What Might the Residential Contractors’ Recovery Fund Cover?

The Arizona Registrar of Contractors administers a recovery fund for the benefit of homeowners who have been damaged by licensed residential contractors. The fund is known as the Residential Contractors’ Recovery Fund. 

Every residential contractor must contribute money to the Fund when applying for a license or upon renewal of a license. The Fund was established for the protection of any owner of residential real property which is actually occupied or intended to be occupied by the owner. It also protects some renters and homeowners’ associations.

The Fund is not available to a homeowner who deals with an unlicensed contractor, or with a contractor whose license was in an inactive status, expired, cancelled, revoked, sus­pended or not issued at the time of the contract.

Recovery Fund Limits

A homeowner may not recover more than $30,000 from the Fund for any one claim, irrespective of the actual amount of damages. The liability of the Fund is limited to $200,000 for any one residential contractor’s license. The claims from the Fund are paid in the order of the date of entry of the payment orders. In other words—first come, first served. No further recovery from the Fund will be allowed after the sum of $200,000 has been paid from it, for any one contractor.

An award from the Fund is limited to the actual damages suffered by a homeowner as a result of a contractor’s failure to adequately build or improve a residential structure. The amount awarded will not exceed the actual cost of completing or repairing the structure. If a homeowner has paid a deposit or down payment and no actual work was performed or mate­rials delivered, the award will be the amount of the deposit or down payment plus interest at the rate of 10% per annum from the date the deposit or down payment was made, not to exceed $30,000.

Lawsuit Procedure

To collect from the Fund, a homeowner may file a lawsuit against the contractor in the superior court or in justice court, depending on the amount of the claim. The lawsuit must be filed within two years from the date of the commission of the act that was the cause of the injury or from the date of the occupancy.

When a homeowner files a lawsuit which may result in payment from the Fund, he must notify the Registrar of Con­tractors in writing to that effect. The Registrar may intervene in the suit and defend the claim. If the contractor has a bond from which recovery may be had, the homeowner should join the bonding company in the lawsuit. A homeowner must attempt to collect from all possible sources of recovery, includ­ing a bond covering the contractor, before payment from the Fund will be allowed.

If a homeowner is awarded a judgment against the con­tractor, he may apply to the court for an order directing payment out of the Fund. To obtain this order, the homeowner must show that he has given the required notices to the Regis­trar, that the judgment is final, that he has proceeded against any bond, and that he is unaware of any property or assets of the contractor which could be used to satisfy the judgment. If the homeowner has recovered a portion of his loss from other sources, only the unpaid amount may be collected from the Fund.

Administrative Procedure

If a contractor’s license has been revoked or suspended because the contactor refuses or is unable to comply with an order of the Registrar to remedy a violation, the Registrar may order payment from the Fund to the injured homeowner, without the need for the homeowner to file a lawsuit against the contractor.

The Registrar will require, in addition to a completed claim form, three complete itemized written bids from properly licensed residential contractors for repairs or completion of the work originally contracted for, copies of contracts and cancelled checks, front and back. A copy of the escrow settlement should be included with claims covering new residential construction.

Bankruptcy by Contractor

If a contractor files bankruptcy, the homeowner must ask the bankruptcy court for permission to make a claim against the Fund. Until such permission is given, a homeowner may not proceed with a recovery fund claim.

For additional information concerning the Residential Contractors’ Recovery Fund, the reader is advised to contact the Registrar of Contractors, or visit its Web site, www.azroc.gov.