2 STATE OF MARYLAND OFFICE OF THE ATTORNEY GENERAL 2014 ANNUAL REPORT OF THE HOME BUILDER REGISTRATION UNIT CONSUMER PROTECTION DIVISION OFFICE OF THE ATTORNEY GENERAL SUBMITTED TO THE GOVERNOR AND GENERAL ASSEMBLY OF MARYLAND
3 TABLE OF CONTENTS I. Executive Summary II. Registration of Builders A. The Home Builder Registration Unit B. Builder Registration and Renewal Under the HBRA C. Who Are Maryland s Builders? III. Home Builder Sales Representatives IV. Law Enforcement V. Communication with Builders and Consumers A. Outreach to Builders B. Consumer Education Pamphlet C. HBRU Website VI. Coordination With Local Permit Offices VII. Evaluating Consumer and Builder Dispute Resolution VIII. Warranty Program IX. Home Builder Guaranty Fund X. Legislative Changes
4 2014 Annual Report, Home Builder Registration Unit Page 1 I. EXECUTIVE SUMMARY th 2014 marked the 13 year of operation of the Maryland Home Builder Registration Unit ( the Home Builder Unit or Unit ) since the Home Builder Registration Act ( the Act or HBRA ) was enacted by the General Assembly in the 2000 Session. The HBRA protects new home buyers by requiring builders to register with the State and by providing an enforcement mechanism that allows the State to prevent builders with a bad track 1 record from continuing to build in Maryland. During the 2008 Session, the General Assembly enacted legislation to provide additional protections for home buyers, establishing a registration requirement for sales representatives for Maryland home builders and a Home Builder Guaranty Fund. The Home Builder Unit of the Consumer Protection Division of the Office of the 2 Attorney General was created by the HBRA to administer and enforce the Act. The Act requires that the Consumer Protection Division make an annual report of its activities to the Governor and General Assembly. This is the thirteenth report since the law became fully operational on January 1, The report focuses on the following areas! Registration of Builders: 2,280 builders were registered as of June 30, of those builders registered for the first time between July 1, 2013 and June 30, 2014.! Registration Renewal: From July 1, 2013 to June 30, 2014, the Unit mailed renewal notices to 1,179 builders whose registrations were due to expire by June 1, of those builders renewed their registration as of June 30, 2014.! Law Enforcement: The Unit opened 97 investigations between July 1, 2013 and June 30, 2014, after receiving reports of unregistered builders or violations of the Home Builder Registration Act, the Consumer Protection Act, the New Home Warranties Act or violations of the laws governing deposits on new homes. Eighty-one of the investigations resulted in settlements; enforcement actions have been filed in another eight; and eight have been closed or remain under continuing investigation. The Unit receives information from many sources, including consumers, other builders, subcontractors, and permit offices. 1 Earlier laws provided partial protections for home buyers by focusing on protection of the buyer s deposit, required contract provisions and disclosures, and prescribed terms of nonmandatory home warranty security plans. See New Home Deposits, Md. Code Ann., Real Property through , Custom Home Protection Act, Md. Code Ann., Real Property through , and New Home Warranties Act, Md. Code Ann., Real Property through Montgomery County and Prince George s County have varying forms of builder licensing or registration.
