SB 164
Department of Legislative Services
Maryland General Assembly
2020 Session
FISCAL AND POLICY NOTE
Third Reader
Senate Bill 164 (Senator Kelley)
Finance Economic Matters
Home Builder Guaranty Fund - Award Limitations - Revisions
This bill increases, from $300,000 to $500,000, the maximum amount the
Consumer Protection Division (CPD) of the Office of the Attorney General may award
from the Home Builder Guaranty Fund to all claimants for acts or omissions of
one registered home builder before the registered builder reimburses the fund.
Fiscal Summary
State Effect: No effect on State budgeted funds. Potential acceleration of nonbudgeted
expenditures from and revenues to the Home Builder Guaranty Fund beginning in
FY 2021, as discussed below.
Local Effect: None.
Small Business Effect: Minimal.
Analysis
Current Law: The Home Builder Guaranty Fund, administered by CPD, allows
consumers to seek compensation for actual losses resulting from an act or omission by a
registered builder who constructs a new home for a consumer. The fund is supported by
fees collected by local governments from home builders upon application for a construction
permit. Builders are permitted to pass this cost on to the consumer. The fee is currently
$50, and local governments may retain up to 2% of the fees collected for administrative
costs. CPD must maintain the fund at a level of at least $1 million.
Recovery from the Fund
With specified exceptions, a consumer who entered into a contract with a registered builder
to construct a new home in the State on or after January 1, 2009, may file a claim against
the fund. Generally, “actual loss” means the costs of restoration, repair, replacement, or
completion that results from the incomplete construction of a new home, a breach of an
express or implied warranty, or a failure of the builder to meet specified construction
standards or guidelines. The fund may award up to $50,000 to any one claimant for acts of
any one registered builder and up to $300,000 for all claims against any one registered
builder, unless the builder first reimburses the fund.
Payment of Claims
CPD generally must pay approved claims in the order submitted. If approved claims
submitted to CPD against a registered builder exceed $300,000, less the amount of
unreimbursed claim payments previously made for the registrant, CPD may pay the
approved claims proportionately so that each claimant receives the same percentage
payment of the claims. After the fund is reimbursed, the division must pay unsatisfied
approved claims. If there is not enough money in the fund to pay an approved claim wholly
or partially, CPD must pay the unpaid claim when enough money is deposited in the fund
and in the order that each claim was submitted, as specified.
Reimbursement of the Fund
The division has a right to reimbursement by a registered home builder whose act or
omission gave rise to a claim. If a registrant fails to reimburse the Guaranty Fund within
60 days for a claim paid on the registrant’s account, the division may sue the registrant in
a court of competent jurisdiction. If a person liable for reimbursing the fund fails to do so
within 12 months, the division may refer the matter to the Central Collection Unit and place
a lien on the person’s real property. The division may also suspend the builder’s registration
until claims against the fund are reimbursed in full.
State Fiscal Effect: To the extent that CPD awards amounts that exceed $300,000 to
multiple claimants for acts or omissions of a single registered home builder, nonbudgeted
expenditures may accelerate beginning as early as fiscal 2021. Nonbudgeted revenues to
the fund may also accelerate as the fund is reimbursed by home builders responsible for
guaranty fund claims. However, the bill is not anticipated to meaningfully affect the fund
balance. As of January 2020, the fund had a balance of $2.7 million. CPD reports that in
fiscal 2019, a total of $388,000 was paid to claimants from the fund.
CPD is aware of two recent cases in which total claims exceeded $300,000 and two pending
cases for which claims will likely exceed $300,000. However, CPD advises that,
SB 164/ Page 2
historically, there have been a minimal number of cases for which claims exceeded
$300,000. Given the fund large balance and the rarity of claims exceeding $300,000, the
bill is not expected to have a meaningful effect on the guaranty fund or CPD.
Additional Information
Prior Introductions: None.
Designated Cross File: HB 116 (Delegate D.E. Davis) - Economic Matters.
Information Source(s): Office of the Attorney General (Consumer Protection Division);
Department of Legislative Services
Fiscal Note History: First Reader - February 3, 2020
mr/mcr Third Reader - February 14, 2020
Analysis by: Elizabeth J. Allison Direct Inquiries to:
(410) 946-5510
(301) 970-5510
SB 164/ Page 3