MHIC MHIC Maryland Home Improvement Law and Contracts 2 — Questions and Answers
Question 1: Which of the following advertising practices violates MHIC regulations for licensed home improvement contractors in Maryland?
- Including the MHIC license number in all print advertisements
- Advertising a price range for typical bathroom remodels
- Advertising in a local newspaper without listing the company address
- Claiming to be 'licensed and bonded' without actually holding a current MHIC license (Correct answer)
Correct answer: Claiming to be 'licensed and bonded' without actually holding a current MHIC license
Claiming to be 'licensed and bonded' when a contractor does not hold a current, valid MHIC license is fraudulent and violates Maryland law. All advertising by home improvement contractors must be truthful, and representing licensure status falsely is a serious violation.
MHIC regulations require all advertising by home improvement contractors to be accurate and non-deceptive. A contractor must not represent that they hold a license, bond, or insurance if they do not. Additionally, licensed contractors are required to include their MHIC license number in certain advertising. Making false claims of licensure exposes a contractor to criminal penalties, civil liability, and MHIC disciplinary action. The MHIA also prohibits deceptive trade practices in soliciting home improvement business, such as bait-and-switch tactics or false claims about materials or work quality.
Question 2: What minimum insurance coverage must an MHIC licensee maintain under Maryland regulations?
- General liability insurance of at least $50,000 per occurrence
- General liability insurance of at least $50,000 per occurrence and a surety bond (Correct answer)
- Workers' compensation insurance only
- No insurance is required; only a surety bond is mandated
Correct answer: General liability insurance of at least $50,000 per occurrence and a surety bond
Maryland MHIC licensees are required to carry both general liability insurance (minimum $50,000 per occurrence) and a surety bond. These financial responsibility requirements protect consumers in case of property damage or contractor default.
To obtain and maintain an MHIC license, a contractor must demonstrate financial responsibility by carrying: (1) general liability insurance with a minimum of $50,000 per occurrence for bodily injury and property damage, and (2) a surety bond in the amount set by the Commission (typically $20,000). These requirements ensure that if a contractor causes property damage or fails to complete a job, the homeowner has a financial remedy. Contractors with employees must also carry workers' compensation insurance. Failure to maintain these coverages is grounds for license suspension or revocation.
Question 3: A licensed MHIC contractor subcontracts the electrical work on a remodeling project to another company. Who bears responsibility if the subcontractor performs defective work that violates the contract?
- The subcontractor alone, since they performed the actual work
- The homeowner, for not screening the subcontractor personally
- The licensed MHIC contractor, who remains responsible for all work under the contract (Correct answer)
- Responsibility is split 50/50 between the MHIC contractor and the subcontractor by law
Correct answer: The licensed MHIC contractor, who remains responsible for all work under the contract
The licensed MHIC contractor is responsible to the homeowner for all work performed under the contract, including work performed by subcontractors. The prime contractor cannot shift this responsibility to a subcontractor to escape liability to the homeowner.
Under the MHIA, the licensed contractor who enters into the home improvement contract with the homeowner is responsible for ensuring that all work — including work performed by subcontractors — meets the contractual and legal standards. If a subcontractor performs defective work, the homeowner's primary legal recourse is against the prime MHIC contractor, not the subcontractor. The prime contractor may then have a separate legal action against the subcontractor. This rule underscores the importance of MHIC contractors carefully selecting and supervising their subcontractors.
Question 4: Under the Maryland Home Improvement Act, a written contract is required when the total price of a home improvement project is:
- $100 or more
- $500 or more (Correct answer)
- $1,000 or more
- $5,000 or more
Correct answer: $500 or more
Maryland law requires a written contract for any home improvement project where the total price — labor plus materials — is $500 or more. Below this threshold, an oral agreement may suffice, but a written contract is always recommended for consumer protection.
