Home Contractor Claims - to Litigate or to Arbitrate?

Once the relationship between a home contractor and a homeowner has broken down, and a demand letter has been sent, a decision must be made about how to proceed if the dispute is not resolved. At this point most homeowners and contractors are fairly anxious. They are wondering about what happens next, and what it is all going to cost. The steps I take in these situations is always the same, but the outcome will vary.

First, the homeowner side:

1. What are my damages? I have posted on damages before, so I am not going to explain how to determine damages in this post, but this is the most important question.

For claims less than $5000.00, one should consider small claims court or in Massachusetts, the Home Improvement Contractor Arbitration Program.

For claims between approximately $5000.00 and $20,000.00, one should consider the Home Improvement Contractor Arbitration Program. The reason is simple; the filing fee is low, the Office of Consumer Affairs and Business Regulation administers the whole process, and one does not need a lawyer to use the program (although one may decide to hire a lawyer for this process as well). As long as one qualifies (the contractor is registered, the contract was signed within the last two years, the contractor pulled the permit, the construction work was a renovation, etc.), this is the easiest process for resolving a home contractor dispute and the contractor must submit to arbitration as long as he is registered. In addition, the Guaranty Fund will pay up to $10,000.00 in damages, and it is not as important to procure security for one's claims.

For claims over $20,000.00, it would be much more important to establish whether the contractor owns assets that would be available to satisfy a judgment against him. At this point I do an asset search and usually file a Motion to Attach Real Estate along with a lawsuit in order to have security for a judgment. Violations of the Home Improvement Contractor Act usually will allow for getting one's attorney's fees back, so it is worth it to pay for the costs involved in filing suit. This is a much longer, complicated process than the arbitration program, but the opportunity to obtain prejudgment security makes the process worthwhile.

These are very general guidelines for how to decide how to proceed with pursuing a claim against a contractor. The decision made for a specific case will depend on the ability to collect at the end, the size of the claim, the amount of hassle and difficulty involved in a lawsuit vs. arbitration, and the individual homeowner's goals. However, this will hopefully answer the general question of how one goes about making the decision what to do next.