The 3-Day Right to Cancel: A Contractor’s Checklist

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.

 

Truth-in-Lending for Contractors

Most contractors don’t get into the money-lending business – at least not on purpose. Contractors want to be paid in full when the work is done. But at least occasionally, you’re going to bump into the Federal Truth-in-Lending (T-I-L) Act.  Here’s how it happens:

You’re bidding a job for a homeowner and:

• Offer to take an IOU for part of the job, OR
• Agree to stretch out payments after work is done, OR
• Recommend a lender.

On purpose or by accident, that puts your bid under the T-I-L Act. Fail to make the required disclosures and you’re liable for both the overcharges and your client’s attorney fees. That’s not what any contractor wants.

Offering credit is powerful stuff. It can help close any deal. Everyone knows that. And it’s just as true for construction work as it is for any major purchase. Banks, finance companies and car dealers are good at T-I-L compliance. That’s their business. You’ve seen the pages of fine print. If you want to offer credit as part of your proposal, here’s what T-I-L requires:

• The name of the creditor.
• The cash price if paid on completion.
• The down payment and all other payments prior to completion.
• Any other charges, fees, credits or deductions.
• The interest rate on the amount financed.
• The amount financed.
• The finance charge in dollars.
• The annual percentage rate (APR) used to figure the finance charge.
• The number of payments.
• The amount of each payment.
• The due date for each payment.
• The total of all payments.
• The total sale price including the finance charge.
• The charge for late payments.
• The pre-computed finance charge, if any.
• Whether there is a prepayment penalty.
• Whether the loan is assumable.
• What secures the loan.
• When the finance charge begins to accrue.

Note that these disclosures have to be in the construction contract any time you recommend a lender – even if T-I-L disclosures are also in the note prepared by the lender.

Most contractors aren’t eager to deal with this level of detail. You’re well advised to get help the first time you venture into T-I-L territory. One good source: Construction Contract Writer does all the work for you – figuring the APR and making all required disclosures right in the construction contract. The trial version is free.