The MHIA requires that any home improvement contract valued at $500 or more (combining labor and materials) must be in writing and must contain all mandatory provisions. The written contract requirement is a cornerstone of the Act's consumer protections, ensuring homeowners have a clear record of what was agreed upon, the price, and the timeline. Contractors who fail to provide a proper written contract may be subject to disciplinary action. Even for projects under $500, a written contract is advisable to avoid disputes about scope and price.
Question 5: Which of the following actions by an MHIC contractor could result in revocation of the contractor's license?
- Completing a job one week later than the estimated date due to material delays
- Requesting a signed change order before performing additional work
- Collecting more than one-third of the contract price as an initial deposit (Correct answer)
- Advertising the contractor's MHIC license number in all ads
Correct answer: Collecting more than one-third of the contract price as an initial deposit
Collecting a deposit exceeding one-third (1/3) of the total contract price is a direct violation of the MHIA and can result in disciplinary action, including license revocation. Requesting change orders and including license numbers in ads are proper practices; minor delays due to material shortages are generally not grounds for revocation.
The Maryland Home Improvement Commission has authority to suspend or revoke a contractor's license for violations of the MHIA and its regulations. Violations that can lead to revocation include: collecting more than 1/3 of the contract price as a deposit; abandoning a job; performing substandard work; making false or misleading statements; failing to maintain required insurance or bond; engaging in deceptive trade practices; and being convicted of a crime involving moral turpitude. Legitimate business practices such as requesting change orders, advertising legally, and experiencing minor weather or supply delays are not grounds for disciplinary action.
Question 6: When is a building permit required for home improvement work in Maryland?
- Never — the MHIC license itself serves as the permit authorization
- Only when the contractor is a licensed MHIC
- As required by local county or municipal building codes for the specific type of work (Correct answer)
- Only for projects costing more than $10,000
Correct answer: As required by local county or municipal building codes for the specific type of work
Building permit requirements are determined by local county or municipal building codes, not by the MHIC licensing system. The need for a permit depends on the type and scope of work being performed and the jurisdiction in which it occurs.
The MHIC license is a statewide contractor license, while building permits are issued by local jurisdictions (counties, cities, or towns) according to their adopted building codes. Most structural work, electrical work, plumbing, HVAC installation, and projects that affect the building's structural integrity, safety systems, or occupancy require a permit. Cosmetic work such as painting or replacing flooring generally does not. A licensed MHIC contractor should always check local permit requirements before beginning work and obtain any required permits on behalf of the homeowner. Performing work without a required permit can expose both the contractor and homeowner to legal liability and may affect property insurance.
Question 7: Under the Maryland Home Improvement Act, which statement about the Guaranty Fund is CORRECT?
- The Fund is financed by a tax on homeowners who hire contractors
- The Fund compensates homeowners for verified losses caused by licensed MHIC contractors (Correct answer)
- The Fund pays contractors when homeowners default on payment
- The Fund is managed by the Maryland Attorney General and not the MHIC
Correct answer: The Fund compensates homeowners for verified losses caused by licensed MHIC contractors
Maryland's Home Improvement Guaranty Fund compensates homeowners who suffer actual monetary losses as a result of the dishonest, fraudulent, or negligent acts of a licensed MHIC contractor. The Fund is financed by fees paid by contractors, not by homeowners.
The Maryland Home Improvement Guaranty Fund is a consumer protection fund established under the MHIA and administered by the Maryland Home Improvement Commission. When a homeowner suffers a financial loss due to a licensed contractor's dishonesty, fraud, or failure to perform, and the contractor cannot or will not pay, the homeowner may file a claim with the Guaranty Fund. The Fund is financed by fees collected from MHIC licensees — not from homeowners or taxpayers. The maximum recovery per claim is limited by statute. The Fund does not cover losses caused by unlicensed contractors, which is one more reason homeowners should always verify a contractor's MHIC license before signing a contract.
MHIC MHIC Maryland Home Improvement Law and Contracts 2
Which of the following advertising practices violates MHIC regulations for licensed home improvement contractors in Maryland?