MHIC Financial Management and Consumer Protection 4 — Questions and Answers
Question 1: Under Maryland's Home Improvement Law, what is the maximum deposit a contractor may collect before beginning work on a project?
- One-third of the total contract price (Correct answer)
- 50% of the total contract price
- The full contract price upfront
- No deposit is permitted before work begins
Correct answer: One-third of the total contract price
Maryland law limits contractor deposits to one-third (1/3) of the total contract price prior to starting work.
Question 2: A homeowner cancels a signed home improvement contract within the allowed rescission period. What must the contractor do?
- Retain the deposit as a cancellation fee
- Return all payments within 10 days of cancellation (Correct answer)
- Sue the homeowner for breach of contract
- Complete work already scheduled and bill accordingly
Correct answer: Return all payments within 10 days of cancellation
Maryland law requires contractors to return all consumer payments within 10 days after a valid cancellation notice.
Question 3: Which fund compensates Maryland homeowners harmed by licensed home improvement contractors who fail to complete work or perform defective work?
- The Maryland General Treasury
- The Home Improvement Guaranty Fund (Correct answer)
- The Contractor Surety Bond Pool
- The MHIC Escrow Reserve Account
Correct answer: The Home Improvement Guaranty Fund
The Home Improvement Guaranty Fund provides compensation to consumers damaged by licensed MHIC contractors.
Question 4: A contractor submits a final invoice that is $4,200 higher than the written contract amount due to undisclosed cost overruns. Under MHIC rules, what is the likely outcome?
- The contractor may collect the full additional amount
- The consumer owes nothing beyond the original contract price without a written change order (Correct answer)
- The contractor may collect up to 15% over the original contract without documentation
- The MHIC will arbitrate and split the difference
Correct answer: The consumer owes nothing beyond the original contract price without a written change order
Changes to a Maryland home improvement contract must be documented in a written change order signed by both parties; unauthorized overruns are not enforceable.
Question 5: What is the purpose of requiring Maryland contractors to maintain a separate project escrow account for large deposits?
- To earn interest for the contractor
- To ensure consumer funds are protected and used only for the specified project (Correct answer)
- To allow the state to audit tax payments
- To pay subcontractors directly without contractor involvement
Correct answer: To ensure consumer funds are protected and used only for the specified project
Escrow requirements protect consumers by ensuring their deposit money is not commingled with the contractor's operating funds and is available to complete the project.
Question 6: A Maryland home improvement contractor fails to obtain required permits, and the work later causes structural damage. What consumer protection issue does this primarily trigger?
- Only a zoning violation with no financial consequence
- Potential contractor liability for damages and grounds for a Guaranty Fund claim (Correct answer)
- An automatic contract void with no remedy for the homeowner
- A mandatory arbitration proceeding under MHIC rules
Correct answer: Potential contractor liability for damages and grounds for a Guaranty Fund claim
Failure to obtain required permits can expose the contractor to liability for resulting damages and may support a consumer's claim against the Home Improvement Guaranty Fund.
Question 7: Under Maryland consumer protection law, which practice by a home improvement contractor constitutes an unfair or deceptive trade practice?
- Charging the contract price agreed upon in writing
- Misrepresenting the quality or characteristics of materials to be used (Correct answer)
- Requiring a lien waiver upon final payment
- Scheduling inspections through the local permit office
Correct answer: Misrepresenting the quality or characteristics of materials to be used
Misrepresenting material quality or project characteristics violates Maryland's Consumer Protection Act and MHIC regulations.
MHIC Financial Management and Consumer Protection 4
Under Maryland's Home Improvement Law, what is the maximum deposit a contractor may collect before beginning work on a project?