N.J. Admin. Code § 5:25-5.5

Current through Register Vol. 56, No. 23, December 2, 2024

Section 5:25-5.5 - Claims procedure

(a) Builder responsibilities rules are:

1. The builder shall provide to the owner, on or before the warranty date for each new home, a full statement of warranty coverage and warranty claims procedure in such form as shall be prescribed by the Director.

2. Upon receipt of the four validated copies of the Certificate of Participation returned by the Department pursuant to 5:25-5.4(a) 2, the builder shall distribute said validated copies in the following manner.

i. On the warranty date, one copy (the owner's settlement copy) shall be furnished to the owner.

ii. Within 10 days of the warranty date, one copy shall be furnished by the builder to the mortgagee, if any, of the new home.

iii. One copy shall be furnished to the local construction official as part of the application for a certificate of occupancy.

iv. One copy shall be retained by the builder as a file copy.

3. The Certificate of Participation shall be in such form and contain such information as shall be prescribed by the Director. A late payment fee shall be assessed and, having been assessed, shall be paid for each failure to remit payments due the Department on time, as provided in N.J.A.C. 5:25-5.4. Such late payment fee shall not exceed $ 50 for the first 30 days, or for any part thereof, and $ 500 for each 30-day period or part thereof thereafter.

4. The builder shall, on or before the warranty date, provide the owner with written notice concerning the business address to which notifications concerning alleged defects can be directed. The builder shall further provide written notice by regular mail of the new address to which notifications may be directed should the business address of the builder change at any time during the first two years following the warranty date.

5. Whenever an owner shall provide a builder with a notice of defect, then the builder shall arrange, with the owner, a mutually agreeable time for an inspection of the defect. Upon completion of the inspection, but in no case later than 30 days from receipt of notice of the defect, the builder shall provide the owner with a written statement setting forth the action the builder will take to correct the defect and the time by which the defect will be corrected.

(b) Owner responsibilities rules are as follows:

1. Except as specifically required in 5:25-3.4, any owner who believes he or she has a covered defect shall provide written notice of the nature of the defect(s) to the builder not later than seven calendar days after the date on which the warranty on that item expires. The notice shall be delivered to the builder's business address.

2. Upon providing written notice to the builder, the owner shall allow the builder 30 days in which to respond and shall arrange to be present and make the home available to the builder for purposes of inspection of defects, for a reasonable period of time between 9:00 A.M. and 6:00 P.M., Monday through Friday, or other mutually agreeable time.

3. If the matter cannot be resolved through the informal dispute settlement process established in (a)5, (b)1 and 2 above, then the owner may file Notice of Claim and demand, for dispute settlement with the Division. The Notice of Claim shall be filed not later than 14 days after the expiration of the 30 day period provided in (b)2 above. The claim shall state the name of the builder, the date on which the notice of defect was given to the builder, the Certificate of Participation number and a copy of the written notice of the defect, as prescribed in (b)1 above.

i. Except in the case of claims which relate to structural problems or emergencies, a notice of claim shall not be submitted until the expiration of 120 days from the warranty date.

ii. An owner may not file more than one claim for the same defect. However, a new claim may be filed by the owner if new facts arise which could not previously have been known with reasonable diligence.

iii. Where a claimed defect is filed that cannot be observed or determined under normal conditions it is the owner's responsibility to substantiate that the condition does exist. Any cost involved shall be paid by the owner and if properly substantiated, reimbursement shall be made by the builder or the State Plan, whichever is liable for the claim.

4. Where an owner of a new home has not received a valid Certificate of Participation from the builder, pursuant to (a)1 above, then the owner may file both the notice of defect and the notice of claim and demand for conciliation with the Division directly and need not provide notice to the builder. In the event the builder subsequently pays the warranty premium, the Department shall give the builder notice of any pending claims and the status thereof.

(c) Rules concerning Departmental responsibilities and formal claims resolution processes are:

1. The Division shall, upon receipt of Notice of Claim, designate a conciliator and schedule a conciliation hearing. Whenever possible, such hearing shall take place at the warranted premises. Any resulting agreement shall be in writing, listing the specific actions to be taken by the builder to repair or replace defects in the home and a date by which corrections shall take place.

2. When the defect is corrected or a monetary settlement is made in lieu thereof, the builder shall present the owner with a release for execution. One copy of the signed release shall be retained by the builder, one by the owner, and one copy shall be forwarded to the Division.

3. If all or any part of the dispute remains unresolved after conciliation, the Department shall provide one of the following options:

i. Arbitration:

(1) Where both parties agree, the Division shall designate an arbitrator, who shall hear the matter in accordance with the rules of procedure of the American Arbitration Association. Any person serving as an arbitrator for either the State Plan or an approved private plan shall possess proof of satisfactorily passing the course of study for building inspector R.C.S., as set forth in 5:23-5.20(d)1, and examination module 1A-- Building One and Two Family Dwelling or be licensed as a professional engineer or registered or licensed as an architect in any state or hold a license as a subcode official in the State of New Jersey; provided, however, that no person shall serve as an arbitrator in any matter involving a major structural defect claim who is not either a licensed professional engineer or a registered or licensed architect.

