One of the most important programs administered by the Office of Consumer Affairs and Business Regulation is the Home Improvement Contractor Guaranty Fund. If a homeowner incurs actual losses during a transaction with a registered home improvement contractor and successfully sues their contractor, but the contractor fails to pay the judgment, the Guaranty Fund can reimburse those homeowners up to $10,000. Most homeowners do not hire their contractors imagining they will need such a program, but in 2012, for example, the Guaranty Fund reimbursed 44 homeowners a total of $375,347.87. For those 44 homeowners, the Guaranty Fund was an important safety net to help them recover financially after their home improvement projects went wrong and their collection efforts failed.
There are several eligibility criteria that homeowners must meet before accessing the Guaranty Fund. In this series of blog posts, I will discuss some things you, as a homeowner, can do to prevent yourself from being disqualified from the Guaranty Fund.
To be eligible for the Guaranty Fund, your contractor must have a Home Improvement Contractor (HIC) Registration. If a homeowner hires a contractor who does not have his HIC Registration at the time of the contract signing, the homeowner will be disqualified from the Guaranty Fund. A contractor pays a registration fee to obtain his HIC Registration and part of every registration fee goes into the Guaranty Fund. Homeowners who hire contractors that do not pay the registration fee, therefore, are not covered under the program. In my hearings, homeowners sometimes tell me that their contractors offered to obtain their HIC registrations after they hired the contractors and paid them deposits. The contractors tell these homeowners that they plan to use the deposit money to pay the registration fee. These homeowners, however, are routinely disqualified from the Guaranty Fund because their contractors were not registered before the homeowners hired them. To protect themselves, homeowners should look up the HIC registration status of any contractor they are considering to hire.
To be eligible for the Guaranty Fund, your contractor’s registered trade name must match the actual business name they have used on their contract. As contractors’ businesses grow, their needs change as well. Some contractors start their businesses as a smaller, simpler operation, but as they experience success and growth, some of them incorporate. Many contractors forget that their corporation needs its own registration. As a result, when they start issuing contracts under their corporate names, but fail to obtain new registrations for their corporations, they have conducted business as an unregistered home improvement business. This has the effect of disqualifying homeowners from the Guaranty Fund, as I mentioned in the paragraph above. A homeowner must be certain that the business name on their contracts with home improvement businesses matches the name the contractor registered.
To be eligible for the Guaranty Fund, you must have a court judgment or a confirmed arbitration award against your contractor. Sometimes homeowners incorrectly believe the Guaranty Fund is a form of insurance, automatically compensating homeowners whenever a registered contractor causes them financial harm. Though there are a few narrow exceptions, generally there are two paths to the Guaranty Fund: a homeowner must obtain either (1) a court judgment or (2) a confirmed arbitration award against the contractor. Once a homeowner has either of those and has made a reasonable, though unsuccessful, effort to collect from the contractor, then the homeowner will be considered eligible for reimbursement from the Guaranty Fund. While payment from the Guaranty Fund is not automatic when there is a financial loss, the Office of Consumer Affairs and Business Regulation offers an arbitration program that homeowners may use to initiate and simplify their pursuit of the Guaranty Fund.
Part II of this series will be posted next week. Check back for additional information on Guaranty Fund disqualifications.
Steven J. Zuilkowski is a hearing officer for the Office of Consumer Affairs and Business Regulation. Steve conducts hearings to determine whether contractors have violated the Massachusetts Home Improvement Contractor Law. To have your questions relating to home improvement contracting answered by Steve in a blog post, write to him at firstname.lastname@example.org.