Recovery Fund

Financial Protection

The State of Arizona requires all licensed residential contractors to provide financial protection to their customers. The protections apply whether you buy a new home, remodel, build a swimming pool or have a new roof put on your home.

In order to obtain a license, a residential contractor must post a cash deposit or surety bond of $4,250.00 to $15,000.00. In addition, a residential contractor must either pay into the recovery fund or post a second bond of $200,000.00. The vast majority of residential contractors have chosen to participate in the fund. Therefore, there are actually two programs offering financial protection. We will explain in some detail how to collect from either one.

What is the Recovery Fund?

The Recovery Fund is a form of financial protection provided by licensed Arizona residential contractors to residential homeowners. The Recovery Fund is governed by statute and available only to persons who own and occupy, or intend to occupy, class three residential property. In some circumstances, the Recovery Fund is also available to lessees of residential real property and homeowners’ or unit owners’ associations as defined by A.R.S. § 32-1131.3. The Recovery Fund does not accept claims from suppliers, subcontractors, laborers or other commercial entities.

Make Sure You Are Eligible Before You File a Claim

In order to be deemed eligible for recovery from the Fund, you must submit documentation to demonstrate that you meet the following requirements:

The contractor’s residential or dual license must have been suspended or revoked as a direct result of a formal complaint filed by you against the contractor’s license. (This requirement does not apply to civil Recovery Fund claims filed pursuant to A.R.S. § 32-1136.) A.R.S. § 32-1154.G.

Prior to filing a claim with the Residential Contractors' Recovery Fund, you must first have filed a claim against the contractor’s license bond and received a final determination in regard to that claim. (Information about the contractor’s bond can be found on the Contractor Search page of our website.) A.R.S. § 32-1154.G.

The contractor must be a licensed residential contractor. A.R.S. § 32-1131.3.

The claimant must be the owner of a class three residential property and have occupied, or intended to occupy, the residence at the time of the contract (or at the time the injury accrued) to be a “person injured” as defined by statute. A.R.S. § 32-1131.3.

The contractor must have been licensed and in good standing with the Registrar of Contractors at the time of the contract. An award from the Recovery Fund shall not be available to persons injured by a residential contractor whose license was in an inactive, expired, cancelled, revoked, suspended or not issued status at the time of the contract. A.R.S. § 32-1132.A.

The claim must be filed within the relevant two-year statute of limitations, as follows:
In an administrative Recovery Fund claim, the administrative complaint must be filed within two years of close of escrow or actual occupancy (whichever occurred first) of a new structure or completion of remodel/repair. A.R.S. § 32-1155.A.
In a civil Recovery Fund claim, the civil complaint must be filed with the court within two years from the date of the commission of the act by the contractor that is the cause of the injury or two years from the date of occupancy. A.R.S. § 32-1136.A.

Recovery Fund FAQ

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What is the Recovery Fund and what is its purpose?

A claim can be filed with the Recovery Fund through either the administrative process authorized by A.R.S. § 32-1154.G, or through the civil process authorized by A.R.S. § 32-1136. Under both of these processes, a claimant must show that he/she is eligible and has suffered compensable actual damages as defined by the Recovery Fund statutes.

Am I eligible to file a Recovery Fund claim? (Please ensure that you are eligible before you file a claim!)

In order to be deemed eligible for recovery from the Fund, you must submit documentation to demonstrate that you meet the following requirements:

Prior to filing a claim with the Residential Contractors' Recovery Fund, you must first have filed a claim against the contractor’s license bond and received a final determination in regard to that claim. (Information of the contractor’s bond can be found on the Contractor Search page of our website. A.R.S. § 32-1154.G.

The contractor must be a licensed residential contractor. A.R.S. § 32-1131.3.

If I am eligible, how is an award from the Fund calculated?

The claimant must have incurred “actual damages” defined as those damages suffered as a direct result of a contractor’s violation to qualify for an award from the Fund. The calculation done by the Registrar attempts to make you ‘whole’ on the contract; that is, to put you in the position you would have been in after full payment on, and full performance of, the underlying contract. Alternatively, if you paid the contractor a deposit to do a project and the contractor did not perform any work or deliver any materials, then we may only award you a refund of your deposit paid to the contractor, essentially rescinding the contract. A.R.S. § 32-1132.A.

Please be aware that there are limitations to what the Fund will reimburse. Compensable damages shall not exceed an amount necessary to complete or repair the structure and cannot result in a net gain to the claimant. As with eligibility, you bear the burden to establish that you have suffered damages that are compensable from the Fund. A.R.S. § 32-1132.A.

