A state program designed to help homeowners deal with contractors gives a false sense of protection.
Photographs by Mark Morelli
FOR MOST HOMEOWNERS, their house is their past, present, and future, the hard shell around their nest egg. That shell requires regular attention and occasional investment, and that means hiring home improvement contractors to keep everything shipshape.
For many homeowners, finding the right contractor is a process that can trigger a lot of anxiety. So for the past 25 years, the state has been overseeing a program to put homeowners at ease. It starts with one basic recommendation — hire only home improvement contractors registered with the Office of Consumer Affairs and Business Regulation. The office’s FAQs web page on home improvement contractors is crystal clear on why it’s important to hire someone who is registered.
“To protect you as the consumer!” the website exclaims. “When contractors register with the Office of Consumer Affairs and Business Regulation, they must make a contribution to the Guaranty Fund. Consumers may be eligible for reimbursements through the fund should something go wrong during the construction process.” Registered contractors are also subject to mediation and arbitration.
Registration is also no guarantee of competence; anyone can register as a home improvement contractor whether they know which end of a hammer to use or not. All someone needs to do is pay $150 and they’re registered.
The Guaranty Fund? Homeowners are filing more claims against the fund even as the pot of available money is shrinking, in part because state officials haven’t been complying with a provision in the law that requires them to make a financial recovery from contractors whose defective work spurs claims against the fund. Since 2012, state officials have recovered just 3 percent of the money paid out in claims. As a result, homeowners often have had to wait to receive their payments until the fund replenishes itself with fees collected from newly registered contractors.
But perhaps most maddening to consumers is discovering that a registered contractor they thought was legitimate has a history of prior screw-ups but was allowed to continue working—and scamming—other homeowners. The Home Improvement Contractor statute allows the consumer affairs office to forward the names of renegade contractors to the attorney general’s office for criminal enforcement, but until late last summer not a single case had been referred for at least the last five years.
In addition, state agencies rarely work together in flagging problem contractors. Many contractors registered with the Office of Consumer Affairs and Business Regulation are also required to be licensed by the Executive Office of Public Safety and Security. But a review of databases at both agencies indicates that even if a registered contractor’s license is revoked or expired, he often still retains his active license with Public Safety as a construction supervisor.
Itai Halevi is a Scituate homeowner who followed the state’s recommendation and hired a registered contract to add on to his home. The contractor opened the roof and ripped his home apart and then left with the job unfinished in the middle of the harsh winter of 2013. Halevi says he feels let down by the entire registration process.
“It’s supposed to uphold a bond,” he says. “Registration says this contractor is legitimate, it’s honorable, something a citizen of the Commonwealth can trust. When the registration of a contractor has broken down, it was very disappointing to find the system that was supposed to protect the citizens was not there.”
Imagine what the state would do if thousands of people were motoring around without drivers licenses. State officials would issue tickets to the offenders and, if that didn’t work, send them to jail.
But contractors who fail to register with the state are rarely fined and there are no records of any of them ever being criminally charged, much less sentenced to jail.
As a result, many contractors never bother to register. John Chapman, the undersecretary for the Office of Consumer Affairs and Business Regulation, says 27,000 home improvement contractors are registered with the state, but he acknowledges that many more are working as contractors without registering, which is a criminal violation of state law, punishable by up to two years in jail.
“I think, frankly, we just have the tip of the iceberg with those that are registered,” Chapman says.
Gregory White, general counsel for the consumer affairs office, says he got a sense for how big the pool of unregistered contractors is when he and his wife recently looked for someone to paint the outside of their house. Six contractors bid on the work, all of them with 20 to 25 years of experience and with multiple references. Not one, White says, was registered. He says he informed each of them of their responsibility under the law.
The home improvement contractor law took effect in 1992. It requires a wide range of tradesmen who perform work on homes—carpenters, kitchen remodelers, roofers, gutter installers, in-ground pool installers, even exterior painters, to name a few—to register with the state for a minimal fee of $150 and then renew every two years at the same rate. The fees go toward the costs of administering the program.
Registration is designed to protect consumers, but it’s also a way for state officials to make sure contractors are abiding by other laws. “It also allows us to go after rogue contractors,” says White. “If you’re not registering, you’re not carrying worker’s comp, you’re not carrying insurance, you’re not paying unemployment.”
Since 2015, the first year of Gov. Charlie Baker’s administration, there has been a heightened effort to put some meat on the bones of the Home Improvement Contractor program. But years of neglect have taken a toll.
Chapman’s agency has begun some outreach on social media and launched ad campaigns to raise consumer and contractor awareness of the law. The consumer affairs office earlier this year sent staffers to four lumber yards around the state informing contractors who came in of their need to register, an effort that helped boost the number of new registrants 28 percent this year compared to last year.
The office has sent out letters to local building inspectors urging them to make sure to verify if a contractor has an active license and registration. One issue with that, though, is a homeowner can pull a permit on his or her own without putting a contractor’s name on the application.
