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New Home Buyers Trapped by Unfavorable Arbitration Clauses

Trying to recover for construction defects under a new-home warranty can cost you the right to pursue your remedy in court, the Appellate Division ruled recently in a precedential decision. The court, in Frumer v. National Home Ins. Co., A-1379-10, enforced an arbitration clause in a new-home warranty policy, leaving the owners unable to sue a warranty company for its failure to fix problems that left their million dollar home uninhabitable. Reversing a trial judge, the panel said it was “satisfied that the arbitration provisions applicable here reflect an enforceable agreement that establishes arbitration as the exclusive remedy for the dispute involving plaintiffs’ claims against the warranty.” A 1977 law requires that every new home built in New Jersey come with a home warranty.

Hidden in this decision is the provision that the unhappy homeowner has no choice of an arbitration forum. They are stuck with the arbitrator chosen by the builder or warranty company!

You are referred to the Opinion of the Honorable John T. Mullaney, Jr. contained in our website under Real Estate-Buying a New Home in our Practice Areas.

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