MHIC Financial Management and Consumer Protection 5 — Questions and Answers
Question 1: A Maryland homeowner signed a home improvement contract on a Tuesday at their residence. By when must they exercise their right to cancel?
- By midnight of the same day
- Within 3 business days of signing (Correct answer)
- Within 7 calendar days of signing
- Within 30 days of signing
Correct answer: Within 3 business days of signing
Maryland's Home Improvement Law grants homeowners a 3-business-day right of rescission for contracts signed at their residence.
Question 2: Which of the following must be included in a Maryland home improvement contract to protect both parties financially?
- The contractor's personal credit score
- A clear payment schedule tied to project milestones (Correct answer)
- The homeowner's income verification
- Pre-authorization for the contractor to hire any subcontractor at any price
Correct answer: A clear payment schedule tied to project milestones
A milestone-based payment schedule ensures money is released as work progresses, protecting consumers from prepaying and contractors from non-payment.
Question 3: What happens to a Maryland home improvement contractor's license if they are found guilty of collecting money and abandoning a project?
- They receive a written warning only
- Their license may be suspended or revoked and they may face criminal charges (Correct answer)
- They must refund only 50% of the collected amount
- Their license is automatically transferred to another contractor
Correct answer: Their license may be suspended or revoked and they may face criminal charges
Collecting money and abandoning a project is a serious violation that can result in license suspension or revocation and potential criminal prosecution under Maryland law.
Question 4: A contractor finishes a job and the homeowner disputes the final payment amount. Under MHIC, what is the preferred first step for resolution?
- File a mechanics lien immediately
- Attempt mediation or negotiation using the written contract terms (Correct answer)
- Contact local law enforcement
- Abandon any remaining warranty obligations
Correct answer: Attempt mediation or negotiation using the written contract terms
MHIC encourages parties to resolve disputes through the written contract terms and mediation before pursuing legal remedies.
Question 5: Which scenario correctly describes a contractor's obligation under Maryland's mechanics lien law as it relates to consumer protection?
- Contractors must file a lien before starting any job
- Subcontractors and suppliers can lien a homeowner's property if the general contractor fails to pay them (Correct answer)
- Homeowners are immune from mechanics liens on primary residences
- Only licensed electricians may file a mechanics lien in Maryland
Correct answer: Subcontractors and suppliers can lien a homeowner's property if the general contractor fails to pay them
Unpaid subcontractors and suppliers may file a mechanics lien against the homeowner's property even if the homeowner paid the general contractor in full.
Question 6: A Maryland MHIC licensee wants to advertise a special financing offer to homeowners. What must the advertisement comply with?
- MHIC licensing rules only, since finance is not regulated
- Federal Truth in Lending Act (Regulation Z) disclosure requirements (Correct answer)
- Only local county advertising ordinances
- Verbal disclosure requirements with no written documentation needed
Correct answer: Federal Truth in Lending Act (Regulation Z) disclosure requirements
Any contractor advertising financing must comply with the federal Truth in Lending Act (Regulation Z), which requires clear disclosure of APR and credit terms.
Question 7: Under Maryland law, a homeowner may file a claim against the Home Improvement Guaranty Fund for a maximum of how much per contractor?
- $5,000
- $10,000
- $20,000 (Correct answer)
- $200,000
Correct answer: $20,000
Maryland's Home Improvement Guaranty Fund provides a maximum recovery of $20,000 per contractor for eligible consumer claims.
MHIC Financial Management and Consumer Protection 5
A Maryland homeowner signed a home improvement contract on a Tuesday at their residence.
By when must they exercise their right to cancel?