Md. law protects custom-home owners

MAILBAG

July 30, 2000

In the past I've answered questions concerning the relationships between a person buying in a new-home community and the builder doing the construction. But what is the relationship when someone owns the land and hires a custom homebuilder to do the project?

If you are building a home on your own land, you're entitled to special legal protections afforded by Maryland's Custom Home Protection Act. The law applies to a builder who constructs a single-family residence for a person who owns or previously owned the land.

Every contract between a builder and a landowner for a custom home must be in writing. The contract must include a signed draw schedule on a separate sheet of paper, which specifies the progress payments to be made during construction.

The contract must identify the names of the primary subcontractors who will be working on the custom home. The contract also must require the builder to keep the owner advised about payments to subcontractors, and obligates the builder to obtain lien waivers from subcontractors and suppliers once final payment has been made.

Change orders to a custom home contract also are required to be in writing. They must specify the change in the work ordered and the effect on the price of the home.

The law requires that the builder disclose in a custom home contract any judgments within three years where the builder has been found to have failed to comply with the law or with other consumer protection laws applying to the construction of new homes.

Other disclosures advise the owner about the risk of mechanic's liens and whether a new-home warranty is available.

The contract must give the owner notice that, in certain circumstances, the builder must deposit all consideration above 5 percent of the total contract price in an escrow account. The escrow account can be drawn on solely for specified purposes clearly related to construction of the home.

Progress payments made to the builder by the owner in connection with a custom-home contract are deemed held in trust for the benefit of the owner. The builder must use the owner's funds "for purposes consistent with the trust." This means that the builder can't "rob Peter to pay Paul," by misapplying progress payments intended to pay subcontractors' bills for the owner's custom home.

Violation of the Custom Home Protection Act may subject a builder to civil and criminal liability. A complete text of the act can be found in the Annotated Code of Maryland, Real Property Article, Title 10, Subtitle 5.

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