SENATE, No. 1481

STATE OF NEW JERSEY

214th LEGISLATURE

 

INTRODUCED FEBRUARY 22, 2010

 


 

Sponsored by:

Senator  RONALD L. RICE

District 28 (Essex)

 

 

 

 

SYNOPSIS

     Enhances protections for new homebuyers.

 

CURRENT VERSION OF TEXT

     As introduced.

  


An Act concerning new home construction and amending and supplementing P.L.1977, c.467.

 

     Be It Enacted by the Senate and General Assembly of the State of New Jersey:

 

     1.  Section 2 of P.L.1977, c.467, (C.46:3B-2) is amended to read as follows:

     2.  As used in this act:

     a.  "Department" means the Department of Community Affairs.

     b.  "Commissioner" means the Commissioner of Community Affairs.

     c. "Warranty" means the warranty prescribed by the commissioner pursuant to P.L.1977, c.467 (C.46:3B‑1 et seq.).

     d.  "New home" means any dwelling unit not previously occupied, excluding dwelling units constructed solely for lease.

     e.  "Owner" means any person for whom the new home is built or to whom the home is sold for occupation by him or his family as a home and his successors in title to the home or mortgagee in possession.  Owner does not mean any development company, association or subsidiary company of the builder or any person or organization to whom the home may be sold or otherwise conveyed by the builder for subsequent resale, letting or other purpose.

     f.  "Builder" means any individual corporation, partnership or other business organizations engaged in the construction of new homes.

     g.  "Major construction defect" means any substantial failure to meet applicable structural requirements, including, without limitation, any actual damage to the load bearing portion of the home including damage due to subsidence, expansion or lateral movement of the soil (excluding movement caused by flood or earthquake) which affects its load bearing function and which vitally affects or is imminently likely to vitally affect use of the home for residential purposes.

     h.  "Warranty date" means the first occupation or settlement date, whichever is sooner.

     i.  "Approved claim" means, for the purposes of P.L.1991, c.202 (C.46:3B‑13 et al.), a claim examined and approved by the commissioner in accordance with section 3 of P.L.1991, c.202 (C.46:3B‑15).

     j.  "Approved method" means, for the purposes of P.L.1991, c.202 (C.46:3B‑13 et al.), a method of remediation approved by the commissioner in accordance with section 3 of P.L.1991, c.202 (C.46:3B‑15).

     k. "Fund" means the new home warranty security fund established in the department pursuant to section 7 of P.L.1977, c.467 (C.46:3B‑7).

     l.  "Warranty guarantor" means, for the purposes of P.L.1991, c.202 (C.46:3B‑13 et al.), (1) the new home warranty program established in the department pursuant to P.L.1977, c.467 (C.46:3B‑1 et seq.) or (2) any alternate new home warranty security program approved pursuant to section 8 of P.L.1977, c.467 (C.46:3B‑8).

     m.  "Board" means the Board of Trustees established pursuant to section 2 of P.L.2001, c.147 (C.46:3B‑7.2).

     n. "Fire safety defect" means any failure to meet the requirements of the State Uniform Construction Code governing fire rating requirements for any building component, flame spread requirements for any finish material and means of egress, or the provision of fire safety equipment or systems such as sprinklers, fire alarm systems, or emergency power or lighting systems.

     o.  "Lot defect" means any defect in grading, paving or any other improvement or modification of the lot that is not within the scope of the definition of "construction" set forth in section 3 of the "State Uniform Construction Code Act,"  P.L.1975, c.217 (C.52:27D-121) and is not covered by any performance guarantee required by the municipality under authority of the "Municipal Land Use Law," P.L.1975, c.271 (C.40:55D-1 et seq.).

     p.  "Serious construction defect" means any defect that poses a serious safety hazard or substantially impairs the use or market value of the home.