5 2014 Annual Report, Home Builder Registration Unit Page 2! Education of Builders and Consumers: As of June 30, 2014, the Unit had distributed a total of 256,204 copies of BUYING A NEW HOME - Consumer Rights and Remedies Under Maryland Law; and maintained and updated its website to provide information to the public, consumers, builders, and permit offices about registered builders, building laws, and home building.! Coordination with Local Building Permit Offices: The Unit continues to coordinate with local building permit offices to ensure that unregistered builders cannot obtain building permits and that builders with unresolved building code violations are reported to the Unit. Lists of registered builders are ed and mailed to permit offices each month and are publicly available on the Unit s website. The Unit also coordinates with local permit offices concerning the payment of fees by builders to fund the Home Builder Guaranty Fund.! Evaluation of Consumer and Builder Dispute Resolution: The Division s Mediation Unit handled 111 consumer complaints involving 67 home builders between July 1, 2013 and June 30, The overwhelming majority of the complaints concerned claims about construction defects.! Warranty Programs: The Unit monitors information from New Home Warranty Security Plans concerning their operation and claims experience to ensure the plans are continuing to meet the requirements of the new home warranty law.! Home Builder Sales Representatives: Effective October 1, 2008, sales representatives for home builders were required to register with the Unit. A home builder sales representative is an individual employed by a home builder as the home builder s representative to consumers regarding the purchase of a new home from the home builder. Sales representatives are required to complete a registration form and pay a $200 registration fee for a 2-year registration. As of July 1, 2014, there were 656 registered sales representatives, who worked for 190 builders.! Home Builder Guaranty Fund: During the 2008 session, the General Assembly created a Home Builder Guaranty Fund to protect buyers of new homes who purchase a new home from a registered home builder and suffer an actual loss as the result of: incomplete construction of a new home; breach of an express or implied warranty; failure to meet construction standards or guidelines; or failure to return a deposit or other payment to which the home buyer is entitled. The Guaranty Fund applies only to contracts entered into after January 1, The Division is required to maintain the Guaranty Fund at a level of at least $1,000,000. The Guaranty Fund is funded through a $50 fee to be paid by home builders to the permit office together with the application for a permit for a new home. The permit offices remit the fees to the Division monthly and may retain an administrative fee of not more than 2
6 2014 Annual Report, Home Builder Registration Unit Page 3 percent. From July 1, 2013 until June 30, 2014, there were eighty-seven claims filed with the Guaranty Fund.
7 2014 Annual Report, Home Builder Registration Unit Page 4 II. REGISTRATION OF BUILDERS A. THE HOME BUILDER REGISTRATION UNIT A central requirement of the HBRA is that all new home builders in Maryland, except for those home builders that build exclusively in Montgomery County, register with the Unit. The Home Builder Registration Unit was created by the HBRA to administer and enforce the Act. A special fund was created to fund the Unit s activities, which is paid for through the collection of registration fees. The HBRA sets the initial registration fee paid by builders at $600 for a two-year registration. The Act further provides for renewal fees for an additional two-year period of $300 for builders who were issued 10 or fewer building permits during the preceding year and of $600 for builders who were issued 11 or more permits during the preceding year. HBRA , , The Division s 3 costs for the Unit include salary, benefits, and administrative costs for a ten person unit ; production and distribution of the consumer education pamphlet; continued maintenance of the website and data systems; and perhaps most importantly, enforcement costs. The Unit s ten positions include: a Director/Assistant Attorney General, an Assistant Attorney General who oversees the registration of sales representatives and cases involving the Home Builder Guaranty Fund, an Administrator who oversees builder registration, an Administrator who oversees new home warranty security plans and builder compliance with deposit protection laws, an Administrator who oversees registration of sales representatives and administration of the Home Builder Guaranty Fund, a Staff Attorney responsible for assisting with litigation, two Investigators, and two Secretaries. B. BUILDER REGISTRATION AND RENEWAL UNDER THE HBRA The Act establishes a registration procedure that requires builders to complete a registration form and pay the required registration fee. The Act does not provide for competency testing. The Unit has implemented the registration requirements with an objective of making registration an easy and quick procedure. To register, builders are required to complete an application form, provide information about the principals of the company and legal proceedings involving the builder, and pay the registration fee. Each builder s registration lasts two years and expires on one of four quarterly dates based upon the date the builder initially registered: March 1, June 1, September 1, or December 1. Having registrations expire quarterly makes it easier for builders, permit offices, consumers and the Unit to keep track of whether builders are currently registered and when registrations expire. The Unit mails a renewal notice to the builder s last known address at least 60 days before the registration expires. The application provides the Unit with general information about the company or entity that is registering. It also provides the Unit with information about each "principal" 3 Two of the positions have been vacant for over one year.
