| Every contractor who does residential work | | | | jobs.False. The federal 3-day notice is required on |
| knows about a home owner's 3-day right to | | | | every job that qualifies as the principal residence |
| cancel. But what you may not know is how | | | | of the owner, whether a custom home, home |
| vicious this innocuous little form can be. Here's a | | | | improvement or home repair. There is no |
| short quiz to test your understanding. Answers | | | | threshold dollar amount. Even replacing a water |
| are below. | | | | heater gives the owner 3 days to cancel. In a |
| True or false? | | | | true emergency, the owner can waive the right |
| 1. The 3-day right to cancel is a federal notice and | | | | to cancel with a written statement. |
| isn't required in most states. | | | | Answer to Question 5 - Required only if you |
| 2. There no harm in skipping this form. It's safe to | | | | extend credit.False. The 3-day right to cancel |
| leave it out of your contracts. | | | | exists on every job that could result in a lien on |
| 3. If you decide to include the notice in your | | | | the owner's property. And that's every job |
| contract, one copy is enough. | | | | because all states give contractors a construction |
| 4. The 3-day right to cancel is required only on | | | | lien for their work. |
| major home improvement jobs. | | | | Don't let this happen to you.A few years ago |
| 5. The 3-day right to cancel is required only if you | | | | Alma and Robert Johnson needed a little work |
| extend credit to the owner. | | | | done on their front porch at 65 Stanford Street, |
| First, something that should be obvious: Don't | | | | Providence, Rhode Island. Interstate Contractors |
| start work, don't deliver materials, don't schedule | | | | got the job. They finished the work and got paid |
| crews until three business days after the contract | | | | -- $12,400. Unfortunately for Interstate, their |
| is signed. When a contract is cancelled under | | | | work was better than their contract. I'll explain. |
| federal law (12 C.F.R. 226.15), you have to undo | | | | Two years later, the Johnson's had some financial |
| the deal at your own expense. Any lien you | | | | reverses. Their home fell into foreclosure and the |
| thought you had is cancelled. You're liable for twice | | | | Johnson's filed for bankruptcy. One of their |
| any finance charge up to $1,000 plus costs and | | | | creditors had a smart attorney with the good |
| attorney fees. | | | | sense to pull out the contract for that front porch |
| Answer to Question 1 - Not required in most | | | | job. Turns out, Interstate's contract wasn't quite |
| states.False. The 3-day right to cancel is a federal | | | | right. There wasn't any federal 3-day cancellation |
| right. But it's a right granted in all states any time | | | | notice. That was Interstate's Mistake One. The |
| you do work on the principal residence of the | | | | Johnson's could still cancel the job, two years |
| owner. Even if your state has its own 3-day right | | | | after completion, and get a full refund under |
| to cancel, you still have to deliver the federal | | | | federal law. Great! But it gets better. |
| form, filled out with the date of signing, your | | | | Rhode Island gives owners a 3-day right to cancel |
| mailing address and the last day to cancel. | | | | - but only if the owners don't get the federal right |
| Answer to Question 2 - It's safe to skip this | | | | to cancel notice. Well, the Johnsons never got |
| form.False. It's not safe at all. Omitting the 3-day | | | | their federal notice. So Rhode Island's law applied. |
| notice gives the owner three years to cancel | | | | Interstate must have known that. Interstate's |
| (§ 226.15-b).After cancellation, you have the | | | | contract with the Johnsons included the Rhode |
| right to take materials back. But you have to | | | | Island 3-day cancellation notice. Unfortunately, the |
| make a full refund! Imagine making a full refund | | | | Rhode Island notice wasn't quite perfect. It wasn't |
| on a home improvement job three years after | | | | in 10-point bold type. And one part of one |
| completion. More on that later. | | | | paragraph was missing. Bingo! Interstate's Mistake |
| Answer to Question 3 - One copy of the form is | | | | Two. |
| enough.False. 12 CFR 226.15-b requires that each | | | | So the Johnsons canceled under Rhode Island law. |
| owner receive two copies of the cancellation | | | | Interstate now had 20 days to refund the full |
| notice. If two adults are living in a home, it's safe | | | | $12,400. Too bad. They didn't make it. And that |
| to assume that both are owners. Delivering less | | | | was Mistake Three. Failure to make a full refund in |
| than four copies of the 3-day right to cancel is like | | | | 20 days made Interstate liable to the Johnson's |
| delivering none at all. See Weeden v. Auto | | | | creditors for double the contract amount - |
| Workers Credit Union, Inc., 1999 U.S. App. LEXIS | | | | $24,800. And that was the award of the court. |
| 5272. | | | | (I'm not making this up. See 239 B.R. 255. |
| Answer to Question 4 - Required only on major | | | | |