4.3 Required Notices, Mortgage Clauses, and Arbitration

The Mandatory Commission Notice

Every home improvement contract must put the Commission's existence in front of the homeowner. Section 8-501(c)(1)(viii) requires the contract to give the Commission's telephone number and website and to state that each contractor must be licensed by the Commission and that anyone may ask the Commission about a contractor. Section 8-501(c)(1)(ix) then directs the Commission to set a further notice by regulation, and COMAR 09.08.01.26 supplies it — a notice telling the homeowner three things:

1. Formal mediation is available through the Commission. Before a dispute becomes a lawsuit or a Guaranty Fund claim, the homeowner can use the Commission's mediation process.
2. The Commission administers the Guaranty Fund, which may compensate homeowners for actual losses caused by the work of licensed contractors. The Fund is the safety net funded by contractor licensing fees; the notice ensures homeowners know it exists before trouble starts.
3. The homeowner may request that the contractor purchase a performance bond to cover losses beyond what the Guaranty Fund covers. The critical exam point: the homeowner may request the bond, but the contractor is not obligated to pay for it. The bond requirement is a disclosure of an option, not a mandate that every job be bonded.

These notices must actually appear in the contract — telling the homeowner verbally about the Fund does not satisfy the statute. The rationale is timing: a homeowner who learns about mediation and the Guaranty Fund only after a dispute erupts has already lost leverage. The notice arms the homeowner with that knowledge at the moment of signing.

Note also the word actual losses. The Guaranty Fund compensates homeowners for real, provable losses from a licensed contractor's work — it is not a source of punitive or speculative damages, and the notice's phrasing reflects that limit.

Contracts Secured by the Home: The Mortgage/Lien Notice

A home improvement contract sometimes doubles as a security instrument — the homeowner agrees that payment will be secured by an interest in the residential real estate, such as a mortgage or lien. Because homeowners routinely sign such contracts without grasping that their home is on the line, the law demands heightened formality:

• Placement: the notice must appear on the first page of the contract.
• Type: it must be in at least 10-point bold type — no fine print.
• Content: §8-501(c)(2) prescribes the substance — that the contract "creates a mortgage or lien against your property to secure payment and may cause a loss of your property if you fail to pay the amount agreed upon," that the owner has the right to consult an attorney, and that the owner has the right to rescind within 3 business days by notifying the contractor in writing. Candidates routinely forget the attorney-consultation sentence; it is part of the required notice.
• Independent initials: the homeowner must initial the notice independently — a general signature at the end of the contract is not enough.
• Rescission right: the homeowner has the right to rescind (cancel) the contract within 3 business days.

The exam tests each element separately. Watch for distractors that move the notice off the first page, shrink it to 8-point type, drop the separate initials, or stretch the rescission window to 5 or 10 days. The correct values are: first page, 10-point bold minimum, independently initialed, 3 business days.

Remember the trigger: these requirements apply only if payment under the contract is secured by an interest in the residential real estate. An ordinary unsecured remodel contract does not need the first-page bold notice. When a question describes a financed job secured by the house, that fact is the switch that turns the special rules on.

Arbitration Clauses: Optional but Heavily Regulated

A contractor is not required to put an arbitration clause in the contract — arbitration is optional. But if the contract contains one, the clause must satisfy its own checklist:

• Name the arbitration organization that will administer the proceeding (for example, the American Arbitration Association).
• Disclose the fees associated with arbitration, so the homeowner can weigh arbitration's cost against court.
• State whether the arbitrator's findings are binding on the parties.
• Disclose that a Guaranty Fund claim is stayed (paused) pending the arbitration — a homeowner cannot run both tracks at once, and the clause must say so.
• Be initialed and dated by both parties adjacent to the clause — buried consent is not consent.

The stay disclosure deserves special attention because it connects two chapters of the law. If the homeowner files a Guaranty Fund claim while an arbitration clause applies, the Fund claim waits until the arbitration finishes. A homeowner who does not understand that trade-off cannot make an informed choice about signing the clause — hence the mandatory disclosure.

The policy logic mirrors the mortgage-notice rules: wherever the contract asks the homeowner to give up something significant (access to court, or the house itself), the law insists on conspicuous, separately-acknowledged disclosure. A signature at the end of a ten-page contract does not prove the homeowner noticed the arbitration clause on page seven; initials and a date right next to the clause come much closer.

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