RESIDENTIAL - Construction& Renovation

RESIDENTIAL

A Legal Guide for New Jersey Homeowners

Second Edition

New Jersey State Bar Foundation

CCoonnssttrruuccttiioonn &&

RReennoovvaattiioonn

IInnttrroodduuccttiioonn

Residential Construction and Renovation: A Legal Guide for New Jersey

Homeowners

was prepared for the New Jersey State Bar Foundation by the New

Jersey State Bar Association’s Construction and Public Contract Law Section.

While many may envision large construction projects such as malls, highways,

bridges, office towers, and the like when they think of construction law,

members of the section deal just as frequently with the legal, financial and

emotional issues arising out of home repairs, the construction of a new house

and other residential issues as they do with the mega projects. Through statutes

and r

egulations, New Jersey has adopted numerous protections for homebuyers

and homeowners who want to either have a house built or renovate an existing

home. This manual addresses several of the more commonly applied laws that

have been adopted for the protection of residential consumers.

The information in this guide is published as a public education service to help

explain laws in New Jersey. It does not constitute legal advice, which can only

be given by an attorney.

Res

idential Construction and Renovation: A Legal Guide for New Jersey

Homeowners

is made possible by funding from the IOLTA Fund of the Bar

of New Jer

sey.

AAcckknnoowwlleeddggeemmeennttss

The New Jersey State Bar Foundation and the NJSBA Construction and Public

Contract Law Section gratefully acknowledge the work of coordinating editors

and authors, James H. Landgraf, Esq., Robert J. Incollingo, Esq. and Lee M. Tesser,

Esq. for their efforts in developing this manual.

NJSBA Construction and Public Contract Law Section

2006 New Jersey State Bar Foundation

Steven Cohen, Esq.

Anthony J. Giuriceo, Esq.

Charles F. Kenny Jr., Esq.

Co-Chairs

Robert J. Incollingo, Esq.

Harry E. McLellan III, Esq.

Co-Vice Chairs

TTaabbllee ooff CCoonntteennttss

New Homeowner’s Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Home Inspection Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Home Improvement Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Contractor Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Residential Construction Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Resolving Disputes in Residential Construction

and Renovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

New Homeowner’s Warranty

Even with the limited space that may be available in New Jersey, construction

of new housing is a major industry, and many homeowners make the decision

to live in a house that is newly built, hopefully to meet their specific needs and

desires. The decision to have a new home built is a major one, and every new

homebuyer sees his or her “dream house” without any problems that may have

been found in a house that was built for someone else. Unfortunately, new

houses do not come with a guarantee that upon opening the door everything

will be perfect. The New Jersey Legislature has adopted the New Home Warranty

and Builders’ Registration Act, which provides a level of protection to those

people who have a house built for them. It includes provisions that attempt to

ensure that contractors building new homes are responsible and viable, and that

they will remain responsive to problems that may arise after the house is finished

and sold. The following information discusses some of the provisions of the New

Home Warranty and Builders’ Registration Act and ways a homebuyer may make

use of those provisions to assure that the new home is without significant or

major defects.

What is the New Home Warranty and Builders’Registration Act?

For the protection of consumers of residential real estate, a warranty must be

issued by all builders of

new construction. Condominiums and cooperatives are

covered under the warranty. The warranty insures certain standards and quality

of construction for various components of your new home.

Basically, the warranty coverage can be summarized as follows:

a. One year from and after the warranty date, the dwelling shall be free from

defects caused by faulty workmanship and defective materials due to non-

compliance with the building standards as approved by the commissioner

overseeing the act.

b. Two years from and after the warranty date, the dwelling shall be free from

defects caused by faulty installation of plumbing, electrical, heating and

cooling systems.

c. Ten years from and after the warranty date, the dwelling shall be free from

major c

nstruction defects as further defined in the act.

or c

onstruction

defect

means 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-b

ear

ing func

tion and which vitally affects or is likely to vitally affect use

of the home for residential purposes.

How do I know if the builder of my home is registered?

You can contact the Department of Community Affairs in Trenton (609-292-

6420). Any qualified builder of new construction is issued a registration

certificate indicating that the builder is registered with the state of New Jersey

to issue new home warranties.

Are only new homes covered under the act?