(2) The decision of the arbitrator shall be binding on both parties and reviewable only under such circumstances and to such extent as is available pursuant to the New Jersey Arbitration Act. The decision shall fix responsibility, the extent of the defect, and the date by which it must be corrected. In all cases where both parties elect to arbitrate the claims dispute and an arbitration decision has been rendered, there shall be no recourse to subsequent arbitration. In the event the decision of the arbitrator requires clarification, either party or the Division may request the arbitrator's jurisdiction be reinstated for the sole purpose of clarification of the award.

(3) Each party and the Division shall receive one copy of the arbitrator decision.

(4) Whenever arbitration shall result in a finding for the owner, the arbitrator shall prescribe that the builder correct the defect or make necessary replacements.

(5) In lieu of separate conciliation and arbitration, the Division may provide, at its sole option and discretion, for an expedited dispute settlement process wherein conciliation and arbitration are performed simultaneously and any agreement arrived at or decision rendered shall be binding as provided in (c)3i(2) above. Such arbitration shall be subject to the same rules and regulations as defined in (c)3i(3) above.

ii. Administrative hearing:

(1) Where both parties do not agree to arbitration, the Bureau of Homeowner Protection shall thoroughly review the matter and shall make a decision as to the merits of the claim. This decision shall be binding on both parties, provided, however, that if either party files a notice of appeal of the decision with the Division within 15 days of service of notice of such decision the Division shall then provide an administrative hearing in accordance with the Administrative Procedure Act, 52:14B-1 et seq.

(2) Such hearing shall be held within 30 days of demand by either party, as in (c)3ii(1) above, and a recommended report and decision shall be issued within 45 days of the hearing. Each party shall be permitted 15 days from the date of their receipt of the recommended report and decision to file written exceptions, objections, or argument before the Commissioner, who shall, within 45 days thereafter, issue a final decision which adopts, modifies or rejects the recommended decision. Failure of the Commissioner to issue a decision within 45 days shall constitute affirmation of the recommended decision.

(d) Claim on common elements rules are as follows:

1. Claims including common elements in a condominium or cooperative may only be made by an authorized representative of the association. Where, however, the builder retains control of more than 50 percent voting interest in the association, claim may be made by the owners of unit interest directly to the Bureau or the applicable private plan administrator. The claimed common element defect will then be part of the unit claim and processed according to (c) above.

(e) Final payment in the event of builder default rules are as follows:

1. If any builder, after receiving the decision of the arbitrator, the Bureau of Homeowner Protection or the Director, as the case may be, refuses to correct any defect within the time period specified in the decision, then the owner may file a request for payment with the Department. Notwithstanding any conciliation agreement or arbitration award, the Division shall inspect the home for the purpose of determining if the defect is covered by the warranty and, upon verification that the defect is covered, and upon submission of the bids and review thereof as provided in (e)2 below, the Director shall certify the amount of the award to the Treasurer, who shall make payment from the fund.

2. The amount of the award shall, in all cases, be based upon the lower or lowest of two or more bona fide estimates acceptable to the Division for the work intended to be covered. Payment shall be made jointly to the owner and to the contractor performing the work upon certification by both of them that the work is complete and the defect has been removed; provided, however, that payment may be made to the owner only, upon presentation of proof that the contractor has been paid. An owner electing to perform the work himself or herself shall receive payment in an amount not to exceed the cost of the materials upon certification by him or her of the completion of the work and the removal of the defect. Payment shall be made only for work authorized in writing by the Department and upon completion to the Department's satisfaction.

3. In the event that an owner refuses to accept the amount certified by the Director as being in settlement of all claims against the fund for the defect at issue, the Director shall designate an arbitrator, who shall hear the matter in accordance with the rules of procedure of the American Arbitration Association. In the event that the owner does not agree that the decision of the arbitrator shall be binding, the Director shall provide an opportunity for the owner to appeal the decision of the arbitrator at an administrative hearing pursuant to the Administrative Procedure Act.

i. Any request for an administrative hearing shall be submitted within 15 days of the date of service of the arbitrator's decision.

ii. The record of the hearing shall be limited to the record of the arbitration proceeding, except to the extent it is determined that the arbitrator incorrectly excluded any evidence that should have been admitted.

iii. The arbitrator shall not be called as a witness by either party.

iv. The standard of review shall be the reasonableness of the arbitrator's decision.

4. When a payment is made under these regulations the owner shall assign to the State all rights, title and interest in any claim or cause of action the owner may have against the builder arising out of the claim for which payment is made. The owner shall execute and deliver any instruments and do whatever else is necessary to secure such rights and shall do nothing to prejudice such right.

(f) Nothing herein shall limit the right of an owner to seek a remedy directly in court pursuant to Section 9 of the Act, without regard to the dispute settlement procedures made available in accordance with this subchapter; provided, however, that the New Home Warranty Security Fund shall have no liability if a remedy other than dispute settlement in accordance with this subchapter is elected by the owner of a new home.

