Maryland Home Builder Bond: A Comprehensive Guide
February 11, 2021
This guide provides information for insurance agents to help contractors on Maryland Home Builder Bonds
At a Glance:
- Average Cost: Between 1.5% to 7% of the bond amount based on the builder’s credit
- Bond Amount: Determined by the MCPD on a case by case basis
- Who Needs It: All individuals and business entities seeking to obtain a Home Builder Registration in the State of Maryland
- Purpose: To ensure the public will receive compensation for any damages should the contractor fail to comply with contractor licensing law
- Who Regulates Home Builders in Maryland: The Maryland Consumer Protection Division (MCPD)
Background
Maryland Statute 4.5-301 (2018) requires all home builders operating in the state to register with the MCPD. The Maryland legislature enacted the registration laws and regulations to ensure that home builders engage in ethical business practices. In order to provide additional consumer protection, registered home builders who receive payment on a contract before the completion of a home must obtain a letter of credit or purchase and maintain home builder surety bond to be eligible for registration.
What is the Purpose of the Maryland Home Builder Bond?
Maryland requires registered home builders who receive payment on a contract before the completion of a home to either obtain a letter of credit or purchase a surety bond. The bond ensures that consumers will have their deposits refunded in the event the home builder does not complete a project. In short, the bond is a type of insurance that protects the consumers if the home builder does not finish a project.
How Can an Insurance Agent Obtain a Maryland Home Builder Surety Bond?
BondExchange makes obtaining a Maryland Home Builder Bond easy. Simply login to your account and use our keyword search to find the “contractor” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email or chat from 7:30 AM to 7:00 PM EST to assist you.
At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.
Who is Required to Purchase the Bond?
Registered home builders who accept payments on contracts prior to completing the project must purchase the Home Builder Bond. The bond does not serve as a prerequisite to registration, and home builders who do not accept advance deposits are not required to purchase the bond.
How Does the MCPD Determine the Bond Amount?
Maryland Statute 10-302 requires the bond to cover all deposits accepted by the builder up to $10,000. For example, if a home builder accepts $6,000 in advance deposits, they must purchase a $6,000 surety bond. For deposits exceeding $10,000 the bond limit will be as follows:
| Total Amount of Deposits Held | Penalty of Bond |
|---|---|
| $10,000 to $75,000 | Full amount of deposit held |
| $75,000 to $200,000 | $75,000 |
| $200,000 to $500,000 | $200,000 |
| Over $500,000 | $500,000 |
Is a Credit Check Required for the Maryland Home Builder Bond?
Surety companies will run a credit check on the owners of the home building company to determine eligibility and pricing for the Maryland Home Builder Bond. Builders with excellent credit and work experience can expect to receive the best rates. Builders with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the contractor’s credit.
How Much Does the Maryland Home Builder Bond Cost?
The Maryland Home Builder Surety Bond can cost anywhere between 1.5% to 7.5% of the bond amount. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. We also offer easy interest-free financing for premiums over $500. The chart below offers a quick reference for the approximate bond cost on the $75,000 bond requirement.
$75,000 Home Builder Bond
| Credit Score | Bond Cost |
|---|---|
| 625+ | $1,125 |
| 575 – 624 | $2,812.50 |
| 550 – 574 | $3,750 |
| 500 – 549 | $5,625 |
*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.
How Does Maryland Define “Home Builder”?
Maryland Statute 4.5-101(g)(1-2) defines a home builder as “a person that undertakes to erect or otherwise construct a new home.”
How Do Home Builders Apply for Registration in Maryland?
Builders in Maryland must navigate several steps to secure their home builder’s registration. Below are the general guidelines, but contractors should refer to the registration page for details on the process.
*Builders are not required to purchase a surety bond when applying for registration
Registration Period – The Maryland home builder registration is valid for two years from the date of issuance and must be renewed prior to the expiration date
Step 1 – Purchase General Liability Insurance
Home builders must purchase liability insurance with a minimum limit of $100,000
Step 2 – Setup an Online Registration File
First time registration applicants must create a user profile with the MCPD. After creating their profile, contractors will be asked to create a registration file by selecting a username and password that will allow them to access their file in the future.
Step 3 – Complete the application
The home builder registration application can be completed online here. Builders must complete the entire application and pay an $800 registration fee. Completed applications will contain the following items:
-
- Builder Information
- Name
- Address
- Phone number
- E-mail address
- Principal Information
- Address,
- phone number, and
- e-mail address of all principals of the builder.
- Insurance Information
- Name of the insurance carrier
- Amount of coverage
- Policy number of the builder’s general liability insurance policy.
- Builders who provide new home warranty security plans to their customers must include the name and address of the warranty company that will provide these plans
- If the builder holds similar registrations or licenses in other states or jurisdictions, the registration or license number from each such state or jurisdiction
- Builder Information
How Do Maryland Home Builders Renew Their Registration?
Home Builders can renew their registration online through Maryland’s online renewal portal.
The registration will last for two years from the date of issuance. A renewal application will be mailed to the builder’s last known address at least 60 days before the registration expires. Builders must also pay a renewal fee based on the number of permits they received in the prior registration period.
- 10 or fewer permits: $400
- 11 to 74 permits: $800
- 75 or more permits: $1,200
What Are the Insurance Requirements for the Maryland Home Builder Registration?
The State of Maryland requires home builders to obtain general liability insurance with a minimum limit of 100,000. In addition, builders who accept advance deposits must obtain a letter of credit or purchase and maintain a home builder surety bond.
How Do Maryland Home Builders File Their Bond With The Maryland MCPD?
Builders should mail the completed bond form, including the power of attorney, to the following address:
Home Builder Registration Unit
Consumer Protection Division
200 St. Paul Place
Baltimore, MD 21202
The Home Builder surety bond requires signatures from both the surety company and the contractor. The surety company should include the following information on the bond form:
- Legal name of the entity/individual(s) buying the bond
- Surety company’s name
- Bond amount
- Bond Term
- Date the bond is signed
How Can Maryland Home Builders Avoid Bond Claims?
To avoid claims on the Maryland Home Builder Bond, builders must ensure consumers receive full refunds on all deposits made on jobs that did not come to fruition.
What Other Insurance Products Can Agents Offer Home Builders in Maryland?
Maryland requires home builders to obtain liability insurance. Bonds are our only business at BondExchange, so we do not issue liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.
How Can Insurance Agents Prospect for Maryland Home Builder Customers?
Maryland conveniently provides a public database to search for active Home Builders in the state. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.
