pursuit of tax crimes tied to restoration businesses. A high-profile January 2026 sentencing of a Rhode Island public adjuster and restoration business owner (ordered to pay over $1.36M in restitution) demonstrates that these issues are current and material to sellers and buyers alike. (See: U.S. Attorney’s press reports, Jan 2026.)

Top practical consequences for a property sale

When a contractor or public adjuster has a criminal or tax conviction, expect friction in these areas:

• Disclosure risks: Many states require sellers to disclose material facts about repairs, permits, and parties who worked on the home. A contractor’s felony for fraud or tax crimes — especially if related to your transaction — is often material.
• Title and lien exposure: Mechanic’s liens from unpaid subs, forged waivers, or fraudulent filings can cloud title. Tax crimes by a contractor can mean IRS liens on the contractor’s assets, and in some fraud schemes forged instruments can reach your title too.
• Insurance complications: Insurers may deny or seek recovery for claims tainted by fraud or misrepresentation. If your insurance proceeds funded repairs, a denied claim can leave you without funds to complete work or face clawbacks.
• Buyer due diligence & financing: Lenders and buyers will dig deeper. Appraisals, inspections, and title companies may delay or demand proof that work is valid and cleared.
• Closing delays and renegotiation: Expect extended escrows, holdbacks, price concessions, or requests for seller warranty insurance.

Real-world example — what the headlines mean for your transaction

In January 2026 a public adjuster and restoration business owner was sentenced after pleading guilty to tax evasion and ordered to pay substantial restitution. That case is a reminder: public adjusters and restoration contractors operate at the intersection of insurance, construction, and finance. Criminal or tax convictions can disrupt the chain of payment, the legitimacy of invoices, and the integrity of releases and waivers you rely on when transferring property.

Example: A public adjuster who understates receipts or diverts insurance proceeds may later face tax charges — and insurers can demand repayment or rescind payments tied to fraudulent claims.

Step-by-step actions for sellers (immediate checklist)

If you discover criminal or tax issues with a contractor, public adjuster, or restoration company linked to your property, do these steps now:

1. Stop non-essential payments. Consult your attorney before releasing any additional funds to the contractor or adjuster if fraud is suspected.
2. Document everything. Gather contracts, change orders, permits, receipts, cancelled checks, photos, and communications. Create a dated file and a simple timeline of work and payments.
3. Order a title search and lien report. Have your title company run a fresh search focused on recent mechanic’s liens, recorded assignments, or any filed complaints.
4. Demand signed lien waivers and releases. Collect unconditional lien waivers from the contractor and all subs for every payment made. If you don’t have them, get the contractor to produce them or explain why not.
5. Contact your insurer and provide claim files. If work followed an insurance claim, confirm the insurer’s position and ask for documentation of payments, assignments, or subrogation rights.
6. Notify your escrow/title officer and lender. Transparency reduces surprises at underwriting and may let the title company set an escrow holdback instead of halting closing entirely.
7. Consult a real estate attorney immediately. State laws on disclosure and remedies vary widely. Get counsel to draft disclosures, indemnities, or escrow instructions.

How criminal or tax convictions create title risk

Mechanic’s liens and unpaid subs: Even if your contractor is criminally convicted, subcontractors and suppliers can still file mechanic’s liens against your property if they weren’t paid. These liens must be cleared before an owner’s policy will be issued.

Fraudulent filings and forged waivers: If a contractor forged your signature on a release or recorded bogus documents, the title is at risk until the record is corrected by court action or a corrective deed.

Insurer claims & subrogation: If insurance proceeds were paid and later rescinded because of fraud, the insurer can pursue repayment — potentially creating a claim against the property or seeking restitution from parties who received funds for repairs.

What a title company will look for

• Recent mechanic’s lien filings and their validity dates
• Recorded releases mapping to paid invoices
• Any pending litigation or judgments naming the contractor that reference your property
• Unrecorded claims that could still be asserted (title companies sometimes require affidavits)

Disclosure obligations — what you must tell the buyer

Most states require sellers to disclose material facts that affect the value or desirability of the property. If a contractor or public adjuster who worked on your home has criminal convictions for fraud, tax evasion, or related offenses — especially if tied to work on your property — that may be material.

Failing to disclose can lead to post-closing litigation for fraud, rescission, or damages. To manage risk:

• Work with your attorney to prepare explicit disclosure language. Don’t rely on vague statements.
• Attach supporting documents: invoices, lien waivers, insurance claim numbers and payments, and permit records.
• If in doubt, disclose. Full transparency reduces the chance of a buyer claiming they were misled.

Buyer due diligence: what buyers and underwriters will require

Buyers and their lenders will up their scrutiny when a service provider has a criminal or tax record. Expect these requests:

• Independent inspections focused on altered structures, hidden defects, and code compliance.
• Proof of permits and final approvals from local building departments.
• Clear, unconditional lien waivers from all labor and material providers.
• Evidence that insurance claims and payments were legitimate and final — including insurer letters closing the claim or releasing funds.
• Title endorsements that cover mechanic’s liens or fraud-related exceptions (buyer may also request additional endorsements or escrow).

