Information You Should Know – But Advice You Cannot Give

Information You Should Know – But Advice You Cannot Give
As you know, new construction is typically covered by a new home buyer's warranty issued by a private plan pursuant to the New Home Warranty and Builders' Registration Act.

Last week the Appellate Division, Superior Court of New Jersey, issued an opinion in Frumer v. National Home Ins. Co. establishing arbitration as the exclusive remedy for all structural disputes under the standard Home Buyer's Warranty (HBW) Corporation's (HBW) policy. However, the Court also noted that workmanship/system defect claims are subject to an election of remedies. In other words, the homeowner can elect arbitration or pursue other remedies (i.e. a lawsuit), but not both, for workmanship/system defect claims.

Now that you know this information, what should you do if one of your buyers contacts you to find out what to do after they encounter a problem with their new home which the builder will not address? Should you find out whether it’s a structural issue or a workmanship/defect claim and then explain that they must elect their remedy for the latter? Of course not, that would be providing impermissable legal advice. You should tell them to immediately contact a knowledgeable and competent attorney. They can find one by calling 856-642-6445.


Speaking of Home Warranty Policies
Do you collect a commission for home warranty policies which are purchased during a transaction in which you're involved? If so, do you perform a service that can be documented which is actual, necessary and distinct from your primary services?

HUD has issued an interpretive ruling on this issue which concludes that:

(1) a payment by a Home Warranty Company (HWC) for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for a referral under section 8 of RESPA (12 U.S.C. 2607);

(2) Depending upon the facts of a particular case, an HWC may compensate a real estate broker or agent for services when those services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, and when those additional services are not nominal and are not services for which there is a duplicative charge;

(3) The amount of compensation from the HWC that is permitted under section 8 for such additional services must be reasonably related to the value of those services and not include compensation for referrals of business.

Under the interpretive statement, in order to receive compensation from the HWC for the purchase of a home warranty, both the broker and the agent must perform some actual service, separate and apart from the realtor services. The realtor or broker must fully disclose in writing to the consumer that the broker or agent will be compensated by the HWC, that the consumer may purchase a home warranty from other vendors, or may choose not to purchase any home warranty. In addition, the compensation must be reasonable in relation to the services performed.

Examples of actual services that are compensable:

*general marketing of the HWC, i.e. the broker may accept an advertising fee from the HWC for a general advertisement in a publication;

*Conducting actual inspections of the items to be covered by the warranty to identify pre-existing conditions that could affect home warranty coverage;

*recording serial numbers of the items to be covered;

*documenting the condition of the covered items by taking pictures and reporting to the HWC regarding inspections;

*other services to be performed as specified in a contract between the HWC and the broker or agent, and the broker or agent has documented the services provided to the HWC;

*the broker or agent is by contract the legal agent of the HWC, and the HWC assumes responsibility for any representations made by the broker or agent about the warranty product;

Examples of payments that are characterized as illegal kickbacks:

*payments that are solely contingent on an arrangement that prohibits the broker or agent from performing services for other HWC;

*payments to real estate brokers or agents by the HWC that are based on, or adjusted in future agreements according to, the number of transactions referred;

* payments to the broker or agency for marketing the HWC to a specific client.

As they used to say on Hill Street Blues, "Be careful out there".

-Dan Posternock

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.