Home Improvement

In addition to the normal protections of small claims court, certain types of recourse have, in recent years, been granted to homeowners who were victims of mistreatment at the hands of deceptive home improvement contractors. These protections stem from the provisions of M.G.L. 142A, the Home Improvement Contractor Law.

The main issues addressed by the Home improvement Contractor Law (HICL) are contractor registration, building permits, contracts, arbitration, and the Guaranty Fund. Most of the information in this chapter will seem almost like a procedural guide to reaching the Guaranty Fund. In a nutshell, this fund allows for payments of up to $10,000 on decisions where contractors have been delinquent in paying for damages and deceptive practices. Under the provisions of 142A, plaintiffs can circumvent the pitfalls of the small claims collections process.

Contractor Registration

Current law mandates that home improvement contractors be registered with the Board of Building Regulations and Standards. Certain types of contracting are exempt from this requirement. Contracting jobs that are exempt from registration requirements include:

• Individuals who work for the Commonwealth or its political subdivisions
• Schools that offer vocational training in the form of home improvement
• Licensed professionals such as architects, electricians, and plumbers who provide services that are exclusively within the scope of their profession (does not include contractors)
• Home Improvement jobs done by the owner
• Jobs done by individuals who work for a contractor but are not actually a contractor
• Contracted jobs for $500 or less
• Individuals who perform contracting and subcontracting on a less than full time business AND receive less than $5,000 per year in gross revenue from the jobs

Contractors who work exclusively in the following are also exempt from contractor registration requirements:

• Central Heating/Air Conditioning
• Energy Conservation
• Landscaping
• Interior Painting
• Wall and Floor Coverings
• Fencing
• Freestanding Masonry Walls
• Above Ground Pools
• Shutters and Awnings
• Ground Level Patios
• Driveways

If a homeowner has contracted for a service not listed above, and the contractor is not registered, the homeowner has no rights under the HICL. One may still, however, seek some recourse under the provisions regarding contracts in the Uniform Commercial Code, and furthermore, one should report the illegal contracting to the Attorney General's Office.

Registered contractors should be fairly identifiable because, by law, they must display their 60 digit registration number on all advertisements, contracts, and permits. To check up on a contractor's registration status, visit the website or call (617) 727-3200 ext. 25205.

The Residential Contractors Guaranty Fund

Arguably the most crucial part of home improvement law is the Residential Contractors Guaranty Fund. This allows wronged homeowners to collect money even if a registered contractor is unwilling to pay for damages and deceptive practices.

In terms of the Residential Guaranty Fund: “For purposes of recovery against the fund, the conduct of a registered contractor or subcontractor shall be deemed to include the conduct of their employees, salespersons and subcontractors, whether or not an express relationship exists, provided the work or activities of such individuals is within the scope of the contract and not for additional work beyond the contract which such individuals undertake by separate agreement with the owner.”

Every contractor who registers with the state pays a one-time fee based on the number of employees on their payroll. The money not needed to process the registration then goes into the Guaranty Fund. When a claim is paid out to a consumer because a judgment award is not paid, the responsible contractor must reimburse the fund with interest within 30 days. If they do not, they may face fines, revocation of their registration, and in some cases, criminal prosecution.

In order to receive payment from the fund, a consumer must file an application to the fund within 6 months of the initial judgment. Applications can be obtained through the Office of Consumer Affairs and Business Regulation (OCABR). Consumers must demonstrate that "all customary and reasonable efforts" to collect the judgment award have been exhausted.

The state's definition of "all customary and reasonable efforts"

Customary and Reasonable Effort means that action has been taken by or on behalf of an aggrieved homeowner to secure a satisfactory resolution to a dispute between a home improvement contractor and a homeowner. This standard may be satisfied by all of the following:

(a) submitting evidence to the fund administrator that a writ of execution for a monetary court judgment was served upon the contractor by a constable or sheriff at the contractor's last known business address. An arbitration award must be converted to a court judgment in order to obtain a writ of execution for service by a constable or sheriff upon the contractor;

(b) 'if the contractor is bankrupt, submitting evidence to the fund administrator from the United States Bankruptcy Court confirming that the contractor has filed for bankruptcy;

(c) submitting evidence to the fund administrator that a service of court or arbitration order was attempted at all known or suspected addresses of the contractor by a constable or agent of the state;

(d) if a claim is properly made before small claims court, submitting evidence to the fund administrator that a notice to show cause has been served upon the contractor by a constable or sheriff at the contractor's last known business address, and that the contractor has failed to pay the claim and has failed to defend the claim.

Finally, there are limits on the amounts and portions of the judgments that can be paid out by the Fund. The first is that no single claim can be paid more than $10,000 by the Fund. Furthermore, the fund will not pay out more than $75,000 in claims to victims of a single contractor within a 12 month period, unless the contractor has repaid the fund the full amount. Finally, the claims only cover what is defined by the state as "actual loss." This means that the fund will not cover consequential or punitive damages, personal injury, attorney's fees, court or arbitration costs or interest, even if the court or arbitrator figures them into the judgment.

For more information on calculating "actual loss", see Actual Loss (Home Improvement).

