HOME BUILDER GUARANTY FUND

• What transactions are covered by the Home Builder Guaranty Fund?
• How is the Home Builder Guaranty Fund funded?
• Who may file a claim?
• How does a consumer file a claim?
• What types of losses will the Guaranty Fund cover?
• What expenses will not be covered by the Guaranty Fund?
• When may a claim be brought?
• What happens after a complaint is filed?
• How much can a consumer recover in damages?
• What does the Consumer Protection Division consider when paying a claim from the Guaranty Fund?
• What if the consumer has the benefit of a new home warranty plan?
• What if the new home contract contains an arbitration clause?
• What if the claim goes to arbitration and the arbitrator makes a final award in favor of the consumer?

What transactions are covered by the Home Builder Guaranty Fund?

The Guaranty Fund applies to contracts entered into with a registered home builder after January 1, 2009 to construct a new home in the State of Maryland.

When a home builder applies for a building permit, $50 of the cost of that permit is used to fund the Home Builder Guaranty Fund. Builders are permitted to pass this cost onto the consumer.

A consumer who entered into a contract with a registered builder to construct a new home in the State of Maryland on or after January 1, 2009 may file a claim against the Guaranty Fund. Claims may not be filed by the spouse or immediate relative of the registered builder, an employee or principal of the registered builder, or an immediate relative of an employee or principal of a registered builder.

Prior to filing a claim with the Consumer Protection Division, the consumer must send the home builder a written notice describing the alleged claim or defect and allow the home builder access to the property during regular business hours to inspect the defect, determine the cause and remedy the issue within a reasonable period of time. In addition, if a new home warranty security plan is in place, the consumer must file a claim against the plan and exhaust the plan’s claim process.

If the home builder does not respond in a satisfactory manner, the consumer should submit a written complaint to the Mediation Unit of the Consumer Protection Division. This complaint must include:

• The amount of the claim based on actual loss
• The facts that give rise to the claim
• Any evidence that supports the claim (for example, expert reports, photographs, video tapes, etc.)

The Guaranty Fund will pay for the actual loss which results from an act or omission by a registered builder as determined by the Consumer Protection Division or a court of competent jurisdiction. “Actual loss” means the costs of restoration, repair, replacement or completion that results from the incomplete construction of a new home, a breach of an express or implied warranty, or a failure of the builder to meet certain construction standards or guidelines.

What expenses will not be covered by the Guaranty Fund?

The Guaranty Fund may not be used to reimburse consumers for attorney’s fees, consequential damages, court costs, interest, personal injury damages or punitive damages.

When may a claim be brought?

A consumer must file a claim within 2 years after the consumer discovered or should have discovered the loss or damage or within 2 years after the new home warranty expires, whichever comes first. If the consumer files a claim against the home warranty plan, he or she must file the claim against the Guaranty Fund within 4 months after that claims process is exhausted.

What happens after a complaint is filed?

When a complaint is received by the Division, the Division will send the complaint, including all documentation, to the home builder, and require a written response within 30 days. The builder has the opportunity to present his own set of facts such as photographs, expert reports, and any other relevant information. The Division will review the claim and every attempt will be made to mediate and resolve the issues.

If the home builder fails to respond in a timely manner, or if the Division concludes the issues cannot be resolved through mediation, the parties have the option of choosing arbitration. If the parties do not agree to arbitrate or cannot agree on an arbitrator, then the claim against the Guaranty Fund may be pursued.

How much can a consumer recover in damages?

The Guaranty Fund cannot award more than $50,000 to any one claimant for acts of any one registered builder. In addition, the Fund cannot award more than $300,000 on all claims against the same registered builder, unless that builder first reimburses the Guaranty Fund for monies paid on his or her behalf.

What does the Consumer Protection Division consider when paying a claim from the Guaranty Fund?

When determining whether to pay a claim against the Guaranty Fund, the Division will consider whether the consumer has shown a loss resulting from the act or omission of a registered home builder and whether the consumer gave the home builder notice of the issue, and reasonable opportunity and access to fix the problem. The Division may reject a claim if they find that the consumer unreasonably rejected good faith efforts to resolve the claim.

What if the consumer has the benefit of a new home warranty plan?

If the consumer has a new home warranty security plan, he or she must first file a claim against the warranty plan. If the consumer has exhausted the warranty plan’s claim process then he or she is eligible to pursue a claim against the Guaranty Fund. A consumer may not receive payment from both the home warranty company and the Guaranty Fund for the same actual loss.

What if the new home contract contains an arbitration clause?

If the new home contract includes a written agreement to submit a dispute to arbitration and the agreement allows the home builder to select the arbitrator or arbitration service, then the consumer may choose whether to submit the dispute to arbitration or to seek recovery from the Guaranty Fund. If the contract provides for a mutually agreed upon arbitration service then the consumer and home builder must submit the dispute to arbitration before seeking recovery from the Guaranty Fund.

What if the claim goes to arbitration and the arbitrator makes a final award in favor of the consumer?

If an arbitrator’s award is in favor of the consumer, the consumer may make a claim against the Guaranty Fund in the amount of this award, unless the home builder pays the amount awarded to the consumer within 90 days of the final arbitration award.