(cf:  P.L.2001, c.147, s.4)

 

     2.  Section 3 of P.L.1977, c.467 (C.46:3B-3) is amended to read as follows:

     3.  a.  The commissioner is hereby authorized and directed to prescribe by rule or regulation a new home warranty and procedures for the implementation and processing of claims against the new home warranty security fund as provided  for in subsection a. of section [7a.] 7 of [this act] P.L.1977, c.467 (C.46:3B-7).  Such warranty shall include standards for construction and of quality for the structural elements and components of a new home with an indication, where appropriate, of what degree of noncompliance with such standards shall constitute a defect.  Such rule or regulation shall be adopted, and may be supplemented, amended or repealed in accordance with the Administrative [Procedures] Procedure Act, [(] P.L.1968, c.410[,] (C.52:14B‑1 et seq.), provided, however, that a hearing shall be required prior to the adoption, supplement, amendment or repeal of such rule or regulation.

     b.  The time periods of warranties established pursuant to [this act] P.L.1977, c.467 are as follows:

     (1)  [One year] Two years from and after the warranty date the dwelling shall be free from defects caused by faulty design, workmanship [and] or defective materials due to noncompliance with the building standards as approved by the commissioner pursuant to [paragraph 3a. of this act] subsection a. of this section, except as set forth in [section 3b.] paragraphs (2) and (3) of this subsection.

     (2)  [Two] Three years from and after the warranty date the dwelling shall be free from

     (a) defects caused by defective materials in, or by faulty design or installation of, plumbing, electrical, heating and  cooling [delivery], mechanical, fire protection, well or septic  systems;  provided, however, in the case of appliances, no warranty  shall exceed the length and scope of the warranty offered by the manufacturer;

     (b) water damage due to defects caused by faulty design or workmanship or by defective materials; and

     (c) lot defects.

     (3)  Ten years from and after the warranty date for major construction defects , fire safety defects, and serious construction defects, as defined in [this act] section 2 of P.L.1977, c.467 (C.46:3B-2).

   [(4)  However, any]c.  Any alternate program as provided for in section 8 of [this act] P.L.1977, c.467 (C.46:3B-8) submitted for approval, subsequent to the effective date of [this act] P.L.1977, c.467, may contain warranties and time periods greater than provided for in [section 3b.] paragraphs (1), (2), and (3) of [this act] subsection b. of this section.

(cf:  P.L.1977, c.467, s.3)

 

     3.  Section 5 of P.L.1977, c.467 (C.46:3B-5) is amended to read as follows:

     5.  No builder shall engage in the business of constructing new homes unless he is registered with the department.  The department shall provide application forms for such registration and shall prescribe the information to be included therein.  Such information shall include, but not be limited to:

     a.  the Social Security number of each individual applying for registration as a builder and, in the case of a corporation, partnership, or other business organization other than a sole proprietorship, the Social Security number of each officer, director, general or managing partner, and of each stockholder or individual partner who owns, in the case of a corporation, at least 10 percent of any class of the corporation's stock or, in the case of a partnership, at least 10 percent interest in the partnership;

     b.  a list of criminal convictions, if any, of every individual who is required to provide a Social Security number pursuant to subsection a. of this section and a list of convictions for disorderly persons or petty disorderly persons offenses, if any, against said individuals;

     c.  a list of unsatisfied judgments, if any, against every individual who is required to provide a Social Security number pursuant to subsection a. of this section and against every business entity that said persons have, at any time, been a proprietor, officer, director, stockholder, or partner with at least a 10 percent interest in the business; and

     d.  a list of every individual who, pursuant to subsection a. of this section, is required to provide a Social Security number and has, at any time, been in bankruptcy and a list of every business that has filed for bankruptcy under State or federal law for which any said individual has, at any time, been a proprietor, officer, director, stockholder, or partner with at least a 10 percent interest in the business.

     Each application shall be accompanied by a reasonable fee, prescribed by the commissioner, and proof, satisfactory to the commissioner, of  participation in the new home warranty security fund or an approved alternate new home warranty security program. All applications shall be considered government records under P.L.1963, c.73 (C.47:1A-1 et seq.) and P.L.2001, c.404 (C.47:1A-5 et al.), except as otherwise provided for therein.  [Upon] Except as otherwise provided in subsection b. of section 6 of P.L.1977, c.467 (C.46:3B-6), upon receipt of the above, the department  shall issue a certificate of registration.

     Each certificate of registration shall be valid for a period of 2 years from the date of issue and may be renewed for additional 2-year periods.

     As a condition for the registration, a builder shall be required to participate in the new home warranty security fund or an approved alternate new  home warranty security program.

     No corporation, partnership or other business organization shall be entitled to registration hereunder, nor shall they engage in the construction of new  homes unless a stockholder, director, officer, partner, or employee thereof, as  the case may be, shall be a registered builder.