Home Improvement Guidelines

Building Permits

If a home improvement job requires a building permit, make sure that the contractor, and not the consumer (customer), secures it. If the consumer secured the contract, the case is not lost, but the consumer may not apply to receive a payment from the Guaranty Fund in the event that they win the case and the contractor does not pay. Under the provisions of HICL, a written contract must warn the consumer against securing their own building permit. However, if a contract did not warn the consumer about this exemption, the consumer can still seek financial recourse through the Guaranty Fund.

Contracts

It is highly recommended that a consumer get a contract for any job, regardless of the size, but the state only mandates a written contract if the cost of the job exceeds $1000. If a contractor does not provide a written contract for a job over $1000, their registration may be suspended or revoked, and they may be fined or face criminal prosecution. Note that the law may be used or alluded to in a demand letter as leverage in an attempt to force a contractor to settle if they have not provided a valid legal contract when law requires it.

In order for such a contract to be valid, certain requirements must be met:

1. Complete notification of all parties involved, including registration numbers of all contractors and subcontractors.
2. Complete description of the project, with a completion schedule and a final cost agreement with payment schedule and signatures.
3. A notification of the homeowner's right to cancel the contract within three days of signing.
4. A provision that the contractor should acquire all building permits, and that if the homeowner secures them for themself, they will not be eligible for the Guaranty Fund in the event of a dispute.

Additional items of note in this section:

• By law, the contractor cannot collect more than one-third of the cost of the contract in advance, unless the job calls for special order materials. Furthermore, no contract can contain an acceleration clause allowing the contractor to speed up the payment schedule because they feel insecure that the homeowner will not pay. They may, however, stop working and demand that the homeowner put the balance of payments in a joint escrow account (requiring both signatures for withdrawal) before continuing work.
• If the homeowner is financing the home improvements, the contractor is prohibited from being involved. They may neither lend the money themself, nor act in association with any lending institution if the loan is secured by a mortgage on the home, nor may they offer financing with a specific lender if the home is used as collateral. The homeowner at all times has the right to shop around and negotiate a loan with anyone who they choose.

Resolving Disputes

When something goes wrong with the job, the first step is a standard 30-day demand letter, sent both certified and regular mail, return receipt requested. The letter should outline, in chronological order, how the contractor has violated the agreement (for a list of violations to the HILC, see Violations of Home Improvement Contractor Law). It should further suggest what action the customer would like the contractor to take, such as finishing the job, paying for the damages, or canceling the contract.

If this measure does not resolve the dispute, there are three other options that may be pursued:

Mediation

This allows both parties to reach a mutually agreeable resolution with the help of a facilitator. Because of the voluntary nature of this procedure, mediation tends to result (if successful) in compromise and not victory. For this reason, it is ideal for parties who expect to work together in the future, but it will often fall through for contentious parties.

Arbitration

In certain situations, the case may be eligible for the state-approved Home Improvement Arbitration Program. To qualify, one must be able to prove that:

• There was a written contract for the job.
• The contractor was registered at the time of the contract.
• The work was done on a 1-4 family, owner-occupied, primary residence in Massachusetts.

Arbitration is time sensitive. No claim may be filed for arbitration after two years from the date of the contract. However, cases that do not meet this restriction can still be considered in small claims court.

Parties who have secured their own building permits are eligible for arbitration; they simply have forgone their rights to the Guaranty Fund.

As with other forms of arbitration, this process is binding and carries the full weight of a small claims court decision. It is a quicker process than small claims court, because it is less backlogged and the arbitrator will be able to arrange a date more quickly than the court clerk could. Furthermore, Home Improvement Arbitration is not subject to the $7,000 cap that governs most small claims court trials.

The downside of arbitration is that the filing fee is higher, though it is determined by the size of the case on a sliding scale. The cost of filing is added onto the amount of the decision if the plaintiff wins. If the case is lost, the plaintiff must pay the filing fee out of their own pocket. However, this risk should not deter anyone who wishes to proceed with arbitration - there are many advantages to this option in terms of the amount of time and energy that can be saved and the amount of money that can be awarded. If the consumer feels confident that they will win, arbitration can be the quickest resolution.

To initiate this process, the plaintiff should do the following:

1. Select an arbitration firm that has been approved by the Office of Consumer Affairs and Business Regulation (OCABR). For more information on arbitration firms call the Executive Office of Consumer Affairs or the Director of Home Improvement Contractor Registration.
2. Fill out an application and pay the application fee for registration.

The firm will then set up a date for arbitration, and then the parties show up and present their cases.

Small Claims Court:

If the dispute is for $7,000 or less, small claims court is an equally viable option, with a binding decision and a lower filing fee, just a bit more of a backlog. The process for initiating a claim is the same as in all other types of cases. Going through Small Claims Court rather than arbitration does not in any way prevent or hinder a plaintiff from applying to the Guaranty Fund.

If the plaintiff has won a case and has exhausted all reasonable means of collecting judgment payments, they can then apply to the Guaranty Fund to receive payments.

Resources

www.mass.gov/homeimprovement/main/

Executive Office of Consumer Affairs (EOCA) Hotline: (617) 727-7780

Director of Home Improvement Contractor Regulations: (617) 727-8598

Consumer Affairs and Business Regulation Website

Office of Consumer Affairs and Business Regulation Consumer Hotline: (617) 973-8787 or (888) 283-3757

National Association of Home Builders Remodelers Council

References

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