Guaranty Fund FAQs - Home Improvement Commission

1. What is the Guaranty Fund?
2. Who is eligible to file a claim against the Guaranty Fund?
3. Who is not eligible to file a claim against the Guaranty Fund?
4. Is there a time limit for filing a claim?
5. How do I get a claim form?
6. What is the difference between a complaint form and a claim form?
7. I filed a complaint so why do I also have to file a claim?
8. How much money can I recover from the Guaranty Fund?
9. What costs does the Guaranty Fund cover?
10. What claims are dismissed without a hearing?
11. What do I need to submit with my claim form?
12. Why do I need to give copies of my contract, change orders and cancelled checks?
13. What happens after I file a claim?
14. After I file a claim, how long does the process take?
15. Why does the process take so long?
16. If I repair the work before the Guaranty Fund hearing, will it hurt my claim?
17. How do I check on the status of my claim?
18. What if the home improvement contract contains an arbitration clause?
19. What happens to my claim if I file a lawsuit or counterclaim in court or initiate arbitration against the contractor?
20. What happens to my claim if the contractor sues me in court?
    
21. What happens to my claim if the contractor initiates arbitration?
22. What happens if I win the lawsuit or arbitration against the contractor?
23. What is the Assignment of Judgment form?
24. What happens if the contractor wins a lawsuit or arbitration proceeding against me?
25. Why do some claims go to mediation?
26. What happens if I choose not to go to mediation?
27. Does every claim involve a Guaranty Fund hearing?
28. What happens at the Guaranty Fund hearing?
29. Does the Commission represent me at the Guaranty Fund hearing?
30. How do I find more information about the Guaranty Fund process?
31. How do I find more information about the hearing process?
32. Do I need a lawyer at the hearing?
33. How long does a Guaranty Fund hearing take?
34. What happens after the Guaranty Fund hearing?
35. What is an exceptions hearing?
36. What happens if neither party files an appeal?
37. What happens if a party files an appeal?
38. When do I get paid?
39. What happens after I get paid?
40. What happens to the contractor if the Guaranty Fund pays an award?
41. Other helpful information

1. What is the Guaranty Fund?
The Maryland Home Improvement Commission administers a Guaranty Fund, which exists to reimburse homeowners for the actual loss caused by a licensed contractor who performed a home improvement job in an unworkmanlike, incorrect, or incomplete manner, or who abandoned a home improvement job. The Fund is supported by licensed contractors, who pay a Guaranty Fund assessment when they obtain their home improvement license and each time they renew the license.

2. Who is eligible to file a claim against the Guaranty Fund?
An owner may make a claim against the Fund only if the owner resides in the home as to which the claim is made; or does not own more than three residences.

3. Who is not eligible to file a claim against the Guaranty Fund?
The following individuals are not eligible to make a claim against the Fund: a spouse or immediate relative of a contractor, an employee, officer or partner of the contractor, or an immediate relative of an employee, officer, or partner of the contractor.

4. Is there a time limit for filing a claim?
A claim shall be brought against the Fund within three years after the claimant discovered, or by use of ordinary diligence, should have discovered the loss or damage.

5. How do I get a Guaranty Fund claim form?
After you file a complaint with the Home Improvement Commission, MHIC will investigate the complaint. Following the investigation, if the complaint is not resolved, you may be eligible to file a Guaranty Fund claim. If so, you will receive a claim form, which you may then complete, sign, and return to MHIC. Claim forms are not available online.

6. What is the difference between a complaint form and a claim form?
A complaint form is the first step for a homeowner who believes a contractor has violated the Home Improvement Law. By filing a complaint, a homeowner triggers an investigation by MHIC. If the contractor is licensed (or was licensed at the time the home improvement contract was signed), then the homeowner may file a separate form, called a Guaranty Fund claim form, to seek monetary compensation from the Guaranty Fund.

7. I filed a complaint so why do I also have to file a claim?
A complaint and claim are separate forms that are required to be filed by a homeowner. Once a complaint is filed, MHIC will conduct a regulatory investigation to determine if the contractor violated the Home Improvement Law. By filing a claim form, a homeowner initiates a process to determine whether the homeowner is eligible to recover money from the Guaranty Fund.

