This blog is the first in a series of blogs discussing the New Jersey Home Warranty and Builders’ Registration Act. This blog will provide an overview of the homeowner warranty program. Be sure to check back for more installments in this blog series.

Since its inception, the New Jersey Home Warranty and Builders’ Registration Act (the “Act”), N.J.S.A. 46:3B-1 to -20, has proven to be more of trap for new homeowners than the safety net it was purported to be. The purpose of the Act is to establish a program requiring that newly constructed homes conform to certain construction and quality standards as well as to provide buyers of new homes with insurance-backed warranty protection in the event such standards are not met. While the intent of the Act is to provide homeowners with a prompt, convenient and cost-saving means of resolving disputes concerning construction defects, in reality, its effect has been, in many cases, to strip homeowners of any meaningful means of recovery for discovered construction defects.

Pursuant to the Act, all builders must be registered with the New Jersey Department of Consumer Affairs in order to engage in the business of constructing and selling new homes. Any builder who fails to register is subject to, inter alia, a statutory penalty of $2,000 for each offense. The Act requires that builders provide owners with a new home warranty by either participating in the New Home Warranty Security Fund or an acceptable alternative program. The builders are then required to provide new home owners with a warranty that affords coverage and protection against defects, falling within three time-sensitive categories:

(1) During the first year after the warranty date, (the first occupation or settlement date, whichever is sooner )warranty coverage extends to defects caused by faulty workmanship and defective materials (this includes plumbing, electrical and mechanical systems, appliances, fixtures and equipment, and major structural defects);

(2) During the first two years after the warranty date, warranty coverage extends to defects caused by faulty installation of plumbing, electrical, heating and cooling delivery systems, however, with respect to appliances, this warranty does not exceed the length and scope of the warranty offered by the manufacturer; and

3) During the first ten years after the warranty date, warranty coverage extends to only major construction defects (any 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 the use of the home for residential purposes).

Simply stated, the warranty covers all ordinary defects in the first year, then faulty installation of systems (plumbing, electrical, heating and cooling) in the second year, and then dwindles down to providing coverage for only major defects in the third through tenth years. Due to the stringent definition of “major construction defects”, the warranty affords no coverage unless the house is practically collapsing and/or is uninhabitable. Common issues such as leaks, cracks, mold, excessive settling, and system malfunctions are not covered. Invariably, the warranties will also contain numerous exclusions that chip away at the actual attainable coverage, such as, but not limited to:

• failure of the home owner to give notice to the builder or its warranty insurer of any defects;
• improper maintenance by the home owner;
• changes of the grading of the ground around the new home by the new home owner or anyone other than the builder;
• failure on the part of the new home owner to take timely action in emergent case to minimize any loss or damage;
• any defect in, or caused by, materials or work supplied by the new home owner or anyone other than the builder;
• normal wear and tear or normal deterioration in accordance with normal industry standards;
• accidental loss or damage from acts of nature (e.g., fire, explosion, radon gas, smoke, water escape, changes which were not reasonably foreseeable in the level of the underground water table, glass breakage, windstorm, hail, lightning, fallen trees, aircraft, vehicles, flood, earthquake, or insect damage);
• any loss or damage which arises while the home is being used primarily for non-residential purposes;
• changes, alterations or additions made to the home by the new home owner or anyone other than the builder after initial occupancy, except for those performed by the builder in accordance with its obligations under the warranty;
• any materials and/or workmanship furnished and installed that does not comply with the specifications in the purchase-sale agreement or contract with the builder which is not defective;
• consequential damages to personal property.

Thus, the homeowner warranties provided by the builder generally contain a labyrinth of exclusions and qualifications that invariably set the stage for disputes and disagreements over what is or is not covered.