8 2014 Annual Report, Home Builder Registration Unit Page 5 of the company, which the HBRA defines to be persons with at least a 10% ownership interest, and directors, partners, officers and managers of the company. One of the purposes of the Home Builder Registration Act is to track builders who dissolve entities without meeting their financial obligations and then begin building again under a new company name. Such builders may be subject to denial or revocation of their registration under HBRA To achieve this goal, the Unit must gather information from the applicants about the principals who own and operate building companies. As of June 30, 2014, 2,280 home builders were registered with the Unit. 200 new builders registered with the Unit between July 1, 2013 and June 30, The following chart shows the number of registered builders reported in the Annual Report since Source: HBRU In the past year, the Unit mailed renewal notices to the 1,179 builders that registered under the HBRA, whose initial two year registrations were due to expire between September 1, 2013 and June 1, As of June 30, 2014, 923 of these builders have been approved for renewal. 238 builders did not renew their registrations (40 notified the Unit that they were not renewing, 7 withdrew their applications, and 191 did not submit a renewal application). Since January 1, 2005, builders have been able to register and renew their registrations over the Internet. Of the 923 builders that have been renewed, 868 (94%) renewed their registrations over the Internet. However, consistent with the nationwide slowdown in new home building, the overall number of registered builders has continued to decrease since a peak in 2008.
9 2014 Annual Report, Home Builder Registration Unit Page 6 C. WHO ARE MARYLAND S BUILDERS? The HBRA defines "home builder" and "new home" broadly to ensure that all new home builders in Maryland must be registered. HBRA (g) and (m). The 4 exceptions to the HBRA are narrowly drawn. Information provided by builders in the registration process, combined with other available data, provides the following profile of Maryland Builders:! Number of Builders: There were 2,280 registered builders in Maryland as of June 30, of those builders registered for the first time between July 1, 2013 and June 30, 2014 and the Unit continues to receive new applications monthly.! Type of Construction: The vast majority of Maryland s builders report building either custom homes (54%) or new homes (32%). Another 6% report building condominiums, 5% report building industrialized buildings, and 3% report selling or installing mobile homes.! Form of Business: 51% of Maryland s builders use corporations as their form of business organization. Another 36% are limited liability companies (LLCs), 11% are sole proprietorships, and 2% are partnerships.! Location of Builders and Housing Construction: Not surprisingly, the majority of Maryland s builders continue to be located in the region of Maryland that is experiencing the most new home building activity, as measured by the number of single family housing permits issued: 80.9% of building permits for single family construction were issued in the Baltimore-Washington Region, where 52.5% of Maryland s builders are headquartered. 5.8% of building permits were issued in the Eastern Shore Regions, where 18.9% of Maryland s builders are headquartered. The Southern Region had 10.8% of the building permits issued and provided headquarters for 10.6% of Maryland s builders. The Western Region had 2.4% of building permits and provided headquarters for 6.7% of Maryland s builders. 11.3% of builders had headquarters that were out of state. 4 The HBRA excludes from registration employees, subcontractors and vendors of a registered home builder; the manufacturer of industrialized buildings unless it also installs the building; real estate developers who do not also contract for or construct homes; construction financiers; and builders who build solely in Montgomery County. HBRA (g)(3). Landowners who obtain building permits in their own name and who directly perform the construction on their own land for their own use are also exempted. HBRA