The consumer affairs office has also levied fines against unregistered contractors, contractors who fail to renew their registrations, and contractors that fail to make payments to the Guaranty Fund, but only a small portion of the money is ever collected. In 2014, the office levied $145,550 in total fines but collected only $24,750, or about 17 percent. Through the end of November last year, officials had collected 16 percent, or $41,600, of the total $255,250 in fines assessed. Most contractors just ignore the fines because the consumer affairs office has limited ability to force them to pay.
Consumers may be the key to boosting contractor registration. If homeowners refused to do business with anyone other than a registered contractor, the number of registrations would probably go up. But not enough homeowners are aware of the program and even those that are aware are having difficulty verifying a contractor’s registration status right now.
Up until October, the consumer affairs website had a database where homeowners could check the status of a contractor’s registration as well as the history of claims made against him. Shortly after CommonWealth began requesting information for this story, that database was removed, though officials say it was coincidental. They say the database is being migrated to a new program and, in the process, errors were discovered. The database is expected to be back up as soon as January. In the meantime, the office has a staffer fielding phone calls from consumers checking registrations, though oftentimes he is inundated with calls and inquiries have to go to voicemail.
The idea behind the state’s Residential Contractor Guaranty Fund is to have the contracting industry take some measure of financial responsibility for its own bad apples by compensating customers for shoddy work.
When a contractor initially files his registration papers and pays the administrative fee, he is also charged a one-time sliding fee ranging from $100 to $500 depending on the number of people he employs. That one-time payment is funneled into the state Guaranty Fund and used to reimburse consumers who are victimized by contractors who fail to do their work properly.
In order to get a claim paid out of the Guaranty Fund, homeowners first have to obtain a court judgment verifying their loss. They then apply to the fund for reimbursements of up to $10,000.
Ian C. Pilarczyk, a law professor at Boston University, hired a contractor from Andover in 2012 to renovate the third floor of his Arlington home in anticipation of the arrival of twins he and his wife were expecting. He says he went to the fund after the contractor took his deposit and upfront payments but didn’t pass the money along to subcontractors and suppliers, who stopped doing work after not getting paid.
He was unaware of the fund until he started making calls to consumer affairs and researching the home improvement contractor website, gathering information he hadn’t known about previously. But he said the process of making a claim against the Guaranty Fund was byzantine and time-consuming, requiring a huge investment of time. Pilarczyk says he was able to navigate the system at minimal expense because he had a background in law as well as friends in the legal business.
“It’s a fairly opaque process,” says Pilarczyk. People he spoke with at consumer affairs, he said, “were singularly unhelpful. Our impression was they weren’t in any hurry to give out any money to anyone…It just seemed like they were being really bureaucratic, making it very, very hard for people to get money from it. I put less attention to detail in my doctoral dissertation” than in the claim.
The number of consumers applying to the Guaranty Fund is rising. There were 178 complaints in 2014, while 324 were filed in 2016 through the end of November. The balance in the fund at the start of fiscal 2017 last July was $749,353. Through November, the fund paid out $334,641 but, even with the new registrations, it’s unclear whether there will be enough money to process all the applications. The average annual payout from the fund has been $309,000 since 2012 but complaints have risen dramatically. When money runs short, claims are put on hold until more contractor money flows into the fund.
While the law requires contractors to reimburse the fund for any claims involving them, relatively few contractors actually pay up. Since 2012, there have been 193 claims paid out of the Guaranty Fund but only 13 contractors have made reimbursements, several unwillingly when the State Comptroller intercepted payments due them from the government. A total of $46,450—just 3 percent of what has been paid out—has been recovered in reimbursements.
Officials say their collection efforts are hampered by the fact that many of the offending craftsmen have filed bankruptcy, left the area, or just can’t be found. Many of them simply don’t have the money. “You can’t get blood out of a stone,” says White, the general counsel for the consumer affairs office.
But there has also been very little appetite until recently to pursue delinquent contractors. Consumer affairs lacks the power to compel contractors to reimburse the fund, so cases have to be referred to the attorney general’s office. The Baker administration referred 11 of what the agency considers the top Guaranty Fund offenders to the attorney general’s office late last summer, the first referrals in more than five years.
“We’re talking with the attorney general’s office about where we can work better together,” says Chapman. “We can revoke their registration but without any sort of [consumer] education [about checking for a registration], we’re not sure how effective that is. Our hands are a little bit tied because of the nature of the program.”
All of the 11 contractors referred to the attorney general’s office in August had their registrations suspended or revoked, but five of them continued to have active construction supervisor licenses with the state Office of Public Safety as of mid-December. Most contractors are legally required to hold construction supervisor licenses, which require the holder to demonstrate competency in the field as well as experience. The fact that five of the contractors continued to hold construction supervisor licenses even though their contractor’s registration had been suspended or revoked suggests the two state agencies are not communicating well.
CommonWealth compiled its own list of 17 contractors who each were responsible for multiple claims against the Guaranty Fund over the last five years. Most of the contractors were not on the list referred by consumer affairs to the attorney general’s office. All of the contractors on the CommonWealth list had had their registrations suspended or revoked, but five still had active construction supervisor licenses. (Two of the five on CommonWealth’s list were also on the list sent to the attorney general.)
