by Gene Markin Esg.

I. ABOUT THE HOMEOWNER WARRANTY PROGRAM

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.

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 homeowners with a warranty that affords coverage and protection against defects, falling within three time-sensitive categories. 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.

II. REMEDY PRECLUSION

The Act contains what can only be described as a death knell for homeowners who choose to proceed through the warranty program. Section 46:3B-9, known as the "election of remedies" provision states, in relevant part, that the "initiation of procedures to enforce a remedy shall constitute an election which shall bar the owner from all other remedies."

The significance of this provision cannot be underemphasized. Should a homeowner decide to pursue a claim for defects under the warranty, he or she is thereafter statutorily barred and precluded from bringing a lawsuit against the builder. This means that the homeowner must pick at the outset whether to proceed under the Act, i.e. mediation and arbitration, or pursue a legal remedy through the court system. It is either or and never both.

III. IMPORTANT CONSIDERATIONS FOR NEW HOME BUYERS

Considering the stringent ramifications of proceeding under the warranty program, the take-away is BUYER BEWARE. While the Act is in place to protect buyers of newly built homes, in practice, it actually greatly limits a buyer’s potential for recovery for damages arising out of construction defects. The real world application of the Act serves to exacerbate the divide between homeowners and builders when there is a dispute over defects. The remedy it offers –– mediation and arbitration –– is no remedy at all because once invoked it becomes the sole and exclusive remedy available to the homeowner. The homeowner has lost the option to bring a lawsuit and the best result that can be achieved through the warranty program is a determination that the defects claimed are covered under the warranty. However, in such a case, the builder, who supposedly created the defects, is then required to come back and make the appropriate fixes. Thus, a successful outcome through the warranty program does not appear to be as attractive as a successful lawsuit where the homeowner is awarded money damages.

Gene Markin is an Associate in the Construction Litigation Group of Stark & Stark, 993 Lenox Drive, Lawrenceville, NJ 08648. www.stark-stark.com.

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