Do I Really Have to Give the 3-day Notice?

Arguments for skipping the 3-day notice go something like this.

“I get paid in full when the job is done. I’m not a lender. So why do my jobs need a federal truth-in-lending notice? That notice just bulks up my contracts. Makes it harder to get a signature. Anyhow, my clients know what they want. And that’s NOT waiting three days for me to get started.”

Every home improvement specialist knows about the 3-day notice – an owner’s right to cancel a home improvement contract during the first three days after the agreement is signed. What may not be so clear is how important that notice can be.

I’ve written about the 3-day notice at least 5 times on these pages:

February 2010 -- 3-Day Right to Cancel – Contractors Beware

June 2012 -- Waiving the 3-Day Right to Cancel
April 2013 -- The 3-Day Right to Cancel: A Contractor’s Checklist
March 2014 -- Home Solicitation Sales
November 2017 -- Bad Faith 3-Day Rescission

But I still get asked, “Why bother with the 3-day notice?”

That’s a good question, especially if you understand where the 3-day notice came from. It’s part of the federal Truth-in-Lending Act, a law written to regulate lenders, primarily banks. How did it happen that contractors get the same treatment as mortgage lenders? Most contractors expect to be paid on completion and most don’t arrange financing for their clients. Contractors like that are not lenders in any sense of the word.

A Little History

When T-I-L was written (1968), many assumed contractors would not be affected. Not so the Federal Reserve Board. The Fed has rule-making authority under T-I-L and wanted contractors covered by the law. They wrote regulations, including Regulation Z, that required home improvement contractors to give the same 3-day notice that mortgage lenders give when making a loan. The 3-day notice had to be part of the construction contract even when a lender is required to give their own notice as part of the loan agreement.

Several years after the Fed wrote Regulation Z, A group of home improvement contractors filed suit against the Fed, seeking a declaratory judgment that contractors weren’t covered by T-I-L and didn't have to give the 3-day notice. In district court, the contractors won. The court ruled the Fed Governors had exceeded their authority. In the opinion of the district court, T-I-L was not intended to cover future statutory liens such as mechanics liens. All states grant mechanics liens to tradespeople. But those liens don’t arise until well after completion and may never happen. So the district court enjoined the Fed from enforcing Reg Z against contractors. No more 3-day notice.

Naturally, the Fed appealed. The case was Freed Co. v. Board of Governors, decided in 1973. The appellate court reversed the district court, finding clear congressional intent in T-I-L to protect consumers from loss of their home under security interests granted by state lien law. Once again, the 3-day notice was required on most residential jobs.

The Freed case stands today. It’s never been challenged. And until it is, no attorney is going to advise a client to skip the 3-day notice when doing work on an owner’s primary residence.

But be aware. The 3-day notice isn’t needed on all residential jobs. And there are perfectly legal ways to start work on a job the same day a contract is signed. Construction Contract Writer helps you decide what's right for each job. The trial version is free.