SENATE FILE 497

BY  COMMITTEE ON STATE GOVERNMENT

(SUCCESSOR TO SF 26)

A BILL FOR

An Act relating to residential property by establishing a home inspector registration program, establishing surety bond requirements for certain contractors, providing penalties, and including effective date provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I

HOME IMPROVEMENT

CONTRACTOR BONDING
   Section 1.  Section 91C.2, Code 2011, is amended by adding the following new subsection:
   NEW SUBSECTION.  4.  The contractor shall be in compliance with section 91C.6A, if applicable.
   Sec. 2.  Section 91C.6, Code 2011, is amended to read as follows:
   91C.6  Rules.
   The labor commissioner shall adopt rules, pursuant to chapter 17A, determined to be reasonably necessary for phasing in, administering, and enforcing the system of contractor registration and bonding established by this chapter.
   Sec. 3.  NEW SECTION.  91C.6A  Home improvement contractor performance bond —— penalty.
   1.  For purposes of this section, unless the context otherwise requires:
   a.  “Division” means the division of labor services of the department of workforce development.
   b.  “Home improvement contract” means any contract for the performance of improvements or repairs of existing residential property, including appurtenances to the property, or that is related to the use of the residential property, including but not limited to garages, driveways, swimming pools, sidewalks, patios, and fences.
   2.  A contractor, prior to entering into a home improvement contract in this state, shall file a surety bond with the division. The bond shall be in the amount of fifty thousand dollars and shall be for the benefit of any person who, in connection with a home improvement contract with the contractor, sustains damages as the result of the contractor’s breach of the home improvement contract or by the contractor’s violation of chapter 714H. A person sustaining such damages may file a claim against the bond without assignment, and may recover from bond proceeds actual damages, court costs, and to such person’s attorney, reasonable attorney fees.
   3.  The surety bond shall be executed by a surety company authorized to do business in this state, and the bond shall be continuous in nature until canceled by the surety with not less than thirty days’ written notice to the contractor and to the division of the surety’s decision to cancel the bond. The surety’s obligation under the bond shall continue until the surety has fully satisfied the notice requirements of this section.
   4.  A person filing a claim against a bond under this section shall notify the division at the time the claim is filed. The division shall maintain a record, available for public inspection and copying of all such claims filed. The requirement to notify the division is not a precondition of filing a claim, and failure to notify the division shall not affect the validity of a claim. However, notification must be provided to the division prior to payout of any bond proceeds under this section.
   5.  The attorney general may bring an action in equity to recover bond proceeds on behalf of persons who have incurred damages as the result of a contractor’s breach of a home improvement contract or for violations of section 714.16 in connection with a home improvement contract.
   6.  Priority of payment of bond proceeds filed pursuant to this section shall be based upon the time of filing a notice of a claim with the division, except that any action by the attorney general to recover bond proceeds shall be superior to all other claims on the bond regardless of the time of filing.
   7.  The failure of a contractor to have a valid surety bond on file with the division at any time a home improvement contract is in effect shall make the contract and any note, instrument, or other evidence of indebtedness executed or entered into in connection with the contract voidable, and the failure to have such a bond shall constitute a complete defense in any action based on the contract, note, instrument, or other evidence of indebtedness brought by the contractor or the contractor’s successors or assigns.
   8.  A contractor who violates this section is guilty of a simple misdemeanor.
   Sec. 4.  NEW SECTION.  91C.10  Unlawful practice.
   A violation of this chapter is an unlawful practice pursuant to section 714.16.
   Sec. 5.  EFFECTIVE DATE.  This division of this Act takes effect January 1, 2012.