8. How much money can I recover from the Guaranty Fund?
The maximum recovery for a claim against the Guaranty Fund is $30,000 per claimant, or the amount the homeowner paid to the contractor against whom the Guaranty Fund claim is made, whichever amount is less. The maximum amount that the Fund will pay on behalf of the same contractor is $250,000 to all claimants. If the total of all approved claims against a contractor amounts to more than $250,000, then the Commission will prorate the claims and will pay the approved claims proportionately so that each claimant receives the same percentage payment of the claim. For example if the total amount of approved claims against a contractor is $500,000, then each claimant would receive 50% of the awarded amount of their claim. If the contractor reimburses the Fund, following the pro-rated payout, then the claimants would again receive a prorated amount of their claim, based on the amount of money that the contractor reimbursed into the Fund.

9. What costs does the Guaranty Fund cover?
The Guaranty Fund covers the "actual loss," which means the cost of restoration, repair, replacement, or completion that arises from an unworkmanlike, inadequate, incomplete, or abandoned home improvement. The Fund does not cover consequential damage or other costs that may be incurred, such as attorney's fees or court costs. The Fund also will not reimburse a claimant for money paid to an unlicensed home improvement contractor to correct or complete work performed that is the subject of the claim.

10. What claims are dismissed without a hearing?
The Commission may dismiss any claim that is frivolous, legally insufficient or made in bad faith. These include claims based upon a false or altered document; a document, bill, receipt or estimate that includes an enhancement, improvement, upgraded services or materials or work or repairs that are outside the scope of the original contract; and work completed by an unlicensed contractor. The Commission may also deny any claim if the claimant unreasonably rejected good faith efforts by the contractor to resolve the claim.

11. What do I need to submit with my claim form?
Each claim form shall be submitted under oath, and contain an accurate amount of the claim based upon the actual loss; the facts giving rise to the claim; copies of the original contract and all other documents that support the claim, including photographs, copies of two or three estimates from licensed contractors detailing the cost to correct or repair the original home improvement job. If the work has already been corrected, the claimant should also include proof of payment to the second contractor as well as a copy of the contract to complete or repair the work.

12. Why do I need to give copies of my contract, change orders and cancelled checks?
The documentation you provide to the Commission allows the investigator assigned to your claim to validate your claim. Claims that cannot be validated are dismissed without a hearing.

13. What happens after I file a claim?
After MHIC receives a completed claim form, properly signed, the Commission sends a copy of the claim form and supporting documents to the contractor alleged to be responsible for the actual loss. The contractor is required to submit a written response to the claim within 10 days. Once the response is received, an investigator at MHIC reviews both the claim and the response to determine if the claim is valid. This determination is based on whether the claim has factual and legal merit. The investigator may request more information from either side; may try to mediate a settlement between the parties; or may suggest that the parties participate in formal mediation in an effort to resolve the dispute. If the Commission determines that the claim is legally sufficient and supported by the evidence, the Commission may schedule the claim for a hearing, or issue a proposed order approving the claim, if the claim is for $7,500 or less. If the claim exceeds $7,500, a hearing may be scheduled.

14. After I file a claim, how long does the process take?
The process can be very lengthy depending on many factors that can influence the amount of time required to resolve and adjudicate a claim. The Commission may prioritize certain claims involving the habitability of the homeowner's primary residence, especially in cases where the homeowner is elderly, homebound or has a limited income.

15. Why does the process take so long?
The process takes a long time because of the large number of claims that are currently pending in addition to a limited number of available hearing dates. Because a majority of claims require a hearing, even when the contractor is no longer in business, there is currently a large backlog of claims awaiting hearings. However, this guarantees that each claimant has an opportunity to present their claim at a hearing.

16. If I repair the work before the Guaranty Fund hearing, will it hurt my claim?
If work is repaired prior to the hearing, it is important to fully document the condition of the property prior to the repairs with an inspection report, photographs, etc. in order to support the claim. The Commission recommends that homeowners obtain at least two bids from properly licensed contractors and provide copies of cancelled checks as proof of payment to the new contractor. In any case, the Commission cannot guarantee payment, nor that you will receive full reimbursement for amounts you spent on repairs.

17. How do I check on the status of my claim?
MHIC will send each party a notice every three - four months to update the status of the claim. Homeowners may also call or e-mail the claim investigator to determine the status of their claim.

18. What if the home improvement contract contains an arbitration clause?
The Home Improvement Law requires that a homeowner comply with a written agreement to submit a claim for arbitration before they may recover from the Guaranty Fund. If your home improvement contract contains a binding arbitration clause, you must make a good faith effort to submit your dispute to arbitration before you may recover from the Guaranty Fund. MHIC cannot process a claim against the Guaranty Fund until the parties have participated in arbitration or the contractor has waived their right to arbitration. However, homeowners may file a claim with the Commission before or during the arbitration proceeding, and must do so within three years of when they knew or should have known of their loss, even if they are engaged in arbitration. For more information about arbitration, please see the link on the Commission's “For Consumers” webpage, Understanding Arbitration.

