You asked for background on the Home Improvement Guaranty Fund.

SUMMARY

The Home Improvement Guaranty Fund is both a means of recourse for consumers who suffer harm from a contractor and a possible sanction for a contractor. It serves as recourse because it reimburses people who cannot recover losses suffered from a contractor's failure to fulfill a contract. It is a sanction because a contractor's registration, and his ability to work, is made conditional on his repaying the fund for any money paid out on his account.

Registered home improvement contractors and salespeople pay annual fees ($ 100 and $ 40 respectively) into the fund when renewing their registrations. The amount in the fund is capped at $ 750,000. When annual fees cause the fund to exceed its cap, the first $ 400,000 spills over into the Department of Consumer Protection's (DCP) consumer protection enforcement account. Amounts over that spill over into the General Fund. In the last 18 months, the fund received over $ 5. 8 million in revenue, paid over $ 3. 3 million in consumer restitution, transferred $ 800,000 to the consumer protection enforcement account, and transferred over $ 930,000 to the General Fund.

A homeowner who obtains a court judgment against a registered contractor, or who is listed as a creditor in the contractor's bankruptcy discharge, may apply for restitution for the amount of the judgment other than punitive damages, minus any amount already recovered from the contractor. Application requirements depend on whether the judgment was made in superior court, small claims court, or were part of a bankruptcy declaration. The department reviews the application for completeness and to make certain that the contractor was registered when the home improvement contractor was made or within two years before.

The commissioner may pay up to $ 15,000 per claim. Once restitution has been paid, the law requires the consumer to subrogate his claim against the contractor to the commissioner and requires the commissioner to seek to recover it.

GUARANTY FUND'S PURPOSE

The fund was established in 1988 to reimburse people unable to recover from a registered contractor losses suffered because the contractor failed to fulfill a contract. Homeowners who use an unregistered contractor cannot avail themselves of the fund, unless their contractor was registered within two years before contracting with the homeowner (CGS § 20-432).

FUNDING

Registered home improvement contractors and salespeople provide the guaranty fund's revenue by paying annual fees of $ 100 and $ 40, respectively. Guaranty fund fees for the state's over 25,000 registered contractors and over 700 salespeople are due in December. The fees are pro-rated for contractors and salespeople who initially register at other times during the year.

The maximum allowable in the fund is $ 750,000. The law requires amounts over this, up to $ 400,000, to be deposited into the consumer protection enforcement account (CPEA). Any excess beyond $ 1. 15 million ($ 750,000 in the Guaranty Fund, plus $ 400,000 in CPEA) must be deposited in the General Fund.

Table 1 shows the account balance, the amount of revenue received, the amount disbursed to pay consumer claims, the number of claims, and the amount spilled over into the consumer protection enforcement account and the General Fund.

Table 1: Guaranty Fund Activity in FY 06 and Beginning of FY 07*

*Souce: Department of Consumer Protection

The uneven revenue pattern causes the fund balance to hit a low in summer and a high in fall. It is an unintended consequence of legislation intended to distribute DCP's licensing workload evenly throughout the year. Prior to 1994, most renewal dates for credentials issued by DCP were set by statute. For the most part, everyone holding a certain type of credential had to renew by the same deadline. Home improvement contractors and salespeople were treated differently. The statute required them to renew on a date based on their last initial. This had the effect of creating a steady revenue stream for the guaranty fund.

In 1994, the department proposed and the legislature adopted legislation to eliminate statutory renewal dates for its credentials and to require the department to set renewal dates through regulation. It established a renewal schedule that distributed the workload through out the year, but caused all home improvement contractors and salespeople to renew in the same month. Since that time, the fund balance has hit summer lows and fall highs.

MAKING A CLAIM

A homeowner who obtains a court judgment against a registered contractor, or who is listed as a creditor in the contractor's bankruptcy discharge, may apply to the commissioner for a restitution order for the amount of the judgment other than punitive damages, minus any amount already recovered from the contractor. Homeowners may also make a guaranty fund claim against a contractor who was registered within two years of contracting with the homeowner. Applications to the fund must be made within two years after the final judgment or the time for appeal has passed. All applications must be notarized.

If a judgment was obtained in superior court, the application must be accompanied by a copy of the contract, certified copy of the judgment, and copies of writs of execution and the officer's return statement for both financial and real property assets.

If a judgment was obtained in small claims court, the application must be accompanied by a certified copy of the judgment and a copy of the contract.

If a claim is part of a contractor's bankruptcy discharge, the application must be accompanied by a certified copy of the bankruptcy discharge, copy of the schedule listing the homeowner as a creditor (with amount), and a copy of the contract. If there is a difference between the amount in the schedule and the amount sought, the homeowner must submit a sworn statement of damages, not just the amount paid.

The statute gives the commissioner the power to award restitution without requiring a consumer to show that he caused a writ of execution to be served on a court judgment if he can show that it is not practicable to comply with the requirement and that he has taken all reasonable steps to collect on the judgment.

PROCESSING AN APPLICATION

DCP's Trade Practices Division reviews each application to determine if it is complete. If not, it contacts the homeowner. When it deems an application complete, it verifies that the contractor was registered when the contract was entered or within the previous two years. If the claim is eligible for reimbursement, the division must send a notice to the contractor stating that (1) there is a pending claim and (2) if the commissioner pays any amount as a result of a claim against a contractor, the commissioner may revoke the contractor's registration. If the claim is not eligible, the division must send the application to DCP's legal staff. If they agree, the legal staff sends the denial to the homeowner.

Before paying from the fund, the commissioner must give the contractor an opportunity for a hearing to contest whether he already paid the homeowner. A contractor has 15 days to request a hearing. A hearing is granted only if the contractor has already paid the homeowner or is paying in accordance with a court order. If the contractor does not request a hearing, the trade practices division sends the completed file to the legal division. An attorney signs off on all eligible and complete claims.

PAYING RESTITUTION

All claims are reviewed by the commissioner before being paid. The commissioner may order restitution up to $ 15,000 per claim. DCP does not pay attorney's fees unless they were awarded in court. The statutes give the commissioner the authority to pay less than the actual amount of damages in order to preserve the integrity of the fund. When the fund has been replenished, the statutes require the commissioner to satisfy any unpaid claims.

The homeowner must assign to DCP the right to recover the amount he has been paid from the fund. The department may seek to recover it from the contractor, plus reasonable interest. The commissioner may revoke the registration of any contractor whose actions have caused a guaranty fund payment and condition his reinstatement as a contractor conditional on repaying the fund. He may allow a contractor to register before repayment if he agrees to repay by a certain date. In these cases, DCP enters a stipulated agreement with a home improvement contractor.

The law requires the commissioner, after making a payment from the fund, to determine if the contractor has assets that may be sold or applied to satisfy the claim. If he finds any, he may ask the attorney general to take any action necessary to reimburse the guaranty fund.

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