10 2014 Annual Report, Home Builder Registration Unit Page 7 The following chart shows the headquarters of builders in each region, the number of single family housing permits issued in each region from July 1, 2013 through June 30, 2014, and the percentage of the total number of single family housing permits issued in Maryland in each region during that period. Region Percentage of Builders With Headquarters in Region Number of Permits Issued in Region (7/1/13-6/30/14) Percentage of State-wide Permits Issued in Region Baltimore Region (Anne Arundel, Baltimore City, Baltimore County, Carroll, Harford, Howard) Suburban Washington Region (Frederick, Montgomery, Prince George s) Upper Eastern Shore Region (Caroline, Cecil, Kent, Queen Anne s, Talbot) Southern Region (Calvert, Charles, St. Mary s) Lower Eastern Shore Region (Dorchester, Somerset, Wicomico, Worcester) Out of State (Delaware, Florida, Illinois, Massachusetts, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee, Texas, Virginia, Washington, D.C., West Virginia) Western Region (Allegany, Garrett, Washington) 36.7% 6, % 15.8% 6, % 11.0% % 10.6% 1, % 7.9% % 11.3% 6.7% % Totals 100% 15, % Source: HBRU and Md. Dept. of Planning, for Single Family Permits Issued July 1, 2013 through June 30, 2014
11 2014 Annual Report, Home Builder Registration Unit Page 8 The following graph shows the breakdown of builders headquarters for each county and how many are out of state: Source: HBRU
12 2014 Annual Report, Home Builder Registration Unit Page 9 The following chart shows the number of permits issued in each county from July 1, 2013 through June 30, Source: Md. Department of Planning data, Dorchester County, Somerset County & Talbot County Permit Authority
13 2014 Annual Report, Home Builder Registration Unit Page 10 III. HOME BUILDER SALES REPRESENTATIVES Effective October 1, 2008, sales representatives for home builders were required to register with the Home Builder Registration Unit. A home builder sales representative is an individual employed by a home builder as the home builder s representative to consumers regarding the purchase of a new home from the home builder. Sales representatives are required to complete a registration form and pay a $200 registration fee for a 2-year registration. As of July 1, 2014, there were 656 registered sales representatives, who worked for 190 builders. A registered sales representative may be employed by more than one builder. The Unit issues a Registration Certificate to a registered sales representative, who is required to conspicuously display the Certificate at the location where the sales representative primarily works. Additionally, home builders are required to disclose to prospective home buyers that the sales representative works for the home builder and that, while the sales representative may assist the buyer in purchasing the property, the sales representative s duty of loyalty is to the home builder. IV. LAW ENFORCEMENT The Home Builder Registration Act provides an enforcement mechanism with the objectives of (1) keeping unregistered builders from building in Maryland and (2) preventing registered builders who establish a bad track record or engage in violations of the law from continuing to build in Maryland. To accomplish these objectives, the HBRA prohibits unregistered builders from building and authorizes the Unit to use civil administrative proceedings to seek a cease and desist order and a civil penalty of up to $1,000 per day of unregistered practice. HBRA and In addition, the HBRA provides that the Unit may deny registration to an applicant, reprimand a registrant, suspend or revoke a registration, or impose a civil penalty if the Unit determines that the applicant or registrant has engaged in any of the specified practices stated in HBRA The Unit opened 97 investigations between July 1, 2013 and June 30, 2014 after receiving reports of unregistered builders or violations of the Home Builder Registration Act, the Consumer Protection Act, the New Home Warranties Act or violations of the laws governing deposits on new homes. Eighty-one of the investigations resulted in settlements; other enforcement actions have been taken in another eight; and eight have been closed 5 or remain under continuing investigation. The Unit receives information from many The Unit settled or took enforcement action in 113 cases between July 1, 2013 and 5 June 30, 2014, including investigations opened prior to July 1, 2012.
