The wonderful part of buying a new home is that everything will be brand new. However, that does not mean that everything will be in good condition. It’s not uncommon for homeowners to find defects in a newly constructed home, due to builder error, oversight, or lack of skill. You have various rights against the builder depending on what the defect is and when you discovered it.
In New Jersey, owners of a new home are protected under a state law called the New Home Warranty and Builders’ Registration Act. (It's accessible on the "Consumer Information for New Home Buyers" page of the New Jersey Department of Community Affairs website.) This Act is meant to protect homeowners by giving them specific remedies once they discover defects in their new home. The builder normally delivers the written warranty to the new homeowner at settlement or at closing. It typically comes with a detailed manual addressing various defects that might occur.
There are three time-limited categories under the warranty regarding types of defects that are covered and when you have a right to pursue a claim for these defects. It is important to address the defect as soon as you discover it because of the time-sensitive nature of the warranty. The categories are as follows:
Not every defect is covered under the warranty. Normal wear and tear or deterioration are not covered. Also, the builder may have drafted the warranty to contain exclusions from coverage such as changes in the home due to negligent or improper maintenance by the homeowner.
Make sure to review the warranty you received from the builder to determine if it has any exclusions that may bar your remedies against the builder -- and when in doubt, consult an attorney about whether the exclusions say what you think they do, or are enforceable at all.
If you discover a defect in your home you likely have two options:
If you decide to pursue a claim under the warranty, the claim will go to arbitration. An arbitration is not a court proceeding. A neutral third party will be designated to investigate your claim. If the arbitrator determines that a defect exists that is the builder’s responsibility, the builder will likely be given a chance to correct or repair the defect.
However, the builder also has a right to choose not to fix the defect, but to instead pay you money for its repair or replacement. If the builder fails to fix the problem or to pay for same, a fund available through the Warranty Act will pay for the defect.
If you do not agree with or like the arbitrator’s decision you cannot turn around and file a lawsuit. You are bound by the arbitrator’s decision.
If you feel you have a claim that includes issues beyond defects in the home, you may want to file a lawsuit, instead. A warranty claim is limited to defects under the terms of the warranty. So, for example, if a builder fails to disclose offsite conditions such as drainage issues which affect where the home was built, this is considered a breach of the New Jersey Consumer Fraud Act. The builder’s failure to disclose this information is not something that would be covered under the warranty. You'd need to file a lawsuit in order to pursue this allegation against the builder.
Review your contract to determine if the builder included an arbitration clause. If so, it will prevent you from being able to file a lawsuit. However, even though you cannot file a lawsuit, you will have a right to go through a general arbitration claim, which may be more appealing because a warranty claim places a limit on the liability of the builder, which will limit the amount you can recover. Under the warranty claim, a builder’s potential liability is limited to the purchase price of the home.
If you choose to file a lawsuit, be aware that there is a limit on the time frame within which you can file. In New Jersey, under what is referred to as the Statute of Limitations, you have six years to file a lawsuit for contract and warranty claims.
The six-year time period begins to run when you discover the defect or reasonably should have done so. However, another New Jersey law, called the Statute of Repose, provides that a lawsuit cannot be filed more than ten years after the project is substantially completed. In other words, you’ll face an absolute bar to filing a claim more than ten years after the builder substantially finalizes the home.
If you find a defect in your home, you should act quickly to take the steps necessary to protect your rights against the builder.
You will need to decide whether to file a lawsuit or pursue a claim under the homeowners' warranty. Before making that decision, consult a local real estate attorney to help you determine the best course of action and proceed accordingly.