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A botched contracting job can be severely stressful for homeowners, especially when it appears that a contractor will not be able to pay even if a legal judgment is obtained against them. Therefore, it is important for all Minnesota homeowners to know about their rights under the state’s Contractor’s Recovery Fund.

What Is the Contractor’s Recovery Fund?

The Contractor’s Recovery Fund is a fund created by state statute and operated by the Minnesota Department of Labor and Industry (DLI). The Contractor’s Recovery Fund compensates owners, or even lessees of residential property, for out-of-pocket losses due to a contractor’s improper conduct. However, the fund has multiple requirements and limitations.

Licensed Contractor Requirement

The Contractor’s Recovery Fund only applies to losses that are caused by a licensed contractor. If the contractor that performs on your home is unlicensed during performance, you will not be entitled to compensation from the Contractor’s Recovery Fund. Therefore, it is extremely important for residential homeowners to vet contractors and ensure that they have complied with Minnesota’s licensing requirements before allowing them to perform any work on their homes. Failure to ensure that a contractor is licensed could preclude any potential relief from the Contractor’s Recovery Fund.

Covered Activities

Application of the Contractor’s Recovery Fund is not limitless. In order for the fund to be available, the licensed contractor must have engaged in: fraudulent practices; deceptive practices; dishonest practices; the conversion of funds; or failure to perform. Furthermore, the contractor must have engaged in such practices while performing at least two of the following skills: excavation; masonry and concrete; carpentry; interior finishing; exterior finishing; drywall and plaster; residential roofing; or general installation specialties.

Exhaustion of Other Remedies

An important aspect of the Contractor’s Recovery Fund is that a homeowner cannot apply to it immediately after the transaction. Instead, one must first sue the contractor and successfully obtain a civil judgment. If the contractor is unable to pay the civil judgment, then one should seek remedies against other potentially liable parties including: the owner of the contracting company, any bondholders, and any insurance company connected to the transaction. If there is no available party that can pay the civil judgment, then a homeowner can apply to the Contractor’s Recovery Fund within two years after they obtained the civil judgment. After one applies to the fund, the DLI has 120 days after receipt of the application to render a decision.

Is the Contractor’s Recovery Fund Available Even if the Contractor Has Filed for Bankruptcy?

A homeowner can file an application to the Contractor’s Recovery fund even if the judgment against the contractor has been discharged in bankruptcy. If a contractor files for bankruptcy before you obtain a judgment, you can file a motion to the bankruptcy court to stay the bankruptcy proceeding for the sole purpose of allowing you to obtain a judgment against the contractor so you can file a subsequent claim with the Contractor’s Recovery Fund.

Limitations on Damages

Even if the Contractor’s Recovery Fund is available for your losses, recovery from the fund is capped. Minnesota law limits an individual claimant’s annual payments from the fund to $75,000 per licensed contractor. Furthermore, recovery is only permitted for your actual and direct out-of-pocket losses from the transaction with your contractor. Therefore, attorney fees and litigation costs are unavailable.

Obtaining Legal Assistance

Overall, pursuing a claim against a contractor and filing a subsequent claim to the Contractor’s Recovery Fund can be daunting. Thankfully, the lawyers at Dudley and Smith, P.A. have experienced civil litigation and bankruptcy attorneys who can assist you in your claim.

The law is continually evolving and Dudley and Smith, P.A.’s blog posts should not be relied upon as legal advice, nor construed as a form of attorney-client relationship. Postings are for informational purposes and are not solicitations, legal advice, or tax advice. A viewer of Dudley and Smith, P.A.’s blog should not rely upon any information in the blog without seeking legal counsel.