MHIC Financial Management and Consumer Protection 1 — Questions and Answers
Question 1: Under Maryland Home Improvement Law, what is the maximum deposit a contractor may collect from a homeowner at the time of contract signing?
- 10% of the total contract price
- 25% of the total contract price
- One-third of the total contract price (Correct answer)
- 50% of the total contract price
Correct answer: One-third of the total contract price
Maryland law limits the initial deposit to no more than one-third of the total contract price to protect consumers from financial overexposure before work begins.
Question 2: The Maryland Home Improvement Guaranty Fund is primarily designed to:
- Provide low-interest loans to licensed contractors
- Compensate homeowners harmed by licensed contractors who fail to complete or properly perform work (Correct answer)
- Fund the administrative operations of the MHIC
- Pay subcontractors when general contractors become insolvent
Correct answer: Compensate homeowners harmed by licensed contractors who fail to complete or properly perform work
The Guaranty Fund exists to reimburse homeowners who suffer financial losses due to defective, incomplete, or abandoned work by MHIC-licensed contractors.
Question 3: Maryland law requires a home improvement contract to be in writing when the contract price exceeds:
- $100
- $500 (Correct answer)
- $2,500
- $5,000
Correct answer: $500
Any home improvement contract exceeding $500 must be in writing under the Maryland Home Improvement Law to ensure consumer protection and enforceability.
Question 4: A homeowner who signs a home improvement contract at their residence during a door-to-door solicitation has the right to cancel within:
- 24 hours
- 3 business days (Correct answer)
- 5 business days
- 7 calendar days
Correct answer: 3 business days
Federal FTC rules and Maryland consumer protection law give homeowners 3 business days to cancel contracts entered into at their home through a solicited sale.
Question 5: What minimum general liability insurance must a Maryland MHIC-licensed contractor maintain per occurrence?
- $25,000
- $50,000 (Correct answer)
- $100,000
- $250,000
Correct answer: $50,000
MHIC regulations require licensed contractors to carry a minimum of $50,000 per occurrence in general liability insurance to protect homeowners from property damage and injury claims.
Question 6: Under Maryland's mechanics lien law, within how many days after the last work performed must a contractor file a petition for a mechanics lien?
- 30 days
- 60 days
- 90 days (Correct answer)
- 180 days
Correct answer: 90 days
Maryland law requires contractors to file a petition establishing a mechanics lien within 90 days of the last date work was performed on the property.
Question 7: Which of the following payment practices is prohibited under Maryland Home Improvement Law?
- Requesting a draw payment after a defined phase of work is completed
- Accepting payment by personal check or electronic transfer
- Collecting the full contract amount from the homeowner before any work begins (Correct answer)
- Requiring a signed change order before performing additional work
Correct answer: Collecting the full contract amount from the homeowner before any work begins
Collecting the entire contract price before beginning work leaves consumers with no financial protection and is prohibited under Maryland home improvement regulations.
MHIC Financial Management and Consumer Protection 1
Under Maryland Home Improvement Law, what is the maximum deposit a contractor may collect from a homeowner at the time of contract signing?