That New Home Warranty, 0113 SCBJ, SC Lawyer, January 2014, #2

Author:Brian P. Robinson.

That New Home Warranty

Vol. 24 Issue 4 Pg. 38

South Carolina BAR Journal

January, 2013

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 NOW YOU SEE IT, NOW YOU DON'T!

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 Brian P. Robinson.


\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Many homebuilders offer their buyers a warranty issued by a commercial warranty company commonly either the Quality Buyers Warranty or the 2-10 Home Owners Warranty. They tell their buyers that these warranties will protect them into the future. In fact, builders commonly use the commercial warranty as a selling point. What a scam! Instead of protecting the homeowner, the commercial warranty protects the builder. If the facts were known, no homeowner would ever accept the commercial warranty.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Warranty provisions generally

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The real effect of the warranty is to exclude all implied warranties that normally the buyer would enjoy. It seems to be standard in the warranty industry to not only exclude the standard implied-in-law warranties but also to limit warranties on certain portions of the house. These commercial warranties exclude all warranties for both the builder and the warranty company, except for those specific warranties included in the commercial warranty policy. Those exclusions are crippling to any homeowner seeking help in fixing his failing home.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0During the first year, the builder is responsible for any work required under the warranty. The builders' responsibility is basically to make the home conform to the South Carolina Department of Labor, Licensing and Regulation (LLR) standards. As long as the house meets those minimum standards, the builder has no liability. The real problems occur once the first year is past, when the warranty company is responsible for all liability under the warranty.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The first thing these warranties exclude are all non-load-bearing elements of the house. This includes the building veneer (i.e., bricks, HardiePlank®, etc.), flooring, inside wall coverings, gyp board, doors, windows, trim, cabinets, hardware, etc. After one year, the warranty excludes damage to any parts of the house that are not part of the load-bearing structure of the living area, including concrete floors in basements, attached garages and chimneys, "and other structural elements that are not part of the load bearing structure of the home, " as well as any damage to elements attached to the home, like decks, balconies, patios, porches, porch roofs or porticoes. It also excludes damage caused by non-covered or expired items such as wood rot for water infiltration after one year or more. It excludes coverage for water infiltration into a basement or crawl space after one year. Also after the first year, in excludes "fixtures, appliances, and items of equipment whether or not elements of the cooling, ventilating, heating, electrical, plumbing or in-house sprinkler systems." It also excludes loss or damage caused directly or indirectly by water below the surface of the ground. Finally they state, "Since this warranty covers only those defects which first occurred during the Warranty Term, any homeowner-acknowledged, pre-existing conditions, such as 'walk through' or 'punch list' items are not covered."

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0As one might expect, latent defects that appear after their specific warranty time are not covered. In practical terms, this means that the builder is forever freed from liability for things like cracks that existed but did not exceed 1/8 inch during the first year, even though they may have been getting larger over time. Additionally, on items that are covered, the homeowner is required to pay a $250 per claim deductible. That payment is due as a condition precedent to any repair work by the commercial warranty company.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Another feature of the commercial warranty is that it requires arbitration. If the homeowner is not satisfied with the determination of the commercial warranty company as to its liability under the warranty, his only recourse is to demand arbitration. There is a nonrefundable arbitration fee payable up front by the homeowner. To forestall lawsuits instead of arbitration, there is a provision in the commercial warranty allowing the commercial warranty company to recoup its attorney's fees from the homeowner. So the warranty company moves to compel arbitration, then to recover its attorney's fees for answering the suit and the resulting motions practice.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0One standard clause seems to be: "Other than the Expressed Warranties contained herein, there are no other warranties expressed or implied including Implied Warranty of Merchantability, Implied Warranty of Habitability or Implied Warranty for Particular Purpose, which implied warranties are specifically excluded." In South Carolina, a disclaimer of the implied warranty of habitability is allowed under Kirkman v. Parex, Inc.[i]

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Under Kirkman, a disclaimer of the warranty of habitability must be (1) conspicuous, (2) known to the buyer and (3) specifically bargained for.[ii] Additionally, the "standard is applied strictly and will be met only in rare circumstances."[iii]In the commercial warranty, the disclaimer language is in bold and is in a separately numbered paragraph. Under South Carolina law, a person is deemed to have read a document he signs.[iv]While the actual warranty document is not part of the closing package, the document incorporating it by reference is included and is signed by the buyer and the builder. Finally, there is a separate paragraph in the commercially produced "offer to buy and acceptance" document that specifically addresses the warranty. Accordingly, the exclusions in these commercial warranty plans appear at first blush to comport with the requirements of South Carolina law.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0There is some case law from other states regarding the enforceability of these commercial warranties. There are cases involving both the Quality Builders Warranty and 2-10 Home Buyers Warranty.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Quality Buyers Warranty

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0In Brevorka v. Wolfe Construction, Inc., the N.C. Court of Appeals overruled the trial court and determined that all claims by the homeowners fell under the Quality Builders Warranty (QBW).[v] However, on appeal, the N.C. Supreme Court adopted the reasoning of the dissent.[vi]The court held that the doctrine of implied warranty of habit-ability was implied in law and could only be waived if that were clearly the intent of all the parties.[vii] Quoting from Griffin v. Wheeler-Leonard & Co., ...

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