Every contractor
knows about an owner’s 3-day right to cancel: Agree to build or improve your client’s
primary residence and the owner has three days to cancel the deal. It’s federal
law (12 C.F.R. 226.15) and applies in all states. Make a mistake on this and the
owner has three years to cancel. Here’s a checklist to keep you out of trouble.
[ ] Each owner has to receive two copies of the
3-day cancellation form – commonly called the Reg. Z notice. But simply leaving
the forms with the owners isn’t enough. You have to fill in some blanks.
[ ] Your company name and address. That’s easy.
The owner needs to know where to send the cancellation notice.
[ ] When the three days starts running. That’s not
obvious. There are three possibilities. The last to occur starts the three days:
1. The date
of the transaction.
2. The date
the owner receives the Truth in Lending Disclosures.3. The date the Reg. Z notice is delivered.
If your contract
and the Reg. Z notice are two separate forms, the three days starts running when
the Reg. Z notice is delivered, not when the contract is signed (the “date of the
transaction”). The best choice: Make the Reg. Z forms part of your contract. Deliver
both together. That way, the three days start running when the contract is signed.
If you use Craftsman’s Construction Contract Writer, this is automatic.
The second
option above doesn’t apply. There aren’t any Truth in Lending Disclosures if payment
is due when the job is done.
[ ] The last day to cancel. Write in the last day
your client can cancel the contract. Again, this date has to appear on all copies
of the Reg. Z form left with your client.
The last
day to cancel is the third business day after the contract was signed. Business
days exclude only Sundays and national holidays under federal law. So if the contract
was signed on Thursday, the last day to cancel is midnight on Monday. If either
Friday or Monday is a national holiday (banks are closed), the last day to cancel
would be the following Tuesday.
But be careful.
Cancellation is effective when the notice is mailed. The cancellation notice may
not be delivered for several days. So it's best to touch base with the owner before
scheduling any work or deliveries.
[ ] An owner doesn’t have to use the Reg. Z form.
A phone call would be enough to cancel the deal.
[ ] In a true emergency, an owner can waive the
3-day wait. The waiver has to be (1) in the handwriting of the owner, (2) be dated
and signed, (3) describe the emergency and
(4) specifically waive the right to cancel.
For example, “My roof blew off and another storm is due later this week. I give
up my right to cancel this contract.”
Click here to see a contract-drafting tool that complies perfectly with the law in your state and for the types of work you handle. The trial version is free.
Click here to see a contract-drafting tool that complies perfectly with the law in your state and for the types of work you handle. The trial version is free.