(cf: P.L.1977, c.467, s.5)

 

     4.  Section 6 of P.L.1977, c.467 (C.46:3B-6) is amended to read as follows:

     6.  a.  The commissioner, upon the complaint of an aggrieved person, may conduct investigations into the allegations made against any builder required to be registered under [this act] P.L.1977, c.467 (C.46:3B-1 et seq.).  In pursuit of such investigations, the commissioner shall be authorized to hold hearings in accordance with the provisions of the  Administrative [Procedures] Procedure Act [(], P.L.1968, c.410[,] (C.52:14B‑1 et seq.)  applicable to contested cases, to [subpena] subpoena witnesses and compel their attendance, to require the production of papers, records or documents, administer oaths or affirmations to witnesses, to inspect such relevant books, papers, records or documents of such builder at his place of business during  business hours, and to conduct inspections of new home construction sites owned by a builder or in which a builder has an ownership interest.

     b.  The commissioner may deny, suspend, refuse to renew, or revoke any certificate of registration [, after affording the registrant or applicant the opportunity for a hearing in accordance with the provisions of the Administrative Procedures Act  (P.L.1968, c. 410, C. 52:14B‑1 et seq.) applicable to contested cases,] if the  registrant or applicant, or any business entity in which the registrant or applicant has had any financial interest or held any position of responsibility, has:

     (1)  Willfully made a misstatement of a material fact in his application for registration or renewal;

     (2)  Willfully committed fraud in the practice of his occupation;

     (3)  Failed to satisfy any civil judgment entered in connection with or arising out of the practice of his occupation;

     (4)  Been convicted of any crime involving dishonesty or any crime or offense in connection with the practice of his occupation;

   [(3)]  (5) Practiced his occupation in a grossly negligent manner;

   [(4)]  (6) Willfully violated any applicable building code to substantial degree;

   [(5)]  (7) Failed to continue his participation in the new home warranty security fund or an approved alternate new home warranty security program after proper notice from the commissioner in writing by certified mail;

     (8)  Failed to correct any defect, or to reimburse the new home warranty security fund or an approved private warranty fund for any payment made to correct the defect, when his responsibility for correction has been established by a final determination in accordance with "The New Home Warranty and Builders' Registration Act," P.L.1977, c.467 (C.46:3B-1 et seq.);

     (9)  Failed to satisfactorily complete the installation of any improvements required as a condition of any municipal subdivision of site plan approval; or

   [(6)] (10) Violated any provision of [this act] "The New Home Warranty and Builders' Registration Act," P.L.1977, c.467 (C.46:3B-1 et seq.), or any rule or regulation adopted pursuant thereto, after proper notice from the commissioner in writing by certified mail.

     c.  Any person aggrieved by a denial, suspension or revocation of a certificate of registration shall be entitled to a hearing in accordance with the "Administrative Procedure Act,"  P.L.1968, c.410 (C.52:14B-1 et seq.).  An application for a hearing must be filed within 15 days of receipt of the notice of denial, suspension or revocation.

     d.  In lieu of, or in addition to, revocation or suspension of a certificate of registration, the commissioner may assess a penalty not to exceed $5,000 for each offense, to be enforced and collected by the commissioner in the name of the State in accordance with the "Penalty Enforcement Law of 1999," P.L.1999, c.274 (C.2A:58-10 et seq.)

(cf:  P.L.1977, c.467, s.6)

 

     5.  Section 7 of P.L.1977, c.467 (C.46:3B-7) is amended to read as follows:

     7.  a.  There is hereby established a new home warranty security fund to be maintained by the State Treasurer in a trust account, separate and apart from other funds and administered by the commissioner.  The purpose of the fund is (1) to provide moneys sufficient to pay claims by owners against builders participating in the fund for defects in new homes covered by the new home warranty; and (2) to pay the costs of administering the new home warranty program established in the department, including the costs of obtaining sufficient reinsurance to prudently protect the fund against unanticipated risks and costs incurred by the board in the discharge of its duties.  The amounts payable by participating builders shall be established and may be changed from time to time, as the experience of the fund  shall require, by the commissioner, and shall be sufficient to cover anticipated claims, to provide a reasonable reserve and to cover the costs of administering the fund. Amounts paid by participating builders shall be forwarded to the State Treasurer and shall be accounted for and credited by him  to the new home warranty security fund.

