Frequently asked questions

Q. What is the Contractor Recovery Fund?

A. New license applicants and licensees renewing their license must pay a fee into the Contractor Recovery Fund in addition to the license or renewal fee. The Contractor Recovery Fund is administered by the Department of Labor and Industry and replaces the bonding requirement. The fee to be paid into the fund is based on the licensee's gross annual receipts for the licensee's most recent fiscal-year preceding the renewal or application, according to the following scale:

$160 fee if gross annual receipts are less than $1 million
$210 fee if gross annual receipts are $1 million to $5 million
$260 fee if gross annual receipts are more than $5 million

Note: Failure to pay the appropriate Contractor Recovery Fund fee may result in disciplinary action being initiated against the licensee or applicant and may include civil penalties. The Department of Labor and Industry may conduct random audits to verify the appropriate fund fee was paid by the applicant or licensee.

The purpose of the fund is to provide reimbursement to a consumer who has suffered a financial loss as a result of a licensed residential building contractor or residential remodeler who has engaged in fraudulent, deceptive or dishonest practices, converted funds or failed to perform. No more than $50,000 per licensee may be paid from the fund.

Individuals who seek payment from the fund (in excess of conciliation court limits) must receive a final judgment in court against the licensee. The individual is then required to seek all other avenues or options for recovery of their loss prior to petitioning the court to approve payment from the fund. To obtain payment, the individual must file a verified application to the court for an order directing payment from the fund for the amount of actual and direct out-of-pocket loss in the transaction, excluding interest and attorney fees. Judgments obtained against a licensee that are within the conciliation court limits are paid on an accelerated basis if the licensee does not appeal the judgment. No more than $15,000 per licensee may be paid under the accelerated process.

After a payment from the fund is made, the license is automatically suspended. No reinstatement of a license is authorized until the licensee has repaid in full, plus interest, twice the amount paid from the fund on the licensee's account. In addition, the licensee must obtain a surety bond in the amount of at least $40,000 prior to reinstatement of a license. These penalties are serious; therefore, it is extremely important that licensees do not ignore customer complaints or problems that could result in a judgment being obtained against the licensee.

Q. Do I need to include my license number when advertising my services?

A. The law requires the license number to be on all business cards, contracts, notices and statements relating to the filing of mechanics liens, or pursuant to section 514.01, and all other advertising. The law does not require a specific size print or location for the license number.

Q. Are there penalties for violating license law?

A. A person whose company is required to be licensed and who performs unlicensed work as a residential building contractor or remodeler is guilty of a misdemeanor.

In addition, an unlicensed person who knowingly violates the law has no right to claim a lien under section 514.01, and the lien is void.

Individuals engaging in unlicensed activity, misrepresentation or fraud are subject to administrative and civil penalties.

Q. Are there city, county and township licensing requirements?

A. The license number of a contractor or remodeler must be placed on all building permits and building permit applications made to or issued by the state or a political subdivision (such as a city or county). In jurisdictions that have not adopted the State Building Code, the license number must be placed on the site plan review or zoning permit.

A political subdivision shall not issue a building permit or zoning permit to an unlicensed residential building contractor or residential remodeler who is required to be licensed. The political subdivision is required to report any such person applying for a building permit or zoning permit to the Department of Labor and Industry, which may take action against the unlicensed contractor or remodeler.

A local government unit may charge for building permits and other costs not directly related to licensure. In addition, a local government unit may impose a surcharge in an amount no greater than $5 on each permit for the purpose of license verification.

Cities and counties cannot require a contractor who has a state license to obtain a local license for work that is covered under the state licensing requirements. However, they can require a local license for Certificate of Exemption holders and specialty contractors, and state licensed contractors performing work outside the scope of the state license (for example: work on city-owned property, such as curb cut-ins or sidewalks, HVAC installation or maintenance, or commercial work).