Protecting Yourself from Usury and Racketeering in Construction

A Helpful Guide for Homeowners, Contractors, and Commercial Business Owners

 

Whenever we hear the terms Usury and Racketeering, we think of two things, organized crime, and the RICO Act. But did you know that these two terms are very common within the New York Construction industry? Whether you are a homeowner, a contractor or a commercial business owner, usury and racketeering come in many different shapes and sizes. What are the types of Construction Usury, and how can we protect ourselves?

Racketeering and Usury go hand in hand when it comes to Construction “business” practices. As per Merriam-Webster’s Dictionary, the definition of Usury is “an illegal action or practice of lending money at unreasonably high rates of interest”. The definition of Racketeering is “dishonest and fraudulent business dealings”. How do you know when you are accidentally getting involved in a dishonorable practice? Below are examples of three dishonorable practices from the point of views of Homeowners, Contractors, and Commercial Business Owners.

As a homeowner, it is very important that you read and follow up with your construction agreement before signing anything. If you are ever confused about a specific clause within the agreement, seeking out a qualified construction attorney is best when negotiating agreement terms. Many Home Improvement Contractors offer payment plans with little to no interest within a certain amount of paying months. According to LexisNexis.com, New York Usury Laws state that an interest rate of 16% per project is stated as “Civil Usury”. An interest Rate 25% or more is stated as “Criminal Usury”. There are other factors that differentiate criminal and civil such as Conduct at Issue, Punishment, Proof, Mindset, Statue of Limitations and more. As stated in LendingTree.com, typical construction loans have an interest rate of 3 and 5 percent.

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If you are not the owner of a property that needs work completed, and you are working on a contractor/subcontractor basis, it is wise that you always keep track of your working time. There have been many instances, especially within the New York Construction Industry, where workers have worked substantial amounts of overtime, yet, never saw payment. In a large 2015 construction scandal, a contracting company with a history of underpaying his workers, completely stopped paying overtime on a Hell’s Kitchen construction project. The construction company was ordered to pay more than $100,000 in fines as a result. In addition to nearly four years in prison, the owner was also ordered to pay more than $117,000 in restitution. This would also fall under labor law violations. Tracking your time and knowing your states Minimum Wage requirements are key, when it comes to fair and equal payments.

As a Commercial Property Owner, hiring an honest and reliable contracting company for your renovations can be quite difficult. Unfortunately, when construction companies see Commercial Accounts, they get greedy and start to “Nickle and Dime” for every planned-out expense. According to the NY Post, Bronx-Lebanon Hospital was charged $42,000,000.00 for the initial build, with then an unexpected $5,000.000 balloon payment at the end of construction. The construction scheme used falsified invoices and change orders, which were never seen or approved by the Hospital Building Council. After the construction project was completed, the Federal Bureau of Investigation controlled over $40,000,000.00 in construction contracts during the existence of the project.

As you can see, fraudulent business dealings can sometimes happen within the construction industry. Luckily, there are now organizations that stop and prosecute violations such as these. In 1970, the United States Congress passed the RICO Act (Racketeer Influenced and Corrupt Organizations Act). Which is an act relating to the control of organized crime within the United States. There are other business-related RICO offenses other than Racketeering and Usury. There is also gambling, extortion, bribery, counterfeiting, embezzlement, fraud, money laundering and more. If you ever find yourself the victim of any of the following, contact an attorney within your problem category is best.

The author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: [email protected] or (631) 608-1346.

This is a general information article and should not be construed as legal advice or a legal opinion. The content above has been edited for conciseness and additional relevant points are omitted for space constraints. Readers are encouraged to seek counsel from a construction lawyer who has experience with Long Island construction law for advice on a particular circumstance.

Will Erstad “Civil Law vs. Criminal Law: Breaking down the Differences” Rasmussen.edu October, 29th 2018

Janet Berry-Johnson “Understanding Construction Loans” Lendingtree.com November 7th, 2017

David S. Rich “For Purposes of New York Usury Laws, What Fees or Charges are Included in Loan Interest Rates?” Lexisnexis.com October 17th, 2013

Gwynne Hogan “Contractor With History of Cheating Workers Sued For Overtime” dnainfo.com October, 26th 2015

Isabel Vincent and Melissa Klein “Crime Family Funneled Millions from Hospital Project” NYPost.com June 4th, 2017

“Racketeer Influenced and Corrupt Organizations Act” Wikipedia.org