(g) Rules concerning claims which are filed with the State Plan after the expiration of the first two-year warranty period are as follows:

1. All such claims shall be filed with and processed by the Division in accordance with the procedures established under (e)2, 3 and 4 above. All payments made by the Division on such claims shall be from the New Home Warranty Security Fund.

2. Upon receipt of a claim, the Division shall inspect the home for the purpose of determining if the defect is covered by the warranty and, upon verification that the defect is covered, and upon submission of the bids and review thereof as provided in (e)2 above, the Director shall certify the amount of the award to the Treasurer, who shall make payment from the fund.

3. In the event of any dispute regarding a claim filed after the expiration of the first two-year warranty period, the Division shall designate an arbitrator, who shall hear the matter in accordance with the rules of procedure of the American Arbitration Association, except as otherwise provided in these rules; provided, however, that any request for arbitration shall be filed with the Division within 30 days following the date that the disputed decision was received by the party making the request.

i. Except as otherwise permitted by the Division for good cause, the arbitration proceedings shall be either tape recorded or transcribed, with the arbitrator describing for the record any of his or her observations of any alleged defects.

ii. Any person serving as an arbitrator shall be either a licensed professional engineer or a registered or licensed architect.

iii. The claimant may agree in advance that the decision of the arbitrator is to be binding on both parties.

iv. The decision of the arbitrator shall fix responsibility and describe the nature and extent of the defect. The decision shall include a summary of testimony and evidence, a statement of factual findings, such technical analysis as may be necessary to support the decision and a statement of the rationale for the decision.

v. In all cases where an arbitration decision has been rendered, there shall be no recourse to subsequent arbitration. In the event the decision of the arbitrator requires clarification, either the claimant or the Division may request the arbitrator's jurisdiction be reinstated for the sole purpose of clarification of the award.

vi. A claimant who does not agree to binding arbitration may subsequently request an administrative hearing to review the decision of the arbitrator on the grounds that evidence was improperly excluded by the arbitrator or that the decision was unreasonable. Any such hearing request shall include the specific factual and/or legal basis for any claim of improper exclusion of evidence or unreasonableness of the decision, as the case may be.

vii. The Division shall, upon a finding by the Director that there exists a contested case, provide an administrative hearing in accordance with the Administrative Procedure Act, 52:14B-1 et seq. and the Uniform Administrative Procedure Rules, N.J.A.C. 1:1, when a party who applied for arbitration but did not agree that it would be binding submits a hearing request including all required information within 15 days of the date of service of the arbitrator's decision. The record of the hearing shall be limited to the record of the arbitration proceeding, except to the extent it is determined that the arbitrator incorrectly excluded any evidence that should have been admitted. The arbitrator may not be called as a witness by either party. The standard of review shall be the reasonableness of the arbitrator's decision.

4. Notwithstanding the provisions of (g)1 above, if the builder was notified of a major structural defect during the first two years of warranty coverage and is currently registered, the Division shall process a claim for remediation of such defect in accordance with subsection (c) above.

N.J. Admin. Code § 5:25-5.5

Amended by R.1980 d.158, effective 4/15/1980.
See: 12 N.J.R. 249(d).
Amended by R.1980 d.316, effective 7/17/1980.
See: 12 N.J.R. 303(b), 12 N.J.R. 452(d).
Amended by R.1981 d.181, effective 6/4/1981.
See: 13 N.J.R. 187(c), 13 N.J.R. 333(d).
(c)3ii(1): "The Bureau . . . notice of such decision" added.
(e)1: "the Bureau of Construction Code Enforcement" added.
Amended by R.1982 d.386, effective 11/1/1982.
See: 14 N.J.R. 944(a), 14 N.J.R. 1210(a).
Added seven day limit to (b). Notice of Claim within 14 days after 30 day expiration period added to (b)3.
Amended by R.1986 d.141, effective 5/5/1986.
See: 17 N.J.R. 2816(a), 18 N.J.R. 959(a).
Substantially amended.
Amended by R.1991 d.140, effective 3/18/1991.
See: 22 N.J.R. 1701(a), 23 N.J.R. 847(c).
Stylistic revisions.
Amended by R.1992 d.246, effective 6/15/1992.
See: 24 N.J.R. 1149(a), 24 N.J.R. 2244(b).
New Home Security Fund liability limited.
Amended by R.1994 d.50, effective 2/7/1994.
See: 25 N.J.R. 4986(a), 26 N.J.R. 796(b).
Amended by R.1996 d.93, effective 2/20/1996.
See: 27 N.J.R. 4058(a), 28 N.J.R. 1225(a).
Amended by R.1998 d.126, effective 3/2/1998.
See: 29 N.J.R. 3916(a), 30 N.J.R. 825(a).
In (c)3i, rewrote (1).
Amended by R.1998 d.585, effective 12/21/1998 (operative March 1, 1999).
See: 30 N.J.R. 3632(a), 30 N.J.R. 4349(a).