Negotiation tools and remedies at closing

If a sale is otherwise sound but the buyer is concerned, sellers can use several practical tools to close:

• Escrow holdbacks: With title company cooperation, hold back funds until liens are cleared or repairs verified.
• Price credits: Offer a purchase-price reduction to reflect remediation risk and buyer effort.
• Seller-paid policies and insurance: Purchase a Seller’s or Home Warranty policy and consider a Seller’s Warranty Insurance (SWI) or specialized endorsements that protect the buyer against specific defects for a period post-closing.
• Indemnity agreements: Provide a written indemnity backing your disclosures; buyers often accept this when paired with an escrow for potential claims.
• Repair escrow with third-party inspections: Fund repairs through escrow and require sign-offs by licensed inspectors before release.

Insurance claims tangled with fraud — a special risk

Insurance-related fraud is a frequent trigger for both criminal charges and civil recovery. Practical effects include:

• Insurer rescission of payments, meaning funds already used for repairs may be reclaimed.
• Assignment-of-proceeds disputes where the insurer paid the contractor instead of the homeowner; the insurer can assert subrogation rights against the homeowner’s recovery.
• Higher scrutiny by lenders if insurance proceeds were part of the financing or repair funding.

If an insurance claim is involved, ask for the insurer’s final position in writing. Request documentation of any assignments or releases, and get confirmation that no subrogation claim is pending against you or the property.

How to vet contractors and adjusters before problems start (2026 best practices)

Prevention is the best protection. In 2026, use these upgraded due-diligence steps:

• Background checks: Beyond licensing lookups, use court-record databases, state attorney general press releases, and regulatory disciplinary reports. Public adjusters are frequently licensed in most states — check the licensing board and any sanctions.
• Financial checks: Small-business bankruptcy filings, UCC liens, and recent judgments against a contractor can signal risk.
• Confirm insurance and bonding: Verify current general liability, GL endorsements, and workers’ comp by insurer phone confirmation and certificate of insurance that names you as additional insured when possible.
• Require contract protections: Written scopes, warranty terms, payment schedules tied to milestones, and unconditional lien waivers for each draw.
• Use tech tools: In 2026 buyers and sellers use integrated platforms that cross-check licenses, complaints, and public records via AI-driven searches — consider using a reputable platform or hire a concierge due-diligence service.

When litigation or post-closing claims arise

If a buyer sues post-closing because work was done by someone later convicted of fraud or tax crimes, common outcomes include rescission, damages, or negotiated settlements. Preventative documentation (permits, warranties, waivers, insurer correspondence) is your strongest defense.

Work with counsel experienced in real estate, construction, and insurance subrogation — these cases often require coordination across legal specialties to resolve liens, clawbacks, and indemnity claims.

Sample checklist sellers can use immediately

• Order current title report and mechanic’s lien search
• Collect signed unconditional lien waivers from contractor + all subs
• Get written confirmation from your insurer about the status of any claim
• Locate permits and final inspection approvals from the building department
• Draft disclosure statement with your attorney and attach supporting docs
• Ask title company about escrow holdbacks or endorsements if clouds exist
• Consider seller-paid warranty or purchase price credit to neutralize buyer concerns

When to walk away from the sale

Sometimes the risk is simply too high. Consider delaying or withdrawing the listing if:

• There are unresolved mechanic’s liens with aggressive claimants
• Insurance proceeds are disputed or likely to be clawed back
• Significant forged documents were recorded and cure will require lengthy litigation
• The buyer’s lender refuses to underwrite due to unresolved fraud risks

Final recommendations and advanced strategies

In 2026, the most effective sellers combine documentation, transparency, and creative closing mechanics:

• Proactive disclosure: Disclose what you know early and attach evidence. Buyers respect transparency and it reduces post-closing claims.
• Title solutions: Work with your title company to structure endorsements or temporary escrows that allow closing while protecting buyer and seller.
• Third-party verification: Hire independent inspectors and licensed contractors to validate the integrity of prior work and provide signed reports for the buyer and title company.
• Legal counsel at the ready: Use an attorney to draft indemnities, escrow instructions, and disclosure addenda that reflect the specific facts of your case.
• Use seller warranties and insurance: Where available, a seller-funded warranty or specialty insurance product can neutralize buyer fears and keep the transaction moving.

Closing thought — transparency reduces risk

When a contractor or public adjuster has criminal or tax convictions, the deal isn’t automatically dead — but the path to a clean closing is more complex. Use documentation, title safeguards, and honest disclosure to manage buyer concerns and lender underwriting. Because prosecutions and enforcement increased into 2025 and early 2026, buyers, lenders, and title companies are more cautious than ever — so prepare for extra scrutiny.

Need help now?

If you’re facing this situation, don’t wait until the buyer objects at the last minute. Our closing team can walk you through the exact documents buyers and title companies will request, coordinate lien searches, and connect you with real estate attorneys and forensic accountants experienced in contractor fraud and insurance-subrogation cases.

Call to action: Contact our specialist team today for a free intake checklist and a tailored action plan to clear title, resolve insurance issues, and get your sale back on track.

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