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Bill requires homebuilders to register; Governor's expected to sign protection for buyers into law; State agency to be created

THE BALTIMORE SUN

The General Assembly was coming down to the final minutes of its 2000 session. But it wasn't until 11: 15 p.m. that Del. A. Wade Kach could put 17 years of dashed hopes behind him. With 45 minutes left, the legislature unanimously approved the Maryland Home Builders Act.

When the governor signs the bill, Maryland's new homebuilders for the first time will have to register with the state. The Home Builder Registration Unit will be under the Consumer Protection Division in the attorney general's office.

And for the first time:

The state will know exactly how many builders are working in Maryland and who the principals are.

Builders will be required to have a valid registration to get a building permit.

The state has the authority to shut down a builder if he has unresolved building code violations, judgments or liens against him.

(Only builders who work exclusively in Montgomery County are exempt from state registration, since the county has its own licensing requirements.)

"I put in the first licensure bill in 1983," said Kach, a Baltimore County Republican and principal sponsor of the House bill. "I tried at least three or four times, so it is a really good feeling. I know it's a bill that will benefit consumers, and I think it is one that the builders can live with."

Providing that the governor signs the bill into law, registration will begin Jan. 1 and be valid for two-year cycles.

For the housing industry, the registration legislation has to be the highlight of the session.

The Maryland Association of Realtors and the building industry were successful in slowing down bills that would have required homeowners to use more costly nitrogen-reducing septic systems when conventional systems are replaced.

And the industry was successful in getting the General Assembly to adopt legislation to assess property on a 100 percent basis instead of 40 percent of value, while lowering the property tax rate accordingly.

The realty association had complained that Maryland was at a disadvantage when out-of-state homebuyers went to compare tax rates. They saw Maryland's "higher rates" without realizing they were based on 40 percent of a home's value, not 100 percent as in other states.

The new registration requirement is an answer to consumers who have wondered why a barber needs a license to perform a $10 haircut, but not a builder who's constructing a $100,000 home.

Consumers harmed by fraudulent or inept homebuilders were unable to learn if their builder had a dark past.

There was no official database to keep tabs on builders. Anyone could pick up a hammer and declare himself a homebuilder.

"I just look back over the years at consumers who have come to me -- it started in my own district and got to the point to where I got calls from all over the state with problems with homebuilders, and this day is finally here," Kach said.

For Kathleen L. McHugh, executive vice president of the Maryland State Builders Association, it was "historic year" for her members.

"Our goal was to establish a program that would be efficient and effective, and although we made a lot of compromises through the 90 days, I think we have ... a starting point for that efficient, effective program," she said.

Said Kach: "There is a place where the builders can have their [registration] yanked. And we can stop them from opening up under another name the next day. And that is such a major achievement."

A competing bill introduced by Democratic Sen. Delores G. Kelley of Baltimore County would have placed the Home Builder Registration Unit within the Department of Labor, Licensing and Registration.

Kelley's bill also would also have established an oversight board and a guaranty fund to pay consumers harmed by builders.

But the building industry was successful in getting the unit placed in the attorney general's office, where it will have with minimal staffing and no guaranty fund.

"We have really deviated from your normal registration or licensing scheme," Kach said. "It's not in DLLR; it's not your typical board; it's not your investigators; it's not a guaranty fund. It's none of that stuff. I think it is a new creation that we feel is going to do the job and not end up with a huge bureaucracy."

Said McHugh: "All along we felt that the attorney general has the tools that he needs to enforce their laws and uphold a program like this."

Among some of the other aspects of the legislation:

Builders will be required to give buyers a pamphlet that will detail their rights.

The contract must have the builder's registration number; a statement that all applicable building codes will be followed and a listing of his performance standards.

Builders will be required to provide escrow account numbers and the financial institution where the funds are kept.

A flat builder registration fee not to exceed $600 for each two-year period.

Require the Consumer Protection Division to make an annual report on homebuilders, on or before Nov. 1, 2001.

When a builder applies for registration he must furnish:

Name, business address and contact information, his Social Security number or the firm's federal "All along we felt that the attorney general has the tools that he needs to enforce their laws and uphold a program like this."

Kathleen L. McHugh, executive vice president of the Maryland State Builders Association tax-identification number.

The names, addresses and Social Security numbers of anyone who owns 10 percent or more of his firm.

The outcome of any previous registration applications.

The states and other jurisdictions in which an applicant has a license.

A statement of outstanding liens and judgments.

The policy number of the firm's general liability insurance and the name of the carrier.

Name and address of the builder's new-home warranty provider.

The legislation will be able to tell consumers "if there are any unresolved arbitrations or unresolved judgments or unresolved building code violations" against a builder, McHugh said.

She estimates that there are about 1,000 builders in the state, but wouldn't be surprised if the registration found a higher number.

"So, for example, if you have ABC Construction company, but they use [limited liability corporations] to hold over all their projects, each LLC will have to register independently.

"Everybody who has a 10 percent interest in that company will have to be listed as a principal.

"If Bob Smith is listed on the LLC, and Bob Smith is also with ABC Builders, and ABC Builders is having problems, it's possible that Bob Smith, if he is listed in both of those companies, could have his [registration] suspended, revoked or denied for renewal.

"That is the key to having the entity register individually, so that you can track them."

John Kortecamp, executive vice president of the Home Builders Association of Maryland, was pleased with the registration legislation, but was disappointed that the fee was so high and not progressive.

"It is at least twice as high as it should be. It can't go any higher, but it probably won't go any lower," Kortecamp said. "You get big nationals paying $600 and the guy who builds two, three, four houses a year paying $600."

He also criticized the requirement that those with a 10 percent stake in a builder would also be subject to registration.

"A number in the 20 to 25 percent range would have been more meaningful ... and it would have still gotten to the core of the issue," he said. In addition, wayward builders who have lost their registration or let it lapse will find it hard to regain registration.

"If a builder loses his registration, and they want it back and they've been ordered to pay this consumer $20,000 for whatever work wasn't done, once that's done the Consumer Protection Division can order the builder to take out a bond [of at least $100,000] for a period for up to four years," Kach said.

"This really protects the public from a builder who might have had a problem at one time," the Baltimore County delegate said.

McHugh explained, "You can't leave anybody hanging. If a builder goes out of business, in order to re-register he must right all the wrongs."

An application or renewal for a homebuilder may be denied, revoked or suspended for the following reasons:

The applicant or a "principal" has had an application denied before.

The applicant has engaged in a pattern of poor workmanship as evidenced by: repeated unresolved building code violations; repeated unresolved arbitration awards against the applicant; an unsatisfied final judgement.

Has attempted to use someone else's registration number, provided false information to the Consumer Protection Agency, used an expired registration number, or engaged in home building without a registration number.

The applicant has used or attempted to use a contract that did not contain all the legally required information.

If the firm or a principal of the firm has had a license revoked before.

An appeal process is available for those whose applications are denied or licenses are revoked or suspended.

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