In a recent New Jersey case, a New Jersey Superior Court Judge offered the following opinion on the Home Owner warranty at issue in that case:
“And as I have indicated during the course of oral argument, the homeowner warranty is required by law, but as I used to do when I was practicing, I used to tell my clients in the strongest terms possible, that this is a useless piece of paper. And I truly believe that. Having gone through the process in private practice, with the few clients that wouldn’t listen to me, and did go through with this homeowner warranty and arbitration, it is an utter waste of time if you are a homeowner. The only remedy you actually get is if your house literally falls down on your head, then you will get compensation in satisfaction. Other than that it is just a feel good thing that when people walk away from a closing table, they think they have some kind of a security blanket. They don’t. In this particular situation … some of these people encounter problems with these houses in the first six months, – you know it is not unlike many of the tract houses that are built in New Jersey. Some of these things are put together with a staple gun. You know, that is how they put these together. [….] I am well aware of the RWC program, the homeowner warranty program, and the election of remedies. It is set up with the specific goal in mind that there is declining coverage for the benefit of the homeowner, it declines. This is a program, even though it is distinguished by the Legislature, as a homeowner warranty, it is basically a safety net for the builder, as opposed to the homeowner.”
Cesard v. D.R. Horton, Docket No. MON-L-3147, Monmouth County, Law Division, Civil Part, Transcript of Decision December 1, 2006.
In New Jersey, under the “New Home Warranty and Builder’s Registration Act“, N.J.S. 46:3B-1, et. seq. home builders are required to provide a warranty for their customers.
The warranty must cover ordinary defects in a new home for two years from the original purchase date, and then offer coverage against “major structural defects” in years 3-10. You can see the particulars at N.J.S. 46:3B-3b.
Builders may choose to provide a private warranty, from companies like Residential Warranty Corporation (“RWC”), or 2/10 Warranty. The builder may, if he chooses, also rely upon a state-run Homeowner Warranty program administered by the New Jersey Department of Community Affairs. This program is funded by mandatory payments from home builders, and just like the private warranty programs, purports to offer protection from most construction defects for the first two years and against Major Structural Defects therafter. The law was passed to protect new homeowners and to afford them recourse against builders in the event that a problem arose with the home. Unfortunately, it does no such thing.
The first problem with these warranties is that, in years 3-10, they only cover “major structural defects.” The statute defines this as “actual damage to any load bearing portion of the home.” N.J.A.C. 5:25-1.3 This means, practically speaking, that the house has to collapse, or be in imminent danger of collapse, before the warranty is even applicable. Normal problems like leaks, cracking, excessive settling, malfunctioning plumbing, mechanical or electrical systems, are not covered beyond 2 years. It does not matter if your home has cracks in the foundation, slab, walls, or structural elements. Generally if nothing has failed, you will likely not be covered. The private companies interpret “Major Structural Damage” as strictly as possible, and generally do not find any warranty coverage for even severe problems. The other issue to be aware of, especially with the private warranty companies, is that they hire local inspectors to observe the home and report back to the company. The inspectors often do a very cursory job, and are only charged with visual inspections. They will not remove siding, open walls, or move dirt back from foundations. As you can imagine, it is difficult to find evidence of damage to the structural elements of a house if you are not willing to move dirt or open walls. So naturally, these inspections frequently result in a finding of “no coverage”.
Of course, most homeowners do not have severe problems with the foundation or framing of their houses. They have leaks which they don’t notice for several years, or they have increased maintenance costs because of shoddy workmanship. Since these types of defects are generally the sorts of things a builder will fix in the first two years anyways, the HOW program offers no real benefit to most homeowners.
Secondly, and most importantly, the New Home Warranty and Builder’s Registration Act contains, at 46:3B-9, the “poison pill” of the statute.
Availability of any legal remedy to owner; election of remedy
Nothing contained herein shall affect other rights and remedies available to the owner. The owner shall have the opportunity to pursue any remedy legally available to the owner. However, initiation of procedures to enforce a remedy shall constitute an election which shall bar the owner from all other remedies. Nothing contained herein shall be deemed to limit the owner’s right of appeal as applicable to the remedy elected.
Read the bolded language. Yes, if you file a claim under the HOW program, or any private warranty program, you may be forever barred from pursing your claims in another forum, which means you cannot sue the builder in court. There are several reported decisions in which homeowners tried to get their homes fixed under the HOW program, and the builder either failed to follow up, or did an equally shoddy job repairing the home, and those homeowners were prevented from chasing the builder and/or his subcontractors in court because they had chosen initially to pursue the HOW claim.
In the case cited at the top of this article, Cesard, homeowners submitted a claim to RWC, which then inspected their homes and determined that the warranty did not apply to their claims – they had no warranty coverage. These same homeowners were thrown out of court because they had “initiated a procedure to enforce a remedy.” It apparently didn’t matter to the Court that the homeowners really had no remedy (i.e., their warranty claims had been denied by RWC. The language in 46:3B-9, as argued by the builder’s attorney, and as interpreted by the Judge, meant that these homeowners, with substantial problems with the construction of their homes, were out of options. Their warranty coverage was inapplicable, and since they had gone through the trouble of finding that out by dealing with the warranty company, they had precluded themselves from pursuing their claims in court as well. This is surely not what the Legislature intended when it enacted a bill to protect homeowners.
Now you understand why the Judge feels the way he does about the HOW program. It is useless and deceiving. If you believe it will offer you some help, you are likely to be disappointed by the result. If you pursue a claim – perhaps even if you inquire about a claim – you may prevent yourself from ever suing your builder. Defense attorneys believe that this “election of remedies” means that our justice system is like a game show. You get one choice in the beginning, and if you choose what’s behind Door No. 2, you might not get the justice you are entitled to. You might get a box of rocks or a trash bag full of hair. Your builder gets off scott-free with your money, and you get stuck with a brand-new house that also happens to be a fixer-upper. Be warned.