If your contractor screws up on a project, you can sue them.

Many contractors have insurance that can cover their mistakes.

However, many don’t.

In fact, if you’re dealing with a small contractor, they may not have insurance. Or, even worse, some contractors pusposely structure their business operations in a way that shields them from liability. I’ll explain more about how in a moment.

If a contractor screws up or abandons a project you can sue them in small claims, or in a civil court. Once you sue a contractor, you have to go through all the stages of a lawsuit, which can be a lengthy process. The goal of a lawsuit is aimed at getting a settlement or a “judgment.”

If the contractor reaches a settlement that is agreeable to you, then that’s good and you can stop there.

If not, you’ll have to get a judgment, which may involve going to trial. A lot of people think they’ll receive a windfall when they initiate a lawsuit, but with contractors you will likely recover the actual amount of property damage that they incurred. Meaning, if a contractor screws up on a $7,000 roofing project, don’t expect to get a million dollars. $5,000-$8,000 is a more reasonable number to think about.

Another way to get a judgment is if the contractor doesn’t show up in court. The court will enter a default judgment and award you damages.

What a lot of contractors were doing was creating new LLC’s (which shield personal liability from lawsuits) for each project and then dissolving them at the completion of the project.

Unsatisfied customers would try and sue the contractor’s LLC, only to find that the LLC was dissolved and they couldn’t collect anything.

So in response to this both Massachusetts and Connecticut created Home Guaranty Funds, which every contractor pays into.

These funds will provide you with some damages against a contractor if you get a judgment against them in court.

So if a contractor dissolves an LLC or doesn’t show up to court, or loses in court but doesn’t have the money to pay you, you can apply for the state’s home guaranty fund.

In Connecticut, that fund can award you up to $30,000, with some caveats. Read here.

In Massachusetts, the maximum award is $10,000. Read here.

You have to meet certain criteria to access these funds and not everyone is eligible. But this is a very common mechanism that consumers use to collect damages when a contractor won’t pay or can’t pay or dissolves their LLC.

You may be wondering… “Isn’t dissolving an LLC to avoid a lawsuit fraudulent?”

And you may be right. But the process of transferring liability from the LLC to the individual (piercing the corporate veil) in an allegation of fraud is opening a can of worms. Typically, the amounts of money involved in these proceedings don’t justify a civil action for fraud which can be even more complicated and less likely to win.

When there’s $10,000 (MA) or $30,000 (CT) on the table from the guaranty funds, most clients are usually better off going after those funds rather than trying to prove fraud and hit the contractor’s personal assets. This is because in a lot of cases the amount of money in dispute is around $10k – $30k.

Now, if you’re disputing a $500,000 bill and a contractor dissolves their LLC and you believe they have personal assets that can cover the damages, you would have a different legal strategy.

Bottom line:

If a settlement doesn’t work, the home guaranty funds in MA and CT are great mechanisms for recovering damages from a negligent or shady contractor.