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New
Home Warranty Program
Informational Guide for Builders to the New Home Warranty
and Builders’
Registration Act (NJSA
46:3B-1 et seq)
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The
New Home Warranty and Builders’ Registration Act (NJSA 46:3B-1et
seq) was enacted in 1977 to provide a broad scope for the warranty
of a new home and standards for construction and quality of the
structural elements and components of a new home. Basically, the
law requires a builder to register with the State of New Jersey
before starting construction of any new home and before offering
a warranty on any new home bought and sold in the State. The law
and regulations provide limited ten-year warranty coverage against
defects of materials, workmanship, and systems in a new home. The
law requires a builder to warrant each new home and to provide warranty
follow up services: the builder is the warrantor of the home.
In the event the builder does not make repairs on claims for which
the builder has been found responsible, then the State New Home
Warranty Security Fund covers the cost of these repairs. The law
and regulations also provide a process through which the builder
and the homeowner can resolve disputes over corrections of such
defects. If a builder is found negligent and/or does not participate
in this dispute settlement process, the builder’s registration
can be suspended or revoked, thus preventing the builder from building
new homes in New Jersey.
Who
Must Register
All
builders of owner-occupied new homes, including single family, townhouse,
duplex (two-family), cooperative, condominium, factory-built, and
modular residences are required to register with the New Home Warranty
Program. A builder is any individual or organization in the business
of constructing new homes, including anyone who constructs a new
home for sale, acts as prime contractor to construct a new home
for himself/herself or for another person, contracts with a general
contractor for construction of a new home, or sells or transfers
title to land and then participates in the construction of a new
home. It does not include a person who constructs a new home for
his/her own personal use, a licensed architect, engineer, or attorney,
or someone who contracts with a licensed architect, engineer, or
attorney to provide professional services related to the construction
of a new home.
Each new home building business is required to register separately.
The name of the company which is transferring title to the new home
is the entity which must register and warrant the new home.
Registration
Process
All
builders must submit a registration application, along with a nonrefundable
registration fee of $200, to the Program. Corporations, limited
partnerships, general partnerships, and joint ventures must submit
a copy of their certificate of incorporation, certificate of limited
partnership, general partnership agreement, or joint venture agreement,
as appropriate. The fee is in the form of a check from the new home
building business or from a principal in the new home building business,
or, when required by the Program, a certified check.
If
approved, a builder is issued a registration card, which must be
shown to the local construction official when construction permits
for the new home are obtained. Registration is valid for two years
from the approval date.
Builders
who fail to register or maintain a current registration are subject
to fines up to $2,000. Each home sold during the time the builder
remains unregistered is considered a separate offense.
Registration
Renewal
Registration
must be renewed every two years. Renewal requirements are the same
as for new registrations. A nonrefundable registration fee of $200
must accompany the renewal application. If a builder has provided
warranty coverage to a home which is in the first two (2) years
of warranty coverage, the registration must be renewed.
Registration,
Suspension or Revocation
A builder’s registration can be revoked or denied for fraud,
misrepresentation in the registration application, or substantially
violating the New Jersey Uniform Construction Code.
A builder’s registration can be suspended or denied if the
builder fails to enroll, warrant, or continue to participate in
the State Plan or an approved private plan, fails to correct or
settle a claim after responsibility was established through the
dispute settlement process, has officers, partners, stockholders,
or directors who were involved in unregistered, suspended, or revoked
new home building businesses, incurred or was responsible for incurring
an award against the New Home Warranty Security Fund and the Fund
has not been compensated, or failed to participate in the dispute
settlement process. A builder’s registration can also be revoked
for repeating any of the above violations set forth in this paragraph.
Warranty
Coverage
The
liability of a builder under a warranty is limited by law to the
purchase price of the home in the first good faith sale or the fair
market value of the home on its completion date, if there is no
good faith sale.
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. From the commencement date of the
warranty up to two (2) years from that date, the mechanical, electrical,
and plumbing systems and major structural defects are covered. The
builder is responsible for warranty coverage during the first two
years. During the third through tenth years of coverage, only major
structural defects are covered.
Warranty
Security Plans
A
registered builder is also required by law to enroll in a warranty
plan. A builder may participate in the State Plan offered by the
New Home Warranty Program or one of the private warranty plans approved
by the New Home Warranty Program.
Private
Warranty Plans
Basically,
these plans must offer the same warranty coverage as is required
by law. Performance standards that are specified in the New Home
Warranty and Builders’ Registration Act regulations apply
for all approved plans. The New Home Warranty Program can provide
builders with a current list of approved private warranty plans.
