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The New Homeowner Warranty: A Mirage in the Desert (Part One)

The New Home Warranty and Builders’ Registration Act, N.J.S.A. 46:3B-1, et seq. (the “New Home Warranty”), was enacted in 1977 and became effective in 1978, but even after all these years, there is a great deal of confusion among builders and homeowners alike about how this New Home Warranty works. For example, some builders believe that once a New Home Warranty is provided to the homeowner, their responsibility ends completely, and it is now up to the State of New Jersey or an insurance company to address any repairs or defects. Not so. Similarly, many homeowners believe that in all cases, if they are given a New Home Warranty, they can seek a remedy under the warranty and/or sue the builder in court, or choose one remedy after the other if the initial remedy produces an unsatisfactory outcome. Not so. There are assumptions and misconceptions abound about home warranties, the law governing them, and the dispute resolution alternatives established by law. Some assume that the arbitration procedures provided by a warranty are like a trial in court, while others believe they can easily “appeal” any decision made by an arbitrator under the warranty process. Both assumptions are incorrect.

This post and several others to follow will discuss a lot of the myths out there involving the New Home Warranty. Sometimes these home warranties are like a mirage in the desert. They look good from afar, but when you get there, you realize it was only a fleeting image.

What is the New Home Warranty?

In New Jersey, the New Home Warranty provides homeowners with legally mandated warranty coverage for their newly constructed homes, and requires home builders to register with the State to ensure the quality of New Jersey’s homebuilding industry.

The New Home Warranty is issued under either a State-funded program or a private “warranty company.” The builder pays a type of “premium,” but this is not like the insurance may buy for your car or home.  It is more analogous to a surety bond, where a company with much larger “pockets” promises to be around to help deal with home defects if the builder disappears.  But, as I will discuss in future posts, like the prizes in the “claw” machines kids love, their promise can be elusive and hard to grab.

The “warranty” is meant to “cover” different categories of problems with the home occurring during the first, second and ten years following the warranty date, usually the date of closing or occupancy. This is why a New Home Warranty is sometimes called the 1-2-10 warranty.  Under the N.J.S.A. 46:3B-3(b), these periods and categories (under the State-funded plan) are:

1)  One year –defects caused by faulty workmanship and defective materials due to noncompliance with the building standards set by the Department of Community Affairs (DCA);

2) Two years– defects caused by faulty installation of plumbing, electrical, heating and cooling delivery systems; and

3) Ten years- major construction defects as defined in the statute (defined as “actual damage to the load bearing portion of the home including damage due to subsidence, expansion or lateral movement of the soil (excluding movement caused by flood or earthquake) which affects its load bearing function and which vitally affects or is imminently likely to vitally affect use of the home for residential purposes”).

[If that sounds complicated, it’s because this damage is hard to prove.]

Private warranty programs have similar periods and definitions.  You should make sure to check the warranty booklet or materials the builder was supposed to give you at closing to confirm the specifics for your individual warranty.

Let’s start with Myth #1: This builder isn’t touching my house again.

You are unhappy with your builder and despite your best efforts to get the builder to repair something you think falls under the New Home Warranty, you’ve given up and want the warranty company or DCA to get you someone else to fix the problem. Many homeowners think a different builder assigned by the State or the “warranty company” will repair the home once the owner files a claim under the New Home Warranty. There is also the widespread belief that either the State or the “warranty company” will fund the hiring of someone else right away to make the repairs. Not so fast.

Assuming you win the warranty arbitration to prove that the defect is “covered” under the New Home Warranty (yes, you still have to go through an arbitration), if the original builder is still active and around, that same builder—yes, the one you think messed up your house—will be ordered to fix it.  Understandably, in cases of serious problems and an uncooperative builder, the homeowner doesn’t want the same builder to touch the home again. But it is only after the builder refuses or neglects to repair (which doesn’t happen that often), or if the builder has “absconded” (filed for bankruptcy or become insolvent), that a different contractor will be brought in to make the repairs (paid by the “warranty company”).

Sorry to break the bad news to you if you’re having a bad experience with your builder and don’t want to continue dealing with him or her, but that’s the way it works. And this is only the tip of the iceberg…. my future blogs will discuss other pitfalls of the New Home Warranty process.

If you have any questions about this post or any related matters, please feel free to contact our Construction Law Practice Group.