MHIC Financial Management and Consumer Protection 2 — Questions and Answers
Question 1: Under Maryland law, a change order that increases the cost or scope of a home improvement project must be:
- Submitted to the MHIC for approval before work proceeds
- In writing and signed by both the contractor and the homeowner (Correct answer)
- Notarized by a licensed notary public
- A verbal agreement confirmed in a follow-up email
Correct answer: In writing and signed by both the contractor and the homeowner
Maryland requires change orders to be written and signed by both parties since they modify the legally binding original contract terms.
Question 2: If a licensed Maryland home improvement contractor abandons a project midway, a homeowner's first avenue for compensation is:
- Filing a claim with the homeowner's title insurance company
- Applying to the Maryland Home Improvement Guaranty Fund (Correct answer)
- Suing the contractor's surety bond carrier in circuit court
- Filing a complaint with the Maryland Attorney General only
Correct answer: Applying to the Maryland Home Improvement Guaranty Fund
The MHIC Guaranty Fund is specifically designed to compensate homeowners when a licensed contractor abandons a project or fails to perform contracted work.
Question 3: Which of the following is a required element of a Maryland home improvement contract?
- The contractor's federal tax identification number
- The approximate start and completion dates of the project (Correct answer)
- A complete list of all subcontractors and material suppliers
- The homeowner's credit score or financing source
Correct answer: The approximate start and completion dates of the project
Maryland law mandates that home improvement contracts include approximate start and completion dates so homeowners have clear timeline expectations.
Question 4: When a homeowner has a financial dispute with a contractor over a completed home improvement project, what should be the FIRST step?
- File a formal complaint with the MHIC
- Attempt direct resolution with the contractor (Correct answer)
- Initiate a lawsuit in District Court
- Contact the homeowner's property insurer
Correct answer: Attempt direct resolution with the contractor
Before escalating to regulatory agencies or courts, the homeowner should attempt to resolve the dispute directly with the contractor, as many disputes are resolved informally.
Question 5: Maryland home improvement contractors are required to retain their financial and business records for a minimum of:
- 1 year
- 3 years (Correct answer)
- 5 years
- 7 years
Correct answer: 3 years
MHIC regulations require contractors to maintain business and financial records for at least 3 years, enabling audits and dispute resolution.
Question 6: A valid Maryland home improvement contract must specify which of the following regarding payment?
- The contractor's markup percentage on labor and materials
- The total contract price and the payment schedule (Correct answer)
- Financing terms regardless of the contract amount
- The homeowner's preferred payment method
Correct answer: The total contract price and the payment schedule
Maryland law requires the contract to clearly state the total price and payment schedule so both parties understand the financial obligations.
Question 7: An unpaid subcontractor on a Maryland home improvement project may best protect their right to compensation by:
- Contacting the MHIC for binding arbitration
- Filing a mechanics lien on the owner's property (Correct answer)
- Suing the general contractor in Small Claims Court only
- Stopping work and forfeiting payment rights
Correct answer: Filing a mechanics lien on the owner's property
Maryland mechanics lien law extends lien rights to subcontractors and suppliers, allowing them to file a lien against the property to secure unpaid compensation.
MHIC Financial Management and Consumer Protection 2
Under Maryland law, a change order that increases the cost or scope of a home improvement project must be: