Collecting on a home warranty can be a wrenching experience


New York -- If you buy a new home today, it might carry an insured warranty. If the house has a defect specified by the warranty and the builder won't fix it, an insurer supposedly stands ready to step in.

All too often, however, that dream of security turns into a nightmare because the warrantor won't pay.

You don't buy new-home warranties yourself. Instead, the builders buy them, to cover the houses they construct. Workmanship and materials are insured for one year (so you can get broken tiles and sagging door jambs fixed); major systems such as electrical, plumbing, heating and cooling, are insured for two years; and major structural defects for 10 years.

But collecting on that promise is sometimes touch and go. Juan Acosta, a deputy assistant secretary of the Housing and Urban Development Department, testified before a congressional subcommittee last month that "warranty companies [often] unreasonably delay claim payments, or claims adjusters use high-pressure tactics."

For example, the adjuster may make an unconscionably low take-it-or-leave-it offer, says Bernard DiMuro, an attorney from Alexandria, Va., who heads a year-old litigation group that specializes in home-warranty cases. If you refuse it, you have to go to arbitration or sue, which may not be worth it for small claims.

DiMuro has inspected 16 home-warranty complaints filed with the Office of Consumer Affairs in Rockville. He found many homeowners settling for less, or just giving up, after months of frustrating correspondence with the insurer.

R. Jean Fisher, a homeowner in Hermitage, Tenn., whose house had serious structural problems, told the committee that it's often hard to get a timely claim entered into the insurer's computer. She says she showed a claims adjuster her home's bowed girders and unsafe roof. "But he kept saying he didn't see what I was pointing out." If claims aren't formally entered until the second year or later, she says, homeowners may not get as much relief as they would on a first-year claim. (After 13 months of arguing, she finally achieved an acceptable settlement.)

Even the 10-year coverage is far more limited than it sounds. You're protected only against defects in load-bearing structures that render the house "unsafe, unsanitary or otherwise unlivable." Translation: To collect, your house practically has to be falling down around you.

And even when it is, that's no guarantee of payment. One of DiMuro's clients, whose home had a fatally weak foundation, was covered by Home Buyers Warranty of Tucker, Ga., a major company in the business. HBW refused to pay the $206,500 repair cost because the flaw occurred during construction, whereas the warranty, HBW claimed, didn't take effect until the buyer purchased the house.

Under that theory, no construction defect would ever be covered, DiMuro argues. His clients, Philip and Sondra Rainwater, won in two arbitrations and two court cases before HBW paid. Still, the Rainwaters came out behind, because their legal costs came to around $100,000.

HBW President Gary Mabry told me that the Rainwaters knew about the problems before they bought. He reiterated that pre-existing defects aren't covered. In St. Louis, HBW paid on homes that were built on loose fill and wrenched apart, because the wrenching occurred after the warranty was given, Mabry says.

In another case, John and Anne Colbert got stuck with a defective house whose builder went broke. The house was covered by Home Owners Warranty, the industry's largest company. HOW's dispute-settler found the builder liable for some claims but not others.

When the Colberts disagreed with the finding and wanted more of the flaws corrected, HOW argued that they had no right to sue. The warranty insures the builder, not the homeowner, says HOW Senior Vice President Terence Cooke. If the builder goes broke and isn't there to be sued, tough luck. After Virginia's Supreme Court gave the Colberts standing to sue, HOW settled. Since 1974, Cooke says, HOW has paid more than $300 million in claims.

If you've had a problem with a home insurer, send your story to Jean Fisher's Ridgemere Institute, P.O. Box 8247, Hermitage, Tenn., 37076. She hopes to prod Congress to enact legislation to deal with homeowner complaints.

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