14 2014 Annual Report, Home Builder Registration Unit Page 11 sources, including consumers, other builders, subcontractors, and permit offices. The results of some of these enforcement actions are summarized as follows: The Consumer Protection Division obtained a judgment from the Circuit Court for Charles County enforcing a Final Order issued by the Consumer Protection Division against a Charles County builder and ordering the builder to pay $837, to the State of Maryland. The Consumer Protection Division issued a Final Order finding that a Baltimore builder entered into contracts to construct four homes, took deposits and payments toward the construction of the homes, and then failed to begin or complete construction or return the money paid. The Final Order found violations of the Home Builder Registration Act, the Custom Home Protection Act, the New Home Deposits Act, and the Consumer Protection Act and ordered that the builder and its principal pay restitution of $315,274.83, economic damages of $144,528.19, civil penalties of $63,800.00, and costs of $2, The Consumer Protection Division issued a Final Order finding that an unregistered Anne Arundel County builder sold a home to a consumer without correcting building code violations or otherwise bringing the home into compliance with the local code. The Final Order found violations of the Home Builder Registration Act, the New Home Deposits Act, and the Consumer Protection Act and ordered that the builder pay restitution, civil penalties, and costs, and reimburse the consumer for all future costs incurred to correct any defects in construction of the home. The Home Builder Registration Unit reached a settlement with a Harford County builder who entered into contracts to construct two homes, took deposits and payments toward the construction of the homes, and then failed to begin or complete construction, pay subcontractors or return the money paid. The Final Order by Consent required the builder and its principal to pay restitution of $78,005.00, civil penalties of $30,000.00, and costs of $3, The Final Order also required the builder to comply with all registration requirements prior to being registered, submit to binding arbitration with the Consumer Protection Division s Arbitration Program and post a performance bond of $200, The Home Builder Registration Unit denied the registration application of a builder from St. Leonard, Maryland whose licenses with the Maryland Home Improvement Commission had been suspended for failing to reimburse the Maryland Home Improvement Commission s Guaranty Fund for payment of consumers claims. The Home Builder Registration Unit revoked the registration of a Baltimore County builder for violation of the Home Builder Registration Act. The builder failed to post a performance bond as required by an Assurance of Discontinuance that the builder had entered into with the Home Builder Registration Unit and failed to disclose the
15 2014 Annual Report, Home Builder Registration Unit Page 12 entry of a judgment against the builder in favor of a consumer in the amount $95,173.12, on its application to renew registration. The Home Builder Registration Unit revoked the registration of an Annandale, Virginia builder for violation of the Home Builder Registration Act. The builder failed to post a performance bond as required by an Assurance of Discontinuance the builder had entered into with the Home Builder Registration Unit. The Home Builder Registration Unit revoked the registration of a Howard County builder for violation of the Home Builder Registration Act. The builder entered into a contract with consumers to construct a home, took deposits and payments toward the construction of the home, and then failed to complete construction or return the money paid. The builder also failed to disclose legal proceedings on his application to renew registration, including lawsuits involving consumers and subcontractors, the entry of judgments, and the filing of a petition for bankruptcy. The Home Builder Registration Unit revoked the registration of a Baltimore County builder for violation of the Home Builder Registration Act. The builder entered into contracts with consumers to construct homes, took deposits and payments toward the construction of the homes, and then failed to begin or complete construction or return the money paid. The builder also failed to disclose the existence of principals of the company on the applications to register and renew registration and failed to disclose judgments and tax liens entered against the company. The Office of Administrative Hearings issued a Proposed Decision finding that a St. Mary s County builder and its principals entered into contracts to construct two homes, took deposits and payments toward the construction of the homes, and then failed to complete construction or return the money paid. The Proposed Decision found violations of the Home Builder Registration Act, the New Home Deposits Act, the Custom Home Protection Act, and the Consumer Protection Act and recommended that the builder and its principal pay restitution, civil penalties, economic damages, and costs. The Office of Administrative Hearings issued a Proposed Decision finding that an Anne Arundel County builder and its principal entered into contracts with consumers to construct four homes in Anne Arundel and Montgomery Counties and then failed to either begin or complete construction of the homes, pay subcontractors, or return the money paid. The Proposed Decision found violations of the Home Builder Registration Act, the New Home Deposits Act, the Custom Home Protection Act, and the Consumer Protection Act and recommended that the builder and its principal pay restitution, civil penalties, economic damages, and costs. The Home Builder Registration Unit entered into Assurances of Discontinuance with eighty-one builders to settle allegations that the companies acted as home builders
16 2014 Annual Report, Home Builder Registration Unit Page 13 without having registered with the Unit in violation of the Home Builder Registration Act or engaged in other violations. The companies brought their registrations into compliance, agreed to penalties totaling $64,500.00, and agreed to submit any complaints that cannot be resolved through mediation to binding arbitration through the Division s Arbitration program. The builders were located in Anne Arundel, Baltimore, Calvert, Charles, Frederick, Howard, Montgomery, Prince George s, Queen Anne s, St. Mary s, Talbot, Washington, Wicomico, and Worcester Counties.