DIVISION II

HOME INSPECTOR REGISTRATION
   Sec. 6.  NEW SECTION.  104.1  Title.
   This chapter may be known and cited as the “Iowa Home Inspector Registration and Bonding Act”.
   Sec. 7.  NEW SECTION.  104.2  Definitions.
   As used in this chapter, unless the context otherwise requires:
   1.  “Registrant” means a person who registers under this chapter.
   2.  “Department” means the Iowa department of public safety.
   3.  “Governmental subdivision” means any city, county, or combination thereof.
   4.  “Home inspection” means the examination and evaluation of the exterior and interior components of residential real property, which includes the inspection of any two or more of the following components of residential real property in connection with or to facilitate the sale, lease, or other conveyance of, or the proposed sale, lease, or other conveyance of, residential real property:
   a.  Heating, ventilation, or air conditioning system.
   b.  Plumbing system.
   c.  Electrical system.
   d.  Structural composition.
   e.  Foundation.
   f.  Roof.
   g.  Masonry structure.
   h.  Any other residential real property component established by rule under this chapter.
   5.  “Home inspector” means a person who, for compensation either direct or indirect, performs home inspections.
   6.  “Residential real property” means real property that is an owner-occupied single-family or two-family dwelling located in this state and occupied or used or intended to be occupied or used for residential purposes, including an interest in any real property covered under chapter 499B.
   Sec. 8.  NEW SECTION.  104.3  Rules.
   The department shall adopt rules necessary to implement this chapter.
   Sec. 9.  NEW SECTION.  104.4  Fees.
   1.  A registrant under this chapter shall pay an annual registration fee of fifty dollars to the department.
   2.  All fees collected under this chapter shall be considered repayment receipts as defined in section 8.2 and shall be retained by the department and shall be used for any of the department’s duties under this chapter. Moneys retained by the department pursuant to this section are not subject to transfer or reversion to the general fund of the state.
   Sec. 10.  NEW SECTION.  104.5  Registration required —— exception.
   1.  A person shall not perform a home inspection without being registered under this chapter. 
   2.  Following an initial registration, each registrant shall file an annual registration renewal with the department.
   3.  A person shall not engage in the business of home inspections unless at all times a registered home inspector is employed by the person and is actively in charge of performing the home inspections. An individual who performs home inspections pursuant to a business operated as a sole proprietorship shall be a registered home inspector.
   4.  The registration requirements of this chapter shall not apply to any of the following:
   a.  An employee of any unit of state or local government, including but not limited to cities, counties, or school corporations, performing home inspections while acting within the scope of the government employee’s employment.
   b.  An employee or an agent of an insurer organized or operating under chapter 515, 518, or 518A, while acting within the scope of the employee’s or agent’s employment or agency.
   c.  Real estate brokers or salespersons as defined in chapter 543B.
   d.  Professional engineers licensed under chapter 542B.
   e.  Architects registered pursuant to chapter 544A.
   f.  Certified real estate appraisers under chapter 543D.
   g.  An employee or agent of a financial institution, as defined in section 527.2, subsection 9, while acting within the scope of the employee’s or agent’s employment or agency.
   Sec. 11.  NEW SECTION.  104.6  Change of residence. 
   If a person registered to perform home inspections under this chapter changes the person’s residence or place of practice, the person shall so notify the department.
   Sec. 12.  NEW SECTION.  104.7  Local licensing or registration requirements.
   1.  The provisions of this chapter regarding the registration of home inspectors shall not be construed to supersede or preempt home inspector licensing or registration provisions of a governmental subdivision. 
   2.  Nothing in this chapter shall prohibit a governmental subdivision from assessing and collecting inspection fees related to inspections performed by a registered home inspector.
   Sec. 13.  NEW SECTION.  104.8  Insurance and surety bond requirements.
   1.  A person who registers or renews a registration pursuant to this chapter shall, prior to approval of the registration or renewal by the department, provide evidence of a public liability insurance policy and surety bond in an amount of not less than fifteen thousand dollars.
   2.  If the registrant performs home inspections individually through a business conducted as a sole proprietorship, the registrant shall personally obtain the insurance and surety bond required by this section. If the registrant is engaged in the home inspection business as an employee or owner of a legal entity, the insurance and surety bond required by this section shall be obtained by the entity and shall cover all home inspections performed by the entity. 
   3.  The insurance and surety bond shall be written by an entity licensed to do business in this state and each registered home inspector shall maintain on file with the department a certificate evidencing that the insurance or surety bond shall not be canceled without the entity first giving fifteen days’ written notice to the department.
   Sec. 14.  NEW SECTION.  104.9  Deceptive representations of registration —— violations.
   1.  Only a person who is duly registered pursuant to this chapter may represent in connection with the sale of home inspection services the fact that the person is registered as a home inspector in the state of Iowa.
   2.  A violation of this chapter or a rule adopted pursuant to this chapter is an unlawful practice pursuant to section 714.16. The provisions of section 714.16, including but not limited to provisions relating to investigation, injunctive relief, and penalties, shall apply to this chapter.
   Sec. 15.  Section 558A.4, subsection 2, Code 2011, is amended to read as follows:
