Realty Times
HADD Report: Home Warranty Coverage 'Extremely Limited'
by Broderick Perkins
It's not that home warranties or those who issue them are deceptive.
It's all right there in the small print -- disclaimers, exclusions, "weasel" clauses.
The contract tells you what isn't covered and that's no small matter.
The problem is, many home owners don't discover just how limited home warranties truly are until they need coverage they think they have.
So says the 13-page "New Home Warranties: Deception or Protection?A Consumer’s Perspective", prepared by John R. Cobarruvias, president of the Texas Chapter of Homeowners Against Deficient Dwellings (HADD).
Home warranty protection is an issue that has confounded home owners for years.
Founded in Liberty, MO, HADD is a nationwide, non-profit, grass roots organization created by home owners with unresolved complaints, most often about new home defects.
It its latest effort to assist home buyers, the group is warning them that "warranty" doesn't always mean what you think it does.
"Too many home buyers believe they have a full 10-year, bumper-to-bumper warranty that should, at the very least, be as comprehensive as a new car warranty in comparison and worthy of a product, which requires monthly payments for 30 years," the report says.
They aren't.
"The new home warranties reviewed for the recently released report are extremely limited in their coverage," said Cobarruvias.
Among the shortcomings, HADD found that so-called "10 year" warranties are riddled with dozens of exclusions, little is covered after the first year, by the second year only air and electrical systems are covered, during years three through 10 only major structural damage is covered -- provided the damage meets stringent and specific definitions, and a cracked foundation is not specifically covered for the full 10 years.
Most warranties also contain binding arbitration clauses that take away the constitutional right to a trial by jury and, depending upon the warranty, it can also contain unreasonable maintenance requirements.
"One warranty suggests that, when on an extended absence from the home, the home owner should have someone else maintain the foundation during dry periods. Maybe the neighbors could feed the cat, water the plants, and maintain the moisture content around the foundation," the report says.
To compile the report, HADD.com did not compare warranties, examine complaints about warranty service or actually rate them. It merely read some of the most common warranties to learn what is and what isn't covered.
Warranties HADD reviewed were primarily issued in Texas, but many were identical to those used nationwide, HADD said.
"One in particular is the Home of Texas Warranty used by David Weekley Homes, a Texas home builder. Home of Texas is almost word for word, picture for picture, identical to the Residential Warranty Corporation (RWC), which seems to be the most popular in the United States," the report says. The RWC warranty is the most popular warrant used, says HADD.
"The Home of Texas also has an interesting page dedicated to foundation maintenance requirements. Because of this extra set of maintenance requirements and the similarity to the RWC, the Home of Texas will be used as an example throughout this report," the report said.
Along with those two warranties, HADD also examined the Home Buyers Warranty (HBW or 2-10 Warranty), the Pulte Homes Warranty, the Ryland Homes Warranty and the Home Owners Warranty Corporation (HOW) Warranty.
The HOW Corp. entered receivership in 1994, leaving home owners with little, if any, coverage. Homeowners who have this warranty can apply only if there is money available and all other avenues of compensation have been exhausted, according to HADD.
HADD also examined the National Association of Home Builders' Performance Standards, which is not a warranty program, but a set of standards recommended to the builder. The standards, however, are very similar to those found in the various warranties reviewed.
"Home buyers should only use this report as a guide to the quality of protection provided by the various warranties," says the reports disclaimer.
While some state laws, including those in California, offer protections not provided by warranties, HADD's warranty study report found without such regulatory protection:
Cracked foundations are not specifically covered in the full 10-year term of warranties. That also applies to a foundation crack that causes wall cracks, even if the wall cracks are covered. Foundation damage must render a home unsafe or uninhabitable before it is covered. After the first year, coverage is lost for paint, flooring, cabinets, walls, roof, and other items. Only air and electrical items are covered in the second year and during years three through 10 only major structural damage is covered. Policies are loaded with limitations and exclusions and are, as such, are often called "limited warranties". Limitations force home buyers to waive any liability for consequential or incidental damages and to waive a state's implied warranties. The aggregate cost of repairs during the entire lifespan of the warranty typically cannot exceed the final sale price of the home. Among three dozen exclusions, home warranties don't cover loss or damage caused by soil movement; loss or damage resulting from, or made worse by certain levels of radon, formaldehyde, carcinogenic substances, or other pollutants; loss or damage resulting from the owner's failure to perform routine maintenance; incomplete construction; consequential damages; personal property damage or bodily injury and building code violations. HADD says because home warranty protection is limited, consumers must protect their investment by considering certain steps before buying a home, not just before signing the warranty contract.
Read and understand the warranty. Get help to understand all a warranty's implications. Ask to have the arbitration clause removed from the warranty. If the builder refuses, have that refusal noted on the contract. Remove the waiver of the legally mandated implied warranty. If the builder refuses, have it noted on the contract. Have the home inspected during and after construction. If the builder refuses, it's up to you to decide if you want to continue with the purchase. During the last walk-through, compare the performance standards detailed in the warranty to actual construction (windows, doors, plumbing, heating, A/C, etc., should operate as expected). Check for cracks in the walls and flooring. Make a list of the violations of the performance standards. If the home is an FHA/HUD purchase, demand to know what parts of the warranty HUD does not allow, such as the arbitration clause and any maintenance that is considered to be unreasonable. Put all requests for warranty changes, inspections and other issues about the quality of the home in writing addressed to the builder, seller or other entity responsible for the home's construction. The missives document your attempts to purchase a well-built home and a service contract that protects you and your investment.
Published: January 15, 2003
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