19. What happens to my claim if I file a lawsuit or counterclaim in court or initiate arbitration against the contractor?
If a homeowner files a lawsuit against a contractor, files a counterclaim against a contractor who has already filed a lawsuit against them, or initiates arbitration against the contractor based upon the contract that is the subject of the Guaranty Fund claim, then MHIC will close its file until the court or arbitration proceeding concludes.

20. What happens to my claim if the contractor sues me in court?
If a contractor files a civil action in court against a homeowner based upon a contract that is the subject of a Guaranty Fund claim, MHIC will continue the process of investigating and adjudicating the Guaranty Fund claim unless the homeowner files a counterclaim against the contractor in the court proceeding. If the homeowner files a counterclaim against the contractor, then MHIC will close its file until the court proceeding concludes. Once a court proceeding involving a homeowner’s counterclaim concludes, the Commission will resume processing the Guaranty Fund claim. The outcome of the court case may impact the resolution of the Guaranty Fund claim.

21. What happens to my claim if the contractor initiates arbitration?
If a contractor initiates arbitration against the homeowner based upon a contract that is the subject of the Guaranty Fund claim, then MHIC will close its claim file until the arbitration concludes. Then, the Commission will resume processing the Guaranty Fund claim. The outcome of the arbitration case may impact the resolution of the Guaranty Fund claim.

22. What happens if I win the lawsuit or arbitration against the contractor?
If a homeowner prevails following a court trial or arbitration proceeding in which the judge or arbitrator specifically found that the homeowner incurred an "actual loss" as a result of an unworkmanlike, inadequate, or incomplete home improvement by a licensed home improvement contractor, then the Commission will award to the homeowner the amount of the actual loss (subject to the limitations of the Home Improvement law). The homeowner must submit a certified copy of the court judgment or arbitration award and also complete and submit an Assignment of Judgment form. The Commission will not pay an award from the Guaranty Fund based upon a default judgment. The Commission also will not pay an award based upon a judgment or arbitration award that has already been paid by the contractor. If the arbitration award or court judgment does not include a satisfactory finding that the homeowner incurred an actual loss, the homeowner will have to prove their actual loss in an administrative hearing before receiving a payment from the Guaranty Fund.

23. What is the Assignment of Judgment form?
Following litigation in which the homeowner prevails, the homeowner shall sign an Assignment of Judgment form. With the assignment, the homeowner gives the right to the Commission to use the judgment to collect reimbursement from the contractor for the money paid from the Guaranty Fund.

24. What happens if the contractor wins a lawsuit or arbitration proceeding against me?
If the contractor prevails in a civil litigation or arbitration proceeding against the homeowner involving the contract that is the subject of the Guaranty Fund claim, then MHIC typically will dismiss the Guaranty Fund claim.

25. Why do some claims go to mediation?
MHIC offers free mediation to all parties who are interested in working with a trained professional in an effort to resolve their dispute. The mediators are not affiliated with MHIC, so any information shared during the mediation session is confidential and will not be shared with MHIC. Mediation is the right choice for homeowners and contractors who wish to work together for the benefit of both parties. The advantage for the homeowner is that mediation can be scheduled far sooner than a claim is processed, including scheduling a hearing. For both parties, mediation offers an opportunity to save time and money required to go to a hearing.

26. What happens if I choose not to go to mediation?
If either party decides not to participate in mediation - or if the mediation effort is unsuccessful then the claim is scheduled for a Guaranty Fund hearing. Hearings are held at the Office of Administrative Hearings (OAH), which is located in Hunt Valley, Maryland. Some hearings are scheduled in other jurisdictions for the convenience of the parties and witnesses.

27. Does every claim involve a hearing?
No, the Commission can decide claims that are less than $7,500 without holding a hearing. However, if either party disagrees with the Commission's decision, the claim will be set for a hearing. In addition, the Commission may deny any claim that lacks legal or factual merit, or is made in bad faith, without first holding a hearing.

28. What happens at the hearing?
At the hearing, the homeowner, who is the claimant, has the burden of proof, which means that the homeowner must establish by the evidence that the claim is valid and that she or he is entitled to receive an award from the Guaranty Fund. The contractor, who is the respondent, has the right to defend against the claim. In addition, an Assistant Attorney General is present at the hearing to represent the Guaranty Fund; the Assistant Attorney General does not represent either the claimant or the contractor.