Of the remaining 11 contractors on CommonWealth’s list, three had construction supervisor licenses that were labeled “null and void,” one had a suspended license, and one had a revoked license. Seven had no record on file with the public safety office, suggesting some may have been doing work without being licensed properly.
Even as state officials try to build up the Guaranty Fund, some are advocating to expand the group of consumers who can apply for reimbursements from the fund. Edgar Dworsky, a consumer advocate who served under six previous consumer affairs secretaries, says the law needs to be expanded to include condominium owners in large complexes. The statute currently limits claims to owners of houses with one to four units, meaning if a condo owner in a larger building has a kitchen or bathroom renovated, there is no recourse other than court if the contractor fails to perform. “Think of anyone who’s in a larger building,” says Dworsky. “Shouldn’t they have rights if they hire a registered contractor? They shouldn’t be second-class citizens.”
Dworsky says the state should chip in more money to the fund if it runs low on cash. He says the law was important enough for legislators to enact so there should be resources made available to support enforcement and assist homeowners in recovering lost money.
There is money there. The Legislature allocates about $500,000 a year for administering, which is funded through revenues the consumer affairs office collects in registration fees. But with 27,000 contractors paying $150 every two years, the program pulls in more than $4 million, meaning roughly $1.5 million a year goes into the state’s general fund.
Dworsky says the consumer affairs agency also has the ability to “re-levy” already registered contractors in good standing to raise more revenue for the fund. State officials, though, dismiss the idea of tapping contractors again or even raising the fee of new registrants, many of whom grouse about being required to compensate consumers for the bad acts of those who flout the law.
“We’re already getting pushback from the industry on these fees, which are miniscule,” says White. “Can you imagine if we quadrupled that?”
Christopher Matey had a booming contracting business called Red Apple Renovations. His bona fides appeared impeccable. A one-time member of the Andover Zoning Board of Appeals, Matey had knowledge of local codes and the references to wow prospective customers. He was registered as a contractor and licensed as a construction supervisor. His customer base stretched from Greater Boston through the North Shore and into southern New Hampshire.
“As a homeowner, you can’t be expected to know all the ins and outs of residential construction,” Matey wrote in one blog post on his company’s website. “It’s not your profession and not what you do with your time. Because of that, it’s important to find a contractor who is up to date on the current building code. Also, it’s important to find a contractor who cares about their work. Look for pride in the details as well as a record of happy customers.”
Despite his strong credentials, Matey became a serial home wrecker. According to consumer affairs data and court bankruptcy records, Matey left at least 28 homeowners high and dry after taking their money and failing to perform promised renovations. His story illustrates how it’s difficult for state regulators to crack down on a contractor who goes off the rails.
Among Matey’s earliest victims were Shae and Doug Ranalli, an Andover couple who paid the contractor more than $300,000 to gut and renovate their historic home. Shae Ranalli had served on the zoning board with Matey and, after checking his credentials, convinced her husband they should hire him. But from the beginning, checks the Ranallis wrote to Matey to pay subcontractors and suppliers ended up going elsewhere. They didn’t learn about it until their home had been ripped apart and exposed and they began receiving lien notices from those who were owed money by Matey.
“A contractor should not be able to take a customer’s money for a job and apply it to another account,” says Shae Ranalli, whose family rented a small home while theirs was being renovated. “If I write out a check to the siding company, it should go to my account and nowhere else. For so many people in the Commonwealth, your biggest investment is your home, by far. It is your major investment, for the most part, it is your retirement.”
Despite his problems, new customers of Matey’s never knew what was happening because no action had been taken against him by the registration program. That allowed him to keep signing up new homeowners blinded by Matey’s salesmanship.
According to Guaranty Fund records, at least five claims for the maximum $10,000 were upheld against Matey, including the Ranallis’ claim, with others still unsettled. The Ranallis filed their claim in July 2012 and received a payment from the Guaranty Fund in April 2013. Three other homeowners filed their claims in September 2013, November 2013, and January 2014; all of them received checks from the Guaranty Fund in 2016.
The records suggest Matey kept signing up customers even after homeowners had won judgments against him. Normally, Matey’s registration would have been revoked after he failed to reimburse the Guaranty Fund, but state officials were prevented from taking any action against him because he filed for bankruptcy.
Under federal bankruptcy law, “a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant” of anyone who has filed for bankruptcy protection.
Matey’s registration remained effective until he let it expire.
Shae Ranalli says she faults the state’s shaky program for Matey. “How do you justify allowing a professional who has shown such incompetence, allowing them back into that profession when their incompetence has such a detrimental effect on individual homeowners?” she asked.Chapman, the consumer affairs undersecretary, says his agency needs to focus on the program and bring some attention to it. “We need to make sure there’s some consistency to it. The bad ones just abandon the job and walk away, often with huge chunks of money from consumers who need to recover those funds to do their improvement,” he says. “Sometimes, some things slip through the cracks. We’re just trying to minimize how many times that happens.”