In a civil claim, though you may obtain a civil judgment against a contractor for damages, not all those damages may be compensable from the Fund. The limitations above will guide what portion of the judgment damages may be compensable from the Fund.

I think I’m eligible and would like to file a Recovery Fund claim. What is the procedure and what documentation do I need to provide?

An eligible homeowner can pursue an award from the Fund civilly or administratively. Claims are paid after a final court order or final administrative order.

Administrative Procedure for Recovery

An administrative claim must be filed on forms prescribed by the Registrar and submitted to our office along with all supporting documentation. A claim may only be filed after the required discipline is obtained by you as the result of a complaint filed against the contractor, and after a claim on the contractor’s bond has been fully processed by the surety pursuant to A.R.S. § 32-1154.G as discussed in number (2)(a) and (b) above.

Also, required documentation includes:

a copy of the property deed (If you do not have a copy of the deed, you will need to contact your County Recorder’s Office to obtain one.);

a copy of County Assessor parcel information showing the legal classification of the property for the tax year you entered into the contract (If you do not have a copy of this documentation, you will need to contact your County Recorder’s Office to obtain one.);

the original contract;

copies of documents that verify proof of payment on the contract; and,

copies of documents that verify proof of cost to repair and/or complete the project (If the project has not been repaired and/or completed by someone else, proof of cost may be obtained by receiving and submitting three (3) bids from licensed residential contractors).

Recovery Fund staff will then process and analyze the claim to determine whether the claimant is eligible and, if so, to what extent they may qualify for compensation from the Fund, as outlined above.

After the notice, either party may request a hearing to contest the amount of the award.

If a hearing is not requested, the claimant and the respondent will be sent a written final order and award.

If a timely hearing is requested, a written final order and award will be sent after a hearing.

Civil Procedure for Recovery

A civil action against the contractor must be brought in a civil court of competent jurisdiction. The lawsuit must be filed with the court within two years from the date of the commission of the act by the contractor that is the cause of the injury or two years from the date of occupancy. A.R.S. § 32-1136.A.

Pursuant to A.R.S. § 32-1136, the homeowner (Plaintiff) must notify the Registrar of the commencement of the lawsuit. The Plaintiff must also submit a copy of the relevant court filings and all required supporting documentation to establish eligibility and damages, as explained above and including proof showing a claim on the contractor’s license bond has been fully processed.

Once a judgment against the contractor is obtained, a claimant must provide that document to the Registrar along with at least twenty days written notice of the claimant’s intent to apply to the court for an order directing payment from the Fund. A.R.S. § 32-1136.B.

Failure to comply with these requirements may necessitate that the Registrar intervene into the lawsuit in order to obtain the necessary documentation to determine the merits of a claim. Intervention is a right afforded the Registrar in order to protect the Fund. A.R.S. § 32-1136.B.

The Plaintiff must file a claim against all available bonds and follow the requirements of A.R.S. §§ 32-1136.D and 32-1136.E.

If the claim is determined eligible for a payment from the Fund, the court will issue an Order Directing Payment from the Fund. The homeowner then needs to file a certified copy of this Order with the Registrar. Please be aware that the Fund does not pay a claimant’s court costs and/or attorney’s fees in civil claims. These expenses are not recoverable from the Fund, except in contested cases appealed to the Superior Court (which means administrative claims that are appealed to the Superior Court). A.R.S. § 32-1132.A.

What documentation do I need to provide to show proof of cost to repair and/or complete the project?

If work has not begun to correct or complete the project:

In either an administrative or a civil claim, you will need to provide itemized bids (at least three), from licensed residential contractors, that document how much money it will take to repair or complete the project. In the matter of an administrative claim, these bids must match the corrective work ordered to be completed in your underlying disciplinary case to be accepted as a valid basis to estimate your “actual damages.” A.R.S. §32-1132.A.

If work to repair or complete the project is in progress or has been completed:

In either an administrative or a civil claim, you will need to submit all accompanying documentation which demonstrates what money you have spent to repair / complete the project, including: a copy of the new contract(s), invoices, receipts, and proof of payment on the new contract. Only costs incurred that complete or repair the corrective work ordered in your underlying disciplinary case are compensable as “actual damages.” A.R.S. §32-1132.A.

Note: Proof of cost to complete or repair cannot be based on bids supplied by, or work performed by, an unlicensed person or business. A.R.S. §32-1132.A.

Why do I need to provide so much supporting documentation?

The Registrar has a fiduciary responsibility to administer the monies in the Fund. The Fund is audited every three years and must obtain sufficient evidence to document that the correct decision on each claim was made. This responsibility requires that the Fund have evidence to demonstrate that only those claims that are eligible and that qualify for a monetary payout within the limitations of the statutes were paid.