17 2014 Annual Report, Home Builder Registration Unit Page 14 The following chart shows the number of Investigations reported in the Annual Reports since Source: HBRU The following chart shows the number of Enforcement Actions reported in the Annual Reports since Source: HBRU
18 2014 Annual Report, Home Builder Registration Unit Page 15 V. COMMUNICATION WITH BUILDERS AND CONSUMERS A. OUTREACH TO BUILDERS The Unit has continued to correspond with builders to keep them updated about issues affecting them. The Unit provides builders with two months notice that their registrations will be expiring and provides them with the information and forms they will need to renew their registrations. The Unit also handled numerous builder inquiries by phone and by about the Home Builder Registration Act s registration and renewal processes and corresponded with builders about the requirements of any amendments to the law. B. CONSUMER EDUCATION PAMPHLET The HBRA requires that the Unit develop a consumer information pamphlet describing the rights and remedies of consumers in the purchase of a new home and providing any other information that the Division considers reasonably necessary to assist consumers in the purchase of a new home. The law further requires that the consumer information pamphlet be given to consumers by builders before they sign a contract to purchase a new home and that the receipt of the consumer information pamphlet be acknowledged in writing. HBRA (c). The Unit consulted with the industry, and initially developed and published a consumer education pamphlet, BUYING A NEW HOME - Consumer Rights and Remedies Under Maryland Law. The Unit also drafted and distributed a model form for the consumer to sign to acknowledge receipt of the pamphlet. The Unit regularly updates the pamphlet to reflect changes to the law. A copy of the revised pamphlet is available on our website at As of June 30, 2014, the Unit had distributed a total of 256,204 consumer information pamphlets to builders. Between July 1, 2013 and June 30, 2014, the Unit distributed 4,259 pamphlets to builders.
19 2014 Annual Report, Home Builder Registration Unit Page 16 The following chart shows the number of Consumer Information Booklets distributed to Builders since Source: HBRU C. HBRU WEBSITE The Home Builder Registration Unit has maintained and updated its website to make information readily available to consumers, builders, and permit offices. The website has been operational since January, 2001 and is updated regularly as information changes. Since the website can be accessed by anyone with Internet access, it is a significant mode of outreach and is an educational resource for both consumers and builders. The website provides consumers, permit offices and others the ability to search for builders either by the name of the builder or by registration number. The website address is On the website can be found:! Information about the Home Builder Registration Unit, the Home Builder Registration Act, and the responsibility of builders and sales representatives pursuant to the Act.! A list of currently registered builders that can be searched either by builder name or by registration number.! Registration materials including all the registration forms. Builders and sales representatives are able to register and renew their registrations over the Internet.
20 2014 Annual Report, Home Builder Registration Unit Page 17! The Home Builder Registration Act and other applicable laws, and updates to those laws.! The consumer information pamphlet developed by the Home Builder Registration Unit, BUYING A NEW HOME - Consumer Rights and Remedies Under Maryland Law.! The Builder New Home Disclosure Form.! A sample Surety Bond and Letter of Credit that builders can use for the protection of consumer deposits.! Previous Annual reports of the Home Builder Registration Unit. VI. COORDINATION WITH LOCAL PERMIT OFFICES Permit offices play a pivotal role in implementing the Home Builder Registration Act. First, the building and permits department of a county may not issue a permit for home building unless the permit includes the home builder registration number of a registrant. HBRA This is the critical first line of defense against unregistered builders. Second, local permit offices are required to notify the Unit about any builder who fails to correct a building code violation within a reasonable period of time. The Unit has communicated regularly with the 42 local and municipal permit offices across the state. The Unit continues to and send out printed copies of the lists of registered and expired builders to local permit offices on a monthly basis and communicates with them regularly. Additionally, permit offices are encouraged to check the Unit s website to find out if a builder applying for a permit is registered. The Unit also coordinates with local permit offices regarding the payment of fees by builders to fund the Home Builder Guaranty Fund. VII. EVALUATING CONSUMER AND BUILDER DISPUTE RESOLUTION Between July 1, 2013 and June 30, 2014, the Mediation Unit of the Consumer Protection Division handled 111 written consumer complaints filed against 67 different home builders. When a consumer complaint is filed with the Consumer Protection Division, a mediator from the Mediation Unit contacts both the builder and consumer and assists them in resolving their dispute. A mediated agreement is possible only if both parties can agree upon mutually acceptable terms. A mediation is considered successful if it results in an agreement. The Division also offers arbitration at no cost to the parties if the builder and consumer are unable to resolve the complaint through mediation and both the builder and consumer agree to submit their dispute to arbitration. Effective January 1, 2009, consumers who are unable to resolve their complaints through mediation are able to submit their claims to the Home Builder Guaranty Fund.
