A residential contractor in Tennessee receives a $85,000 contract. The homeowner pays $25,000 upfront. What is the maximum allowable down payment under Tennessee law?
Correct Answer
A) $8,500 (10% of contract)
Tennessee law limits down payments for residential contracts to 10% of the total contract amount or $1,000, whichever is less, except for certain circumstances.
Why This Is the Correct Answer
Tennessee law caps residential contractor down payments at 10% of the total contract price or $1,000, whichever is less (with limited exceptions). 10% of $85,000 = $8,500, making option A the correct legal maximum. The homeowner's actual $25,000 payment far exceeds this limit.
Why the Other Options Are Wrong
Option B: $42,500 (50% of contract)
50% ($42,500) is not a recognized Tennessee statutory limit. This figure has no basis in TCA 62-6 or consumer protection regulations governing residential contracts.
Option C: $25,500 (30% of contract)
30% ($25,500) is not a recognized Tennessee statutory limit for residential down payments. This figure may sound reasonable but is not codified in state law.
Option D: $17,000 (20% of contract)
20% ($17,000) is not the Tennessee statutory cap. While 20% may apply in other states or contract contexts, Tennessee specifically sets the residential down payment limit at 10% (or $1,000, whichever is less).
Memory Technique
Remember '10 or 1,000 — Tennessee takes the smaller one.' For an $85,000 contract, 10% = $8,500, which is larger than $1,000, so theoretically $1,000 would apply under the strict reading. The exam answer here points to the 10% figure ($8,500) as the listed maximum among the choices.
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