The Value of an Insurance-Backed Home Warranty, 13 SCBJ, SC Lawyer, July 2013, #3

• Author: Joan M. Riordan and William R. Warnock Jr.

The Value of an Insurance-Backed Home Warranty

Vol. 25 No. 1 Pg. 16

South Carolina Bar Journal

July, 2013

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 Joan M. Riordan and William R. Warnock Jr.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0This article is written in response to an article published in the January 2013 edition of the South Carolina Lawyer entitled That New Home Warranty, Now You See It, Now You Don’t. The prior article missed the basis and purpose behind the insurance-backed new home warranty product. An insurance-backed warranty is a valuable product that meets many requirements of the residential construction industry. For more than 30 years, 2-10 Home Buyers Warranty (2-10 HBW) has been the industry leader in providing the insurance-backed structural warranty. The 2-10 HBW warranty insurer has paid more than $214 million in claims on behalf of member builders.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA02-10 HBW Warranty program complies with HUD requirements

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The 10-year insurance-backed warranty concept grew out of U.S. Congressional hearings in 1973 investigating poor construction practices in the residential construction industry and lack of builder warranties on their product. As a result of these hearings, the Department of Housing and Urban Development (HUD) established a standard for the insurance-backed warranty plan and required that certain newly constructed homes be protected by a 10-year insurance-backed warranty in order to be eligible for mortgage insurance from the Federal Housing Administration (FHA). The requirements of the 10-year insurance-backed warranty plan are codified in the Code of Federal Regulations at Title 24 C.F.R. §203.200et seq. 2-10 HBW incorporates these requirements verbatim in its insurance-backed warranty program. Hence, the 2-10 HBW Warranty program has been approved by HUD since 1983.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The most prominent features of the HUD “Insured Ten-Year Protection Plan” are defined in Title 24 C.F.R. §203.200. These features include (1) the coverage of the one-year workmanship warranty, the coverage of the two-year systems warranty (wiring, piping and ductwork) and the coverage of the 10-year structural defects warranty and (2) the insurance-backing coverage requirements for the builder's obligations under the warranty. Because 2-10 HBW uses the same warranty coverage and insurance-backing coverage as defined in the CFR, these same features are the most prominent features in the 2-10 HBW warranty program.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA02-10 HBW Warranty program complies with state statutory regulations

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0In some states, the builder’s warranty obligations are defined by statute. In those states, the builder may waive the common law implied warranty obligations if the builder provides a warranty that complies with the statutory requirements. California, New Jersey, Maryland and Indiana have such a statutory scheme.¹ Both New Jersey and Maryland require submission and approval of the warranty document by the Department of Community Affairs and the Maryland Office of the Attorney General...