21 2014 Annual Report, Home Builder Registration Unit Page 18 Of the complaints received by the Division s Mediation Unit, 35% of the complaints were mediated; 12% were filed for information only; 5% were resolved by the consumer; 4% were closed after the Division provided advice to the consumer; 2% were referred to other agencies having jurisdiction; 10% were arbitrated; 9% required administrative review; and 23% had other miscellaneous resolutions. Thirteen percent (13%) of the complaints mediated by the Division resulted in positive relief for consumers, such as the defects being corrected by the builder or money being paid to the consumer. The total amount of money or savings obtained for consumers in these complaints was $23, The 111 written complaints raised the following issues: Construction Defect Issues (43); Incomplete Construction (28), including disputes between the builder and owner about whether construction has been completed; Contract Disputes (6); Misrepresentation Claims (17), including claims that the finished home was not constructed in the manner promised by the builder; Warranty Issues (8); and Deposit Issues (9), including consumers seeking return of their deposits after being denied financing or withdrawing from their contracts for other reasons. Consumers also filed complaints against builders with the Montgomery County Office of Consumer Protection and with the Howard County Office of Consumer Affairs. Between July 1, 2013 and June 30, 2014, there were 38 complaints filed in Montgomery County. In Howard County, 23 were handled during this period.
22 2014 Annual Report, Home Builder Registration Unit Page 19 The following chart shows the number of Consumer Complaints and the Number of Builders Involved in those complaints by year since Source: HBRU VIII. WARRANTY PROGRAM During the 2002 Session, the Maryland General Assembly enacted Chapter 492, which transferred responsibility for New Home Warranty Security Plans from the Department of Labor, Licensing and Regulation to the Home Builder Registration Unit. There are seven third party warranty plans approved for operation in Maryland. The Unit requests information from each plan concerning their operations and claims experience to monitor compliance with the requirements of Maryland law. In 2013, the seven approved plans reported a total statewide enrollment of 68,686 homes. Also, in 2013 the warranty plans enrolled 5,630 new homes, generating $2,321,051 in revenue. The plans reported a total of 144 consumer claims for warranty coverage in 2013 with 36 claims approved for coverage and 108 of the claims being denied. The warranty plans determined that 14 approved claims were resolved without action by the plan. The warranty plans settled the remaining 22 approved claims by making payments to the consumers. New Home Warranty Security Plans are required to notify the Home Builder Registration Unit of each decision to deny warranty coverage for a claim or any part of a claim. From July 1, 2013 to June 30, 2014 the Unit has received notice of 72 denied 6 warranty claims. From the same time period, the warranty plans provided notice that 1 claim was accepted or partially accepted for coverage. The claims that were denied are The 108 denied claims that the plans reported were for the 2013 calendar year 6 (January 1, 2013 to December 31, 2013), while the 72 denied claim notices the Unit received were during the fiscal year ( July 1, 2013 to June 30, 2014).
