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Contractor Recovery Fund - The Basics

It was supposed to be the home renovation project of your dreams, but you're six months in and your contractor isn't answering your calls, ninety percent of your construction loan has been drawn, and you have subcontractors telling you they haven't been paid. The dream is quickly becoming a nightmare. Luckily for you, though, if you live in Minnesota and hired a licensed contractor, the Contractor Recovery Fund may be able to offer you some much needed relief.

The Contractor Recovery Fund compensates owners of residential property in Minnesota who have suffered a direct out-of-pocket loss caused by a licensed Minnesota contractor on the grounds of fraudulent, deceptive or dishonest practices, theft of funds, or failure to perform the contract. If you meet these requirements, you may qualify for up to $75,000 in relief under the Contractor Recovery Fund. Obtaining that relief is a process, but here are the basics:

Owner of Residential Property. First, the work at issue needs to be a residential property in Minnesota. If the project was a commercial build or remodel, it won't qualify. You must also be the owner or lessee of the property, so if you're a subcontractor who didn't get paid, the fund isn't for you.

Licensed Contractor. Second, the contractor needs to be a licensed Minnesota residential contractor or remodeler. Licensed contractors are required to display their license number on all permits, permit applications, advertising (business cards, signs, vehicles, websites, etc.), and contracts, so it should be easy to verify. Potential access to the Contractor Recovery Fund, if you would need it, is another reason why all homeowners should hire licensed contractors.

Licensee Limits. Claims paid from the fund are limited to $300,000 per contractor, so you may not be able to recover if the fund for your contractor is already depleted from previous claims.

Obtain a Judgment. In order to receive payment from the fund, an owner or lessee must have a final judgment. Final judgments must be obtained from a court, and the judgment must be entered and docketed to be considered "final."

Inability to Collect Judgment from Other Sources. The fund is really a last resort for owners and lessees with claims against a contractor where there are no other assets out of which to satisfy the judgment. For that reason, you must first try to collect on the final judgment. Sometimes contactors will provide a letter stating that they have no money and cannot pay the judgment. If you can't find the contractor, it may be sufficient to verify this fact as evidence that collection is impossible.

Apply to the Fund. Once you have the final judgment against the licensed contractor, you can complete an application to the Contractor Recovery Fund. The application requires you to make certain verified statements and provide supporting documentation.

Deadline to Apply. Applications are due June 1st of each year, so if you obtain the judgment after June 1st in a given year, you may have to wait until the following year to apply. If a claim is approved, payments are due by December 31st.

Payment Limitations. You can only receive payment up to the amount of your out-of-pocket damages, and some damages are excluded. Importantly, payments are limited to $75,000 per applicant, and all claims are limited to $300,000 per licensed contractor. If claims exceed the cap, they're paid out pro rata.

The Contractor Recovery Fund is an important recovery source for many homeowners, but, even still, it can be a challenging and lengthy process. There are a number of unique circumstances not covered in this article that can create, eliminate, or complicate your ability to collect from the Contractor Recovery Fund. Contact an attorney at TTLO Law to understand your eligibility and options for recovery.

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Thompson Tarasek Lee-O'Halloran PLLC

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Edina, MN 55435

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