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Home inspection franchises: Pro's and Con's

This article warns new home inspectors of home inspection company franchise frauds involving a home inspection franchise company.

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Home Inspection Franchise Fraud Warning for home inspectors

Date: Fri, 30 Aug 1996 11:02:31 -0400
From: Joe Regan 
To: Daniel Friedman (by email) 
Subject: Franchise Fraud Attachments

To resolve charges that a Massachusetts-based home inspection service franchisor and its president have violated the FTC´s Franchise Rule by making unsubstantiated earnings claims and by failing to make requisite disclosures about the business, bankruptcy, and fraud-litigation histories of the franchisors´ officers, Building Inspector of America, Inc. and company president Ralph Tisei will not violate the rule in the future, and Tisei will pay a $20,000 civil penalty, according to a proposed consent judgment filed in the U.S. District Court for the District of Massachusetts. (U.S. v. Building Inspector of America, Inc., DC Mass, No. 93-10838Y, 5/3/96)
According to the underlying complaint, filed in April 1993, Building Inspector of America, Inc. (TBIA) and its officers--Lawrence Finkelstone, Ralph L. Tisei, and Beverly A. Tisei--had promoted and sold TBIA dealerships for home inspection services throughout the nation since 1985.
In promoting and marketing the dealerships, the defendants allegedly placed ads and promotional pieces in newspapers and magazines circulated nationwide. The dealerships sold for between $10,000 and $30,000.
The complaint charged that, in numerous instances, the defendants had violated the Franchise Rule by making unsubstantiated earnings claims.
In addition, they allegedly failed to comply with either the rule´s disclosure requirements or the alternative--the Uniform Franchise Offering Circular.
Specifically, the complaint asserted, the defendants failed to provide prospective franchisees with disclosures of:
[Image] TBIA´s current executive officers and their business experience;
[Image] Each executive officer´s bankruptcy history during the previous seven fiscal years; and
[Image] Each executive officer´s litigation history concerning fraud or misrepresentation during the previous seven fiscal years.
In October 1995, Finkelstone--the company´s director of sales and marketing--agreed to resolve the charges as to himself by paying a $5,000 civil penalty. Beverly Finkelstone agreed to settle the allegations as to herself by paying a civil penalty of $10,000.
Under this proposed consent judgment, Ralph Tisei will pay a $20,000 civil penalty and, along with TBIA, agrees not to violate the rule in the future.
The Commission´s vote to authorize the Justice Department to file the proposed settlement on its behalf was 5-0.
--------------------------------------------------------------------------- FOR RELEASE: OCTOBER 24, 1995 ---------------------------------------------------------------------------
Lawrence Finklestone, Director of Sales & Marketing for The Building Inspector of America, Inc., has agreed to pay a $5,000 civil penalty as part of a settlement of federal charges against him for failing to disclose to potential purchasers the litigation and bankruptcy history of the franchisor and two other company officers. The complaint charges that Finklestone and the other defendants also made unsubstantiated claims to potential purchasers about the earnings they could expect, among other violations of the Federal Trade Commission's Franchise Rule.
The Building Inspector of America, Inc., in operation since 1985, offers franchises for home-inspection services. It is based in Wakefield, Massachusetts. Finklestone resides in Framingham. The federal district court has entered partial summary judgments against two of the other defendants in the case, but has yet to set the injunctive requirements and any damages or civil penalties.
The FTC's Franchise Rule, designed to assist franchisees in evaluating a business investment, requires franchisors to provide each potential franchisee with a complete and accurate disclosure document describing the financial status of the company, the experience and background of the franchisors, their litigation history, the nature of the business, the terms of the proposed franchise relationship, and other key information. The rule also requires franchisors to have a reasonable basis for any earnings claims they make, and to provide prospective purchasers with a document containing substantiation for those claims. In an April 1993 complaint, filed in federal district court and detailing the allegations in this case, the FTC charged the defendants with failing to disclose to potential franchisees the litigation history concerning fraud or misrepresentation and the bankruptcy history of each executive officer. The complaint also alleges that defendants made claims about the earnings that franchise buyers could expect, without having adequate support for the claims.
The proposed consent judgment that Finklestone has signed to settle the charges against him, and which requires the court's approval to become binding, would require him to pay the $5,000 civil penalty within five days of the court's approval. In addition, Finklestone would be prohibited from violating the FTC's Franchise Rule in the future. Finally, the settlement includes various reporting requirements
* -- including a require ment that, for seven years, Finklestone notify the FTC of any involvement in the sale of franchises
* -- that would assist the FTC in monitoring his compliance.
The proposed consent judgment was filed in U.S. District Court for the District of Massachusetts, in Boston, on Oct. 23, by the Department of Justice at the request of the FTC. The Commission vote to authorize filing was 5-0.
NOTE: This consent judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.
Two free FTC brochures -- titled "Franchises and Business Opportunities" and "A Consumer Guide to Buying a Franchise" -- explain the FTC's Franchise Rule in more detail and offers advice to those considering investing in such a business. Copies of the brochures, as well as the consent judgment and other documents associated with this case, are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710 FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at:
--------------------------------------------------------------------------- (FTC File No. X940061) (Civil Action No. 93-10838-NG) (tbia-2) ---------------------------------------------------------------------------

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