There is no entitlement to a payout from the Fund. As with any applicant to such a program, the burden of proof lies on the claimant to establish eligibility and what damages, if any, the applicant can receive within the statutory limitations. As such, the required documentation is the minimal evidence the Fund needs (in most cases) from a claimant to determine whether the claimant has carried that burden of proof. A failure to provide the requested documentation may result in a rejection of your claim until the requested documentation is provided (if an administrative claim) or the Registrar’s intervention (if a civil claim) in your lawsuit to obtain the information.

I have damages that I need to repair now. I cannot wait for reimbursement from the Recovery Fund. What do I do?

If you feel that you need to move forward with repairs prior to possible reimbursement from the Fund, the decision must be made by you, the homeowner. If you proceed with repairs, it will not prevent you from receiving money in your claim for recovery against the Fund. You should fully document the condition of the home with photos, etc. so that you are prepared to support your claim if a hearing is requested. You will need to submit to the Fund all accompanying documentation which supports the cost of the repairs.

In any case, the Recovery Fund cannot guarantee payment, nor can it guarantee that you will receive full reimbursement for the amounts you spend to repair or complete the project.

Why is the contractor afforded another opportunity in the Recovery Fund process to request a hearing? I already had a hearing and the Registrar ruled in my favor!

The contractor is guaranteed the right to due process under the statutes and Constitution in any legal proceeding. If a hearing took place in the underlying complaint process, it was for disciplinary purposes. Please keep in mind that the disciplinary legal process is wholly separate and apart from any proceedings necessary to resolve a Recovery Fund claim.

A Recovery Fund hearing would address different issues than were addressed in your disciplinary complaint case, such as eligibility requirements or the appropriateness of the proposed monetary award. In the Recovery Fund process, a hearing may be requested by the contractor, homeowner or the Registrar of Contractors.

What do I do if the contractor files for bankruptcy?

As a general proposition, a contractor’s bankruptcy filing cannot divest the Registrar from authorizing a payout to an eligible homeowner. There can always be exceptions, however, so you may want to consult a bankruptcy attorney for guidance as to what effect, if any, this may have on the processing of your claim.

How much will I be paid from the Recovery Fund?

The Recovery Fund does not guarantee payment to anyone. If you are found to be eligible for a payment from the Fund, you can recover a maximum of $30,000.00 per residence. An award shall not exceed an amount necessary to complete or repair the project. The maximum payout per residential contractor’s license is $200,000.00. Once $200,000.00 in claims has been dispersed, no further payments from the Fund against that contractor’s license shall be allowed. A.R.S. §§ 32-1132.A and 32-1139.A

After an award is made from the Recovery Fund, does the Fund select/hire the contractor, or do I make that decision?

The Recovery Fund does not select/hire the contractor to complete the necessary repairs. The check is issued to you, the homeowner. You contract directly with the contractor and are responsible for paying the contractor.

How would I collect from a Contractor's License Bond?

When a contractor becomes licensed by the State of Arizona, the licensee must post a license bond ranging from $4,250 to $100,000. This money may be posted in the form of cash, a certificate of deposit or a surety bond. The first thing to do is to find out the type of bond held by the contractor and to make sure it has not already been exhausted.

If the contractor has posted a surety bond, the surety company has the right to pay a written claim prior to court action, but some will require you to get a judgment against the contractor and the surety company. To collect from a surety bond you must file a written claim with the surety company. If the surety company will not pay the claim, you will have to bring a lawsuit against both the contractor and the surety company. You may need to seek legal counsel for assistance in filing a lawsuit. The Registrar of Contractors does not participate in the preparation of your civil action to collect from a surety bond. We recommend that you review the statutes governing bonds and the recovery fund beginning with A.R.S. §32-1131. Copies of the ROC statutes are available at any of our offices or on this website.

If the contractor has posted a cash bond or a certificate of deposit, only the contractor has to be sued. You must send written notice to the Registrar of Contractors of any lawsuit you may file to collect from a contractor's cash bond or certificate of deposit. This will prevent the bond from being refunded to the contractor pending resolution of the claim. Civil judgments must specify that claim can be paid from the cash bond or certificate of deposit assigned to the Registrar of Contractors. If multiple judgments are received, cash bonds are disbursed in the order the judgements are received. It is possible that a contractor's bond could be depleted before you make recovery. It is always advisable to act promptly if a problem occurs.

Lawsuits against license bonds must be started within two years after the commission of the act on which the claim is based. If payment is made from a license bond, the contractor's license is automatically suspended by the operation of law until the full bond amount is replaced.

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