     b.  The State Treasurer shall hold, manage and, through the Division of Investment, invest and reinvest moneys in the fund and credit all income earned  thereon to the fund in the same manner as provided by law for the investment of  pension and retirement funds administered by the State.  The department shall  keep the State Treasurer and the board advised of anticipated cash demands for payment of  claims against the fund.  No funds shall be spent, appropriated or transferred from the fund other than for the express purposes of paying claims or costs related to administering the program or the fund as enumerated in subsection a, c, or e of this section.  In the event funds are spent, appropriated or transferred from the fund for other purposes in violation of this subsection, [the obligation of participating builders  to contribute to the fund shall be suspended until such time as the funds are replenished, and if the amount in the fund shall become insufficient thereafter to pay claims or make awards, the payment of claims and making of awards shall be made from the General Fund] the obligation of participating builders  to contribute to the fund shall be suspended until such time as the funds are replenished, and if the amount in the fund shall become insufficient thereafter to pay claims or make awards, the payment of claims and making of awards shall be made from the General Fund. The Joint Budget Oversight Committee, or its successor, shall have the authority to investigate complaints of violative fund transfers under this section, and shall order the Commissioner of Community Affairs to suspend collection from participating builders if it determines that the provisions of this subsection have been violated.

     c.  Prior to making a claim against the fund for defects covered by the warranty, an owner shall notify the builder of such defects and allow a reasonable time period for their repair.  If the repairs are not made within a reasonable time or are not satisfactory to the owner, he may file a claim against the fund in the form and manner prescribed by the commissioner.  Any such claim shall be filed not later than 45 days after expiration of the applicable warranty period; provided, however, that in the case of any defect in the common elements or  other property administered by an association of a planned real estate development registered with the department in accordance with "The Planned Real Estate Development Full Disclosure Act," P.L.1977, c.419 (C.45:22A-21 et seq.), a claim may be filed by an association at any time within one year following the date of termination of the builder's control of the association, in accordance with section 5 of P.L.1993, c.30 (C.45:22A-47), and, during the period prior to termination of the builder's control of the association, a claim may be filed in the name of the association, not later than 45 days after expiration of the applicable warranty period, either by the members of the board who are elected by the unit owners or by a committee appointed by such members pursuant to rules adopted by the Commissioner of Community Affairs.  Additionally, an owner or group of owners of a unit or units in a planned real estate development may, not later than 45 days after the expiration of the applicable warranty period, file a claim in the name of the association with regard to any defect in the common elements or other property administered by the association that affects only the units belonging to such owner or owners.  The commissioner shall investigate each claim to determine the validity thereof, and the amount of the award that shall be made thereon, and shall hold a hearing if requested by either party, in accordance with the provisions of the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B‑1 et seq.) applicable to contested cases.  Reasonable hearing fees shall be assessed against the unsuccessful party.  The amount of the award shall be sufficient to cover the reasonable costs necessary to correct any defect or defects covered  under the warranty, but the total amount of awards from the fund for any new home shall not exceed the purchase price of the home in the first good faith  sale thereof or the fair market value on the home on its completion date if  there is no good faith sale.  All claims submitted by an owner shall first be reviewed through a conciliation or arbitration procedure by the department, and in the event that the owner is found to be in the right, then the builder shall  be required to correct such claims as determined through the conciliation or  arbitration procedure.

     If a builder is unable or willfully refuses to correct such deficiency, then an amount sufficient to cure the problem shall be paid  from the fund to the owner.  In such cases, the commissioner may then proceed  against the builder in accordance with subsection b. of section 6 of P.L.1977, c.467 (C.46:3B‑6).  Upon  certification from the commissioner of the amount of an award, the State Treasurer shall make payment to the claimant from the fund

     If a reasonable number of repair attempts fail to cure a serious construction defect, or if a builder willfully refuses to cure a serious construction defect, the commissioner shall pay to the owner, from the fund, an amount that shall be the cost of repairing all warranted defects even if the cost of repairing all warranted defects exceeds the purchase price of the home in the first good faith sale thereof or the fair market value of the home on its completion date if there is no good faith sale.  The commissioner shall thereafter institute a legal action against the builder for recovery of the amounts paid to the owner, plus any additional costs.  Amounts recovered pursuant thereto shall be deposited into the appropriate warranty fund.

