Dozens of Victorians left in the lurch by the collapse of South Melbourne builder Montego Homes will be bailed out by the state government.
Montego Homes went into voluntary administration on January 15, citing the impact of rising building costs.
The Victorian Building Authority later revealed the company failed to take out domestic building insurance across 64 sites despite receiving almost $900,000 in deposits.
Chantelle Gizycki, who paid the company a $15,000 deposit to build a house at Mount Duneed near Geelong, was among those customers left without insurance.
On Wednesday, the Victorian government announced Ms Gizycki and other Montego Homes victims would be eligible for compensation under its scheme set up following the collapse of Porter Davis.
About 1700 homes across Victoria and Queensland were left in limbo when Porter Davis went bust in March 2023.
The expanded scheme will now cover customers of builders that entered into liquidation from July 1 to February 20.
They will be entitled to get their deposits of up to five per cent back, capped at $50,000.
"We're stopping it at February 20 because we don't want to create an incentive for other builders to not take out an insurance policy," Assistant Treasurer Danny Pearson told reporters at parliament.
An emotional Ms Gizycki said the decision had lifted a weight off her shoulders.
"Now that I've got my deposit back I hope to follow through with my dream of building a home," she said.
Another victim, Jess, said she spent the morning oscillating between doing happy dances and bawling her eyes out.
"I didn't do anything wrong," she said.
"I spent eight years saving for my home as a single mum and to have that taken away, I can't even explain - it's not devastating, it's crushing."
Opposition home ownership spokesman Evan Mulholland said the government had to be dragged "kicking and screaming" to expand the scheme beyond Porter Davis victims.
"The scheme shouldn't cease until Victorians can have confidence that DBI compliance will be rigorously enforced," he said.
Under Victorian offences enacted in February, builders who fail to take out domestic building insurance face a fine of up to $96,000 for individuals and $480,000 for companies.
Previously, businesses could be fined for not carrying out, managing or arranging domestic building work for contracts worth $16,000 or more without the required insurance.
But that did not cover firms that received payment and then subsequently failed to take out insurance before collapsing.
The Victorian Building Authority has suspended the registration of Montego Homes' nominated director Todd Searle, pending a show cause process.
