In 1978, the Legislature adopted The New Home Warranty and Builders’ Registration Act, N.J.S.A. 46:3B-1 to -20 (Act). Participating homeowners are permitted to make claims to the Program for defects caused by (1) Afaulty workmanship and defective materials due to noncompliance with the building standards,” (2) faulty installation of plumbing, electrical, [and] heating and cooling delivery systems or major construction defects.” N.J.S.A. 46:3B-3b(1), (2) and (3).

The process of filing a claim is as follows: The builder must inspect and repair the defect(s) covered by the warranty within 30 days of the homeowner=s notice. If the builder does not, the homeowner may file a formal Notice of Claim and Demand with the New Home Warranty Program. The New Home Warranty Program is then responsible for providing a means of claims resolution. The process begins with a mediation by an independent third party in an attempt to resolve the issues amicably. If there is no agreement reached, or if any part of the dispute remains unresolved after the mediation, the process may then proceed into an arbitration meeting. As a result of the meeting, the arbitrator will render judgment within a few weeks. This award is legally binding on both parties. The arbitrator cannot award money damages, but can only determine whether or not a defect exists, whether the builder will repair or replace the defect, and the time in which the repair work is to be completed. The arbitration award, however, is not appealable through the program.

If the parties do not agree with the arbitration, the Bureau of Homeowner Protection, New Home Warranty Program will appoint a staff member to conduct a hearing to review the defects in the home and render a written decision. The decision is binding on all parties, but can be appealed to the Office of Administrative Law within 15 days of the decision. If a builder refuses to repair or replace defects as directed in the written arbitration award or the Bureau decision, the State Plan then assumes financial responsibility for correction of the defects in the home. The program will then take administrative action against the builder, such as revocation or suspension of the builder=s registration.

While the intent of this program is to protect new homeowners, the program has several significant flaws.

First, during the first year of a new home=s warranty, warranty coverage extends to defective systems, workmanship, materials, plumbing, electrical and mechanical systems, appliances, fixtures, and equipment, and major structural defects. During the first two years, the mechanical, electrical, and plumbing systems and major structural defects are covered. During the third through tenth years of coverage, only major structural defects are covered. Therefore, any serious problem that is not deemed Astructural@ in nature and is not discovered in the first two years of ownership, will not be covered by the Warranty. As many homeowners know, many serious latent defects take several years to reveal themselves. Those homeowners find themselves shut out of the Program.

Second, the only remedy that can be provided by the Warranty Program is forcing the builder to return to the home to make repairs. This remedy may not always be satisfactory to the homeowner and may involve repair rather than replacement of the defective item. This is also unappealing to many homeowners because the same person who could not, or would not, do the job properly the first time is forced to return to the home to do additional work.

Third, after filing a claim, an arbitrator will make a decision on any claim made against the builder, as well as the remedy. The decision of the arbitrator is final and in many cases may not be appealed to the courts. Therefore, if the homeowner is not satisfied with the decision or the remedy after completing the arbitration process, they may be forced to pay for the costly repairs themselves.

Homeowners need to consider the limitations in the Warranty Program and understand what their rights and remedies are before filing a claim. Therefore, the Program may not be the right option for a homeowner who wants to have their most valuable investment repaired properly.