     d.  (Deleted by amendment, P.L.2001, c.147).

     e.  If the board determines that fund reserves and reinsurance may be insufficient to cover anticipated claims, the board shall recommend steps to the commissioner to restore fund resources to sufficiency, which may include increases in premiums and fees, expanded reinsurance and changes in standards and claims adjudication procedures.

     f.  The commissioner may provide for surcharges against those builders who are responsible for a significant number of awards against the fund and may discontinue the participation in the fund of any builder who is responsible for an excessive number of awards against the fund after a hearing in accordance with the provisions of the "Administrative Procedure Act," P.L.1968, c. 410 (C.52:14B‑1 et seq.) applicable to contested cases.  At no time shall the State be required  to contribute any moneys to the fund, nor shall the State have any liability to any person having any right to or claim against the fund over and above the amount therein except in those instances where it is determined by the Joint Budget Oversight Committee that the provisions of subsection b. of this section have been violated concerning amounts spent, appropriated or transferred from the fund.

     g.  The commissioner may order the return of funds to owners of enrolled homes as may be recommended by the board pursuant to section 3 of P.L.2001, c.147 (C.46:3B‑7.3).

(cf:  P.L.2001, c.147, s.5)

 

     6.  (New section)  The commissioner, in cooperation with construction industry organizations, shall establish training programs for trade supervisors and residential site superintendents and shall issue certificates to all persons who successfully complete such training programs.

 

     7.  This act shall be effective immediately.

 

 

STATEMENT

 

     This bill would enhance the protections afforded under current law to purchasers of new homes by strengthening and expanding the protections provided by "The New Home Warranty and Builders' Registration Act."  This bill is based upon recommendations contained in the State Commission of Investigation’s March, 2005 report entitled “The Good, the Bad and the Ugly:  New Home Construction in New Jersey.”

     The bill would:

     -Require an applicant for a builders' registration certificate to provide his social security number and information regarding criminal convictions, disorderly persons and petty disorderly persons convictions, unsatisfied judgments, and bankruptcies.  In addition, certain business affiliates of the applicant would be required to submit the same information;

     -Authorize the Commissioner of Community Affairs to deny, suspend, refuse to renew, or revoke any certificate of registration if the registrant or applicant fails to reimburse the applicable warranty fund for any payment made to correct defects covered under the warranty program;

     -Authorize a planned real estate development's homeowners association to file a claim under "The New Home Warranty and Builders' Registration Act" for defects in a common element within one year following the termination of the builder's control of the association;

     -Authorize members of a planned real estate development's homeowners association, who are elected by unit owners, as well as a committee appointed by such members, to file such a claim, in the association's name, while the builder retains control over the association;

     -Permit an owner, or group of owners, of a unit or units in a planned real estate development to file a claim under "The New Home Warranty and Builders' Registration Act" for defects in a common element, provided that the defective common element only affects the units belonging to the owner or owners bringing the claim;

     -Expand the definition of "major construction defect" to include any substantial failure to meet applicable structural requirements;

     -Expand the time periods of warranties for existing types of defects contained under the law;

     -Expand the types of defects that would come under the warranty program, including design and materials defects, as well as defects caused by installation of mechanical, fire protection, well and septic systems, water damage due to defects caused by faulty design, workmanship or materials, and defects in lot improvements (site work on the lot that is not subject to inspection by the municipal engineer);

     -Provide ten-year warranties for fire safety defects and serious construction defects, which are those that pose a serious safety hazard or substantially impair the use or market value of a new home;

     -Require the commissioner, whenever a serious construction defect cannot be abated after reasonable attempts to do so, or whenever a builder willfully refuses to cure a serious construction defect, to pay to the owner an amount from the fund that covers the cost of repairing all defects covered by the warranty, even if such costs exceed the purchase price of the home or the fair market value of the home;

     -Provide for civil penalties of up to $5,000 per violation for violations of the statute and rules as an alternative to, or in addition to, revocation or suspension of a registration, and establish additional grounds for such actions;

     -Require the commissioner to establish training programs for trade supervisors and residential site superintendents and to issue certificates to all individuals who successfully complete such training programs; and

     -Require the commissioner to seek reimbursement from the builder for payments made from the fund to an owner in instances where the builder failed, or willfully refused, to cure a serious construction defect and to deposit the recovered amount into the fund.