Has your home been damaged by a contractor’s faulty work? Did your contractor lie to you or steal money from you? Or did your contractor simply walk off the job? If any of these situations apply to you, you may be entitled to compensation from the Minnesota Contractor Recovery Fund.
The Contractor Recovery Fund is a program administered by the State and designed to reimburse residential homeowners for damages caused by contractors. While the Recovery Fund is a powerful tool for homeowners, there are some things you should know about the Fund and the application process.
- You Must Obtain a Judgment Before Applying to the Fund.
Some homeowners mistakenly think that they can just apply to the Contractor Recovery Fund right away after a contractor causes them monetary damages. Unfortunately, the process is not quite that simple. First, you must obtain a judgment against your contractor. A judgment is an award of damages (or other relief) from a court. To obtain a judgment, you need to sue your contractor and win. You can obtain a judgment in conciliation court (i.e., small claims court) or district court. This judgment needs to be entered and docketed by the court before you can apply to the Fund. Alternatively, you can reach an agreement with your contractor whereby they confess to judgment in a certain amount. However, the contractor’s confession of judgment still needs to be entered and docketed by the Court.
- Your Judgment Must Be Based on a Contractor’s “Fraudulent, Deceptive, or Dishonest Practices, Conversion of Funds, or Failure of Performance.”
The Contractor Recovery Fund only pays out for certain types of claims. Your judgment must be against a licensed contractor, and the judgment must be “on the grounds of fraudulent, deceptive, or dishonest practices, conversion of funds, or failure of performance.” In other words, you can potentially recover from the Fund if your contractor committed fraud, stole money from you, performed the work incorrectly, and/or walked off the job. Other types of claims will not be reimbursed by the Fund.
- You Can Recover up to $100,000 from the Fund.
Recovery from the Fund is not unlimited. The Contractor Recovery Fund only pays out a maximum of $100,000 per application. If your damages are more than $100,000, you can still apply to the Fund, but your recovery will be limited to $100,000. Importantly, the Fund is also capped at $550,000 per licensed contractor. So, if multiple homeowners pursue recovery against a single contractor, it is possible that your claim could be denied in part or in full.
The amount you recover from the Fund is limited to your “actual and direct out-of-pocket loss.” You must submit proof to the Fund that you have actually incurred (or will incur) these costs, such as an estimate or invoice from a contractor you had to hire to repair damages caused by your previous contractor. The Fund will not reimburse you for attorneys’ fees, litigation costs (e.g., court filing fees), or interest, even if these amounts were included in your judgment.
- You Must Make a Good Faith Effort to Collect Your Judgment Before Applying to the Fund.
The Recovery Fund requires homeowners to make a good faith effort to collect their judgment before they can apply to the Fund. This means that, after you obtain a judgment against your contractor, you must at least try to recover the amount of your judgment from the contractor. For example, if you know a contractor has an account at a certain bank, you can attempt to garnish this bank account. The Fund does not require you to be successful in your efforts; you just must be able to certify that you have made an honest attempt to recover your damages from the contractor before the State will pay you anything.
- You Must Apply to the Fund Within Two Years of Obtaining Your Judgment.
After you obtain your judgment and attempt to collect it, you must submit a detailed application to the Recovery Fund. The application must be “verified,” meaning signed, notarized, and sworn to by the homeowner(s). Your application must be submitted within two years of the date on which you obtain your judgment against your contractor. There are two application cycles: applications submitted to and approved by the Fund by July 1 are paid out by December 31; applications submitted and approved by January 1 are paid out by June 30.
- You Are Not Required to Be Represented by an Attorney to Apply to the Fund, But an Attorney May be Helpful.
The application process for the Recovery Fund is designed to be navigable by ordinary homeowners. However, the process of obtaining a judgment, attempting to collect it, and then applying to the Fund may be daunting for someone without a legal background. An incorrect or incomplete application can lead to a delayed and/or diminished recovery. An experienced construction law litigation attorney can help you apply to the Recovery Fund and maximize your odds of receiving compensation.
If you have additional questions about the Contractor Recovery Fund, please contact Nicklaus A. Johnson njohnson@hjlawfirm.com to learn more.