State
Warranty Plan
The
State Warranty Plan is open to all registered builders. Any builder
not participating in an approved private warranty plan is automatically
enrolled in the State Plan. The rate for each new home enrolled
is based upon a builder’s warranty enrollment and dispute
settlement records. The contribution percentage to be paid for each
new home by a builder not participating in an approved private plan
is as follows:
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If,
for at least 10 years, there has been no payment made, and
no final determination that a payment must be made, under
either the State Plan or an approved private plan, as a result
of a claim against the builder or a major structural defect,
the contribution percentage shall be 0.17; |
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If,
for at least seven years but less than 10 years, there has
been no payment made, and no final determination that a payment
must be made, under either the State Plan or an approved private
plan, as a result of a claim against the builder or a major
structural defect, the contribution percentage shall be 0.213; |
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If,
for at least five years but less than seven years, there has
been no payment made, and no final determination that a payment
must be made, under either the State Plan or an approved private
plan, as a result of a claim against the builder or a major
structural defect, the contribution percentage shall be 0.255; |
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If,
for at least two years but less than five years, there has
been no payment made, and no final determination that a payment
must be made, under either the State Plan or an approved private
plan, as a result of a claim against the builder or a major
structural defect, the contribution percentage shall be 0.298; |
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If
a builder has not previously been registered or has been registered
for less than two years and there has been no payment made,
and no final determination that a payment must be made, under
either the State Plan or an approved private plan, as a result
of a claim against the builder or a major structural defect,
the contribution percentage shall be 0.319; |
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If,
within the previous two years, there has been any payment
made, or any final determination that a payment must be made,
under either the State Plan or an approved private plan, as
a result of a claim against the builder or a major structural
defect, the contribution percentage shall be 0.425; |
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If,
at any time while a builder’s contribution percentage
is in an amount determined in accordance with 6 above, by
reason of the builder’s having been responsible for
a payment having to be made on a claim under either the State
Plan or an approved private plan, there is any further payment
made, or any final determination that a payment must be made,
under either the State Plan or an approved private plan, as
a result of another claim against the builder or a major structural
defect, or if a petition in bankruptcy filed by or against
a builder and the builder has not yet been discharged or is
under the supervision of the court, the contribution percentage
shall be 0.595. |
These
rates are not applicable if no new homes were enrolled during the
specified time period. If the builder is under contract to a land
owner who is to occupy the house, the selling price is calculated
at 125 percent multiplied by the contract amount.
If
any principal in the new home building business is involved in any
other new home building business with a less favorable rate, the
less favorable rate applies to all new home building businesses.
The
rate assigned to the new home building business will be used to
compute the warranty premiums for each new home enrolled in the
State Plan. This rate will be adjusted upon renewal of the builder’s
registration, when it will be revised based on the new home building
business’ claims record, or at any time the builder defaults
on a claim.
Warranty
Responsibility
The
builder or the warranty plan of which the builder is a member is
responsible for providing the homeowner with a full statement of
warranty coverage and warranty claims procedures, on forms pre approved
by the program. This transmittal should take place at closing. No
certificate of occupancy is issued unless the builder presents proof
to the local construction official that the new home is covered
by a warranty. The warranty is effective when the title is first
transferred from builder to owner or when possession or occupancy
is first given by the builder to the owner.
Claims
Resolution Process for Private Plans
According
to the New Home Warranty regulations, each private plan must provide
a complaint, claims, and payment procedure that provides for an
attempt at informal settlement between the builder and the homeowner
of any claim and requires that any homeowner making a claim provide
written notice to the builder.
The
regulations also require conciliation and/or arbitration of any
warranty claim dispute by an independent third party. The homeowner
has the opportunity to accept or reject a conciliation decision
and may appeal the decision in court. The private plan must also
provide fixed periods of time for action by the builder or homeowner
pursuant to the arbitration/conciliation decision. For detailed
information on this process, the private warranty plan should be
contacted.
Claims
Resolution Process for the State Plan
Unless
an emergency situation arises or a major structural defect exists,
a homeowner must wait 120 days from the commencement date of the
warranty before the homeowner can file a claim (Notice of Claim
and Demand). The homeowner must notify the builder in writing with
a list of defects found in the home. The builder has the choice
to repair, replace, or pay for the correction of the defect, if
the defect is covered by the warranty. The builder is also responsible
for actual reasonable shelter expenses during any repair that has
rendered the home uninhabitable.
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.
This
process begins with conciliation, in which a skilled, impartial,
neutral third party meets with the builder and the homeowner at
the new home to attempt to resolve the conflicts. This neutral third
party is an independent conciliator/arbitrator. If successful, the
conciliator/arbitrator will make an arbitration award, with the
permission of both parties. If there is no agreement reached, or
if any part of the dispute remains unresolved after the conciliation
meeting, the conciliator/arbitrator may then proceed into an arbitration
meeting, if the homeowner and builder both agree. As a result of
the meeting, the arbitrator will render judgment within a few weeks.
This award is legally binding on both parties. The award is limited
to a determination of the existence of an eligible defect under
the New Home Warranty regulations, whether the builder will repair
or replace the defect(s), and the time within which the builder
will perform the corrective action. The arbitrator cannot make a
monetary award: he can only require repair or replacement, if necessary,
except in the case of reimbursement for emergency or temporary repairs.
There is no cost to the homeowner or builder for conciliation or
arbitration under the State Plan. The arbitration award is not appealable
through the program.
If,
after the conciliation process, either the homeowner or builder
do not agree to arbitration, the process of a Bureau (of Homeowner
Protection, New Home Warranty Program) decision begins. A Program
staff member conducts a hearing to review the defects in the home
and renders a written decision. The decision is binding on all parties,
but can be appealed within 15 days of the decision. An administrative
hearing through the New Jersey Office of Administrative Law is then
provided.
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. However, the program will take administrative action
against the builder, such as revocation or suspension of the builder’s
registration. For additional information, contact the Division
of Codes and Standards, Bureau of Homeowner Protection, New Home
Warranty Program, PO Box 805, Trenton, New Jersey 08625-0805, (609)984-7905.
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