29. Does the Commission represent me at the Guaranty Fund hearing?
The Home Improvement Commission does not represent either party at the hearing. Instead, the purpose of the Commission is to administer the Guaranty Fund and to give each party a fair and equal opportunity to present evidence in support of their position.

30. How do I find more information about the Guaranty Fund process?
The Commission hosts a workshop on the third Thursday of every other month (odd numbered months only) to explain the process. The workshop is free and is open to both homeowners and contractors. Participants at the workshop learn about the hearing process and what to expect after the hearing. Specific claims are not discussed at the workshop and legal advice is not given. The workshops are held at 2 p.m. on the third Thursday of January, March, May, July, September and November. The workshops are at 500 North Calvert Street, 2nd Floor Conference Room. Baltimore, MD 21202. Please enter the building on the Centre Street side..

31. How do I find more information about the hearing process?
For more information regarding the hearing, please visit the website of the Office of Administrative Hearings. The site has a list of FAQs and links to videos that explain how to represent yourself at a hearing.

32. Do I need a lawyer at the hearing?
Whether to hire an attorney is a personal decision that each party needs to make. Most claimants and respondents do not hire an attorney for the hearing. However, an attorney can be useful, especially in cases involving technical or complex legal issues. The OAH webpage also has videos online that explain how to how to represent yourself at a hearing.

33. How long does a Guaranty Fund hearing take?
A hearing can last several hours or it may take a day or more. It depends on the number of witnesses who testify and the amount of evidence that is presented by each party. While most Administrative Law Judges are patient, parties should be prepared to present their evidence in an organized and efficient manner, without duplication.

34. What happens after the Guaranty Fund hearing?
The Administrative Law Judge has 90 days following the hearing to issue a written Recommended Decision, which is sent to MHIC. The Commission reviews the Recommended Decision and issues a Proposed Order, which is sent to both parties. Either party who disagrees with the Proposed Order can file exceptions to the Order, and MHIC will schedule an exceptions hearing before a Hearing Board of the Commission.

35. What is an exceptions hearing?
An exceptions hearing is held before a Hearing Board of the Commission at the Home Improvement Commission. It is not a hearing to retry the case. The purpose of the exceptions hearing is for the party who disagrees with the Proposed Order to tell the Hearing Board why the Proposed Order is incorrect. The Hearing Board ordinarily does not consider new evidence at the exceptions hearing. Instead, the individual who disagrees with the Proposed Order explains why the Order is incorrect, based upon the evidence that was presented to the Administrative Law Judge. The Commission may then amend the Order; affirm the Order; or remand the case to OAH.

36. What happens if neither party files an appeal?
If neither party requests an exceptions hearing, the Proposed Order converts into a Final Order. The Final Order documents can be either the amount the Commission authorizes to be paid from the Guaranty Fund to the claimant or the reasons for the denial of the claim. Either party has 30 days from the date of the Final Order to file an appeal of the Final Order to the Circuit Court.

37. What happens if a party files an appeal?
A party who disagrees with the findings contained in the Final Order has the right to file an appeal to the Circuit Court. If either party files an appeal, the procedures for the appeal are governed by the Circuit Court in which the appeal is filed.

38. When do I get paid?
Once the award is final, and all appeals are exhausted, the Commission authorizes a payment from the Guaranty Fund to the claimant. Claimants then receive a check from the State Treasury in approximately six weeks.

39. What happens after I get paid?
After the Commission pays a claim from the Guaranty Fund, the Commission is subrogated to all rights of the claimant in the claim up to the amount paid and the claimant shall assign to the Commission all rights of the claimant in the claim up to the amount paid.

40. What happens to the contractor if the Guaranty Fund pays an award?
After the Commission pays a claim from the Guaranty Fund, the contractor is responsible for reimbursing the Guaranty Fund for the amount paid plus 10% interest per year. The contractor's MHIC license will be suspended until the money is reimbursed.

41. Other helpful Information
The Guaranty Fund is designed for homeowners to recover an actual loss caused by the unworkmanlike, inadequate, incomplete, or abandoned home improvement work of a licensed home improvement contractor. Claimants have the right to seek remedies through other avenues, such as the courts or the contractor's insurance company. The Commission shall deduct the amount recovered from other sources from the amount payable upon the claim and deduct the difference to be paid from the account. The Guaranty Fund is not available to homeowners who hire unlicensed contractors.