23 2014 Annual Report, Home Builder Registration Unit Page 20 categorized with the plan s response as follows: Structural Defects (48), including the plan s claim that the defect did not meet the plan s definition of a structural defect (22), warranty coverage expired (17), and defect is excluded by plan (9); Material/Workmanship Defects (22), including warranty coverage expired (17), defect is within plan standards (2), and defect is excluded by plan (3); Equipment/Appliance/Fixture Defects (1), including defect is excluded by plan (1); Plumbing/Electrical/HVAC (1), including warranty coverage expired (1), defect is excluded by plan (0), and defect is within plan standards (0). Table of Reported Claims Type of Claim Claims Denied in FY 2011 Claims Denied in FY 2012 Claims Denied in FY 2013 Structural Defects Material/Workmanship Defects Equipment/Appliance/ Fixture Defects Plumbing/Electrical/HVAC Defects IX. HOME BUILDER GUARANTY FUND During the 2008 session, the General Assembly created a Home Builder Guaranty Fund to protect buyers of new homes who purchase a new home from a registered home builder and suffer an actual loss as the result of: incomplete construction of a new home; breach of an express or implied warranty; failure to meet construction standards or guidelines; or failure to return a deposit or other payment to which the home buyer is entitled. The Guaranty Fund applies only to contracts entered into after January 1, 2009.
24 2014 Annual Report, Home Builder Registration Unit Page 21 The Division is required to maintain the Guaranty Fund at a level of at least $1,000,000. The Guaranty Fund is funded through a $50 fee to be paid by home builders to the permit office together with the application for a permit for a new home. In the case of a multi-family dwelling, such as a condominium, the Guaranty Fund fee must be paid for each unit to be constructed. The permit offices remit the fees to the Division monthly and may retain an administrative fee of not more than 2 percent. The balance of the Guaranty fund is currently maintained in an amount consistent with the statutory requirement. Claims against the Guaranty Fund are limited to not more than $50,000 to one claimant or not more than $300,000 to all claimants against a single registered builder. If a consumer is awarded payment from the Guaranty Fund, the builder s registration is suspended until the Guaranty Fund has been repaid. Under the Guaranty Fund law, consumers and builders are encouraged to resolve any issues voluntarily before a claim against the Guaranty Fund can proceed. First, consumers must give the builder notice and an opportunity to remedy any defects with the new home. Second, if the consumer is still not satisfied, the Division s Mediation Unit will attempt to resolve the matter through mediation between the consumer and the builder. If the Division s mediation efforts are unsuccessful, the consumer may proceed with a claim against the Guaranty Fund. From July 1, 2012 until June 30, 2013, there were eighty-seven claims filed with the Guaranty Fund. Of those claims, nine were settled through mediation with consumers receiving awards in the amounts of $300.00, $1,000.00, $1,367.00, $1,710.00, $3, (3), $5, (2), for total mediation awards of $23, Five claims were referred to arbitration. One resulted in an award to the consumer in the amount of $1, In three others, the arbitrator failed to find in the consumers favor and no awards were made, and in one case, the consumer and builder entered into a confidential settlement prior to the hearing. Sixteen claims were scheduled for hearings at the Office of Administrative Hearings. One of the sixteen claims was dismissed after it was determined that the builder was required to arbitrate the dispute, and another was withdrawn by the consumer. Two claims have trials pending before the Office of Administrative Hearings. In four claims, the hearings have been held and await the Proposed Decision of the Office of Administrative Hearings. Final Orders have been issued in six claims, with relief being awarded in five claims in the amounts of $50, (3), $24,364.72, and $7,500.00, for a total of $181, A Final Order was issued in the remaining claim denying relief to the consumer based on her failure to establish an actual loss compensable from the Guaranty Fund. Two claims are pending Final Orders by the Consumer Protection Division.
25 2014 Annual Report, Home Builder Registration Unit Page 22 A Final Order was issued by the Consumer Protection Division in another claim based on a final court judgment, with findings that supported the consumer s right to recover for an actual loss in the amount of $50, Six claims are being scheduled before the Office of Administrative Hearings and twenty-one remain under investigation. Ten claims were determined not to be eligible for relief from the Guaranty Fund and another twelve were closed because the claimants failed to provide documentation to support their claims. Seven claims were closed because the consumers and their builders confidentially settled their disputes. From July 1, 2013 until June 30, 2014, the Guaranty Fund paid a total of $231, to claimants for actual losses resulting from acts or omissions by a registrant in relation to new home construction, and the registrations of 5 builders were suspended as a result. X. LEGISLATION AFFECTING HOME BUILDERS There was no legislation affecting home builders that was enacted during the 2014 session of the General Assembly.
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