Putting The Bite On Unlicensed Builders

February 29, 2008
| By Pete Daly |
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LANSING — After June, it may be harder to find an unlicensed home builder in the state of Michigan, which is just fine with the Home and Building Association of Greater Grand Rapids.

The Michigan Department of Labor & Economic Growth is sending notices to builders and maintenance/alteration (M&A) contractors, advising them of new consumer protection laws passed in December, most of which take effect June 1.

One of the highlights of the changes in law increases penalties for home builders and M&A contractors who fail to get a license before starting work on a new home or remodeling project costing $600 or more. The change, which took effect in December, allows misdemeanor charges against unlicensed builders, with penalties of $5,000 to $25,000 and possible prison terms.

In the event a person is seriously injured or killed in connection with work done by an unlicensed builder or contractor, that builder or contractor faces all the previously mentioned penalties, and the offense is boosted from misdemeanor to felony with up to four years in prison.

Previously, state law subjected unlicensed builders to fines ranging from $500 to $1,000 and a sentence of 90 days to one year, which Judy Barnes, executive vice president and CEO of the Home and Building Association of Greater Grand Rapids, said was akin to “a slap on the hand.”

Other changes that take effect June 1 involve competency requirements for builders renewing a license or seeking one for the first time.

“Even though most of the laws don’t take effect until June 1, we wanted to ensure that builders and contractors are all notified well in advance and are aware of these changes, since they have a significant impact on their future licenses,” said Keith W. Cooley, director of the DLEG.

Cooley said the DLEG will have greater ability to track down unlicensed builders and contractors as a result of the law, which earmarks a portion of license fees for a newly established Builder Enforcement Fund to pursue investigations of unlicensed activity.

“Rule No. 1 for consumers: If you are having a home built or work done, check to ensure the work is being performed by licensed individuals. By using unlicensed workers, you run the risk of shoddy workmanship, financial hardship or worse,” Cooley said. “Rule No. 2: Always get it in writing.”

Barnes said the new laws are “something we were very familiar with and were hoping would pass for quite a few years now.”

She added that the statewide association of home builders was very much involved in working on this. Unlicensed builders have been “a huge problem” because of the lack of protection the homeowner has if something goes wrong, she said.

Barnes said there traditionally have been about 3,500 licensed builders in the Greater Grand Rapids area, but there are always other people with some carpentry skills who are willing to skip the licensing process.

“Unfortunately, people think they can cut corners and save money and hire just anybody to do work,” said Barnes, adding that may be true short term, but quickly noted that one thing the homeowner usually isn’t aware of is liability. In the absence of a licensed builder or remodeler, property owners must pull their own permits for projects.

That means the owner is responsible for any injuries on that job, whereas a licensed builder is required to have insurance and prove it to any customer.

In an unlicensed situation, the homeowner’s insurance would cover any accidents, said Barnes — but then there may be rude surprises over what insurance does not cover.

Under the old law, according to Barnes, the minimal penalties did not encourage many prosecuting attorneys from going after unlicensed contractors.

The prosecutors have other things to deal with, she said, but the new law specifically gives state officials in business licensing and regulations “more teeth” to crack down on unlicensed contractors.

The license also works to the advantage of builders. Unlicensed builders are not able to sue homeowners in case of a dispute — and some unscrupulous homeowners take advantage of that.

Barnes, who has been with HBAGGR for 24 years, said the association offers classes to individuals who want to apply for a license. She was in a class when the builders were told they could not enforce a contract with a homeowner if the builders were unlicensed. At that point, a man in the group announced that he knew from experience that was true: He had worked without a license for a homeowner who ended up not paying for $10,000 worth of work.

The new laws now also require competency requirements for both experienced builders and new builders, according to the DLEG announcement. For those who had been licensed for six years or less, they must complete up to 21 hours of continuing competency activities, and those with more than six prior years as a licensee must complete three hours of continuing competency activities.

“We’re really excited about this continuing education piece” in the legislation, said Barnes. The requirement for 21 hours of continuing competency activities can be met by participating in educational programs offered by HBAGGR, she said.

Anyone applying for a new residential builder or M&A contractor license as of June 1 will be required to complete 60 hours of approved pre-licensure education courses, according to the DLEG.

The training requires six hours each in business management; estimating and job costing; design and building science; contracts, liability and risk management; marketing and sales; project management and scheduling; the current Michigan Residential Code; and construction safety standards from Michigan OSHA.

Although not all workers at a licensed home construction company are required to be licensed builders, the new laws require qualifying officers at those companies to hold an active license as an individual residential builder or M&A contractor. According to the DLEG, “If a qualifying officer for a corporation, limited liability company or partnership does not hold an active individual license on June 1, 2008, the license for the company will be suspended.”

DLEG mailed notices in February to all affected companies and qualifying officers, along with an individual license application. The department is also developing an expedited process to enable current qualifying officers to obtain their individual licenses.

The license for builders and M&A contractors now moves to a three-year life cycle, rather than the current two-year split license cycle.

Fees for a first-time license will total $225, which includes $30 for the Homeowner Construction Lien Recovery Fund. The fee for license renewals is generally about $210 or less.

DLEG’s online license search is available at www.michigan.gov/licenselookup.

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