   2.  The disclosure statement may include a report or written opinion prepared by a home inspector registered under chapter 104 or a person qualified to make judgment based on education or experience, as provided by rules adopted by the commission, including but not limited to a land surveyor licensed pursuant to chapter 542B, a geologist, a structural pest control operator licensed pursuant to section 206.6, or a building contractor. The report or opinion on a matter within the scope of the home inspector’s or person’s practice, profession, or expertise shall satisfy the requirements of this section or rules adopted by the commission regarding that matter required to be disclosed. If the report or opinion is in response to a request made for purposes of satisfying the disclosure statement, the report or opinion shall indicate which part of the disclosure statement the report or opinion satisfies.
   Sec. 16.  Section 558A.6, subsection 2, Code 2011, is amended to read as follows:
   2.  The home inspector or person submitting a report or opinion within the scope of the home inspector’s or person’s practice, profession, or expertise, as provided in section 558A.4, for purposes of satisfying the disclosure statement, shall not be liable under this chapter for any matter other than a matter within the home inspector’s or person’s practice, profession, or expertise, and which is required by the disclosure statement, unless the home inspector or person failed to use care ordinary in the home inspector’s or person’s profession, practice, or area of expertise in preparing the information.
   Sec. 17.  EFFECTIVE DATE.  This division of this Act takes effect January 1, 2012.
EXPLANATION
   This bill relates to residential property by establishing a home inspector registration program and establishing surety bond requirements for certain contractors.
   Division I of the bill requires contractors, prior to entering into a home improvement contract, as defined in the bill, to file a surety bond with the division of labor services of the department of workforce development. The bond is required to be in the amount of $50,000 and is for the benefit of any person who, in connection with a home improvement contract with the contractor, sustains damages as the result of the contractor’s breach of the home improvement contract or by the contractor’s violation of Code chapter 714H (private right of action for consumer frauds Act). The bill provides that the surety bond requirement is a condition of registration with the labor commissioner for contractors doing business in the state.
   The bill specifies additional requirements relating to the execution and cancellation of the bond, the claim and notice procedures for seeking recovery of damages against the bond, and the priority of payment of bond proceeds. The bill also specifies that the attorney general may bring an action in equity to recover bond proceeds on behalf of persons who have incurred damages as the result of a contractor’s breach of a home improvement contract or for violations of Code section 714.16 (consumer frauds) in connection with a home improvement contract.
   The bill provides that the failure of a contractor to have a valid surety bond on file with the division of labor services at any time a home improvement contract is in effect shall make the contract and any note, instrument, or other evidence of indebtedness executed or entered into in connection with the contract voidable, and the failure to have such a bond constitutes a complete defense in any action based on the contract, note, instrument, or other evidence of indebtedness brought by the contractor or the contractor’s successors or assigns.
   The bill provides that a contractor who violates new Code section 91C.6A is guilty of a simple misdemeanor. A simple misdemeanor is punishable by confinement for no more than 30 days or a fine of at least $65 but not more than $625 or by both. The bill also provides that a violation of Code chapter 91C is an unlawful practice pursuant to Code section 714.16 (consumer frauds).
   Division I of the bill takes effect January 1, 2012.
   Division II of the bill establishes the Iowa home inspector registration and bonding Act in new Code chapter 104.
   The bill prohibits a person from performing a home inspection without being registered. Following an initial registration, each registrant is required to file an annual registration renewal with the department of public safety.
   The bill specifies that a person shall not engage in the business of home inspections unless at all times a registered home inspector is employed by the person and is actively in charge of performing the home inspections. An individual who performs home inspections for a business operated as a sole proprietorship shall be a registered home inspector.
   The bill requires each registrant to pay an annual registration fee of $50 to the department of public safety. All fees collected by the department shall be used for the department’s duties under new Code chapter 104, and such moneys are not subject to transfer or reversion to the general fund of the state.
   The registration requirements of new Code chapter 104 do not apply to an employee of a unit of state or local government performing home inspections while acting within the scope of the government employee’s employment, an employee or an agent of an insurer organized or operating under Code chapter 515, 518, or 518A, while acting within the scope of the employee’s or agent’s employment or agency, real estate brokers or salespersons as defined in Code chapter 543B, professional engineers licensed under Code chapter 542B, architects registered pursuant to Code chapter 544A, certified real estate appraisers under Code chapter 543D, or an employee or agent of a financial institution, as defined in Code section 527.2(9), while acting within the scope of the employee’s or agent’s employment or agency.
   The bill specifies that the provisions of Code chapter 104 shall not be construed to supersede or preempt home inspector licensing or registration provisions of a governmental subdivision and nothing in new Code chapter 104 prohibits a governmental subdivision from assessing and collecting inspection fees related to inspections performed by a registered home inspector.
   The bill establishes certain surety bond requirements for home inspectors required to register under the bill. The bill provides that only a person who is duly registered pursuant to new Code chapter 104 may represent in connection with the sale of home inspection services the fact that the person is registered as a home inspector in the state of Iowa.
   The bill provides that a violation of new Code chapter 104 or of a rule adopted pursuant to the Code chapter is an unlawful practice pursuant to Code section 714.16 (consumer frauds) and the provisions of Code section 714.16, including but not limited to provisions relating to investigation, injunctive relief, and penalties, apply to new Code chapter 104.
   Division II of the bill takes effect January 1, 2012.