Yes, previously occupied and rehabilitated pre-existing homes do not fall under

the protection of the New Home Warranty and Builders’ Registration Act.

How do I start a homeowner warranty claim?

The New Home Warranty Division of the state of New Jersey has forms that

can be utilized by consumers of new homes to initiate a claim. These forms

are also usually included in the papers that builders must give to homebuyers

at settlement.

What is my protection under a new home warranty claim?

Under the New Home Warranty and Builders’ Registration Act, an arbitrator

will b

e appointed to visit the home, investigate and arbitrate any disputes. The

builder is entitled to be present during any inspection. The arbitrator will

render a decision in accordance with the act. If the arbitrator determines that

a defect exists which is the builder’s responsibility, the builder is usually

afforded a reasonable amount of time to correct or repair the defects. A

builder may offer the reasonable cost of repair in liew of performing the work.

What if the builder does not fix problems determined to be his or her

responsibility under the warranty?

As part of the New Home Warranty and Builders’ Registration Act, a security

fund is set up with sufficient resources, so the New Home Warranty Security

Fund will pay for those items determined to be a builder’s responsibility but

which the builder refuses to rectify. Note: A builder may choose not to fix a

problem, but pay money to the homeowner for the repair or replacement of

the defect.

What if I don’t want to submit a claim under the home warranty

arbitration process, and would rather sue the builder in court?

You may do so. A homeowner can either sue the builder for defects or submit

a claim under the act. You may not, however, do both. Once a process is

selected—litigation or arbitration—you cannot use the other forum for the

same issue. For example, if your claim involves defects to the roof and you

choose to arbitrate under the act, you are bound by the arbitrator’s decision. If

you disagree with the result, you may not then sue the builder for the roof

defects. A builder may also include a general arbitration clause in the contract,

which will prevent a homeowner from being able to use the court system. In

that event, general arbitration may be selected by the homeowner instead of

using homeowner warranty arbitration.

What if my builder is not registered with the state?

Any builder who fails to register under the New Home Warranty and Builder’s

Registration Act shall be subject to a penalty not to exceed $2,000 for each

offense, to be enforced and collected by the Commissioner of the Department

of Community Affairs in the name of the state in a summary proceeding in

accordance with the Penalty Enforcement Law (N.J.S.A. 2A:58-1

et. seq.).

Is it possible that the defects in my new home are not covered

under the act?

Yes, the warranty does not cover every defect, only those covered under the act

as summarized on page two. For example, landscaping, fences, driveways,

patios and pools are not covered under the act. Also, normal wear and tear or

normal deterioration are not covered under the act. Insect damage, accidental

loss or damage from acts of nature (

i.e., floods, fire, falling trees) are likewise

not covered. Finally, damage to personal property is not covered.

Can a builder lose his or her registration certificate?

Yes, for the following reasons:

A certificate of registration may be denied or revoked if the registrant or

applicant or an officer, partner, director or stockholder of the registrant or

applicant has at any time:

1. willfully made a misstatement of material fact in his or her application

for registration or renewal;

2. willfully committed fraud in the practice of his or her occupation;

3. practiced his or her occupation in a grossly negligent manner;

4. willfully violated any applicable building code to any substantial degree;

5. 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; or

6. violated any provision of this act or any rule or regulation adopted pursuant

thereto, after proper notice from the commissioner in writing by certified mail.

Are there any standards which an arbitrator must follow in determining

whether a particular item meets acceptable workmanship standards?

Yes. The standards are numerous and can be found in the New Jersey

Administrative Code Section 5:25-3.5. The standards should also be included in the

paperwork the builder must give to the buyer.

Is a builder’s total liability to a new homeowner limited?

Yes. A builder’s total liability to a new homeowner is limited to the purchase price

of the home.

Are there limits on what can be claimed under the homeowner’s warranty?

Yes. An arbitration action under the homeowners warranty is limited to defects

and deficiencies under the terms of the warranty. That arbitrator will not decide

on issues involving other potential claims, such as consumer fraud, breach of

contract, violations of building codes, loss of value or use and similar claims

that do not fall within the terms of the warranty. If a homeowner feels that he or

she has such a claim, he or she may only pursue those through the court or

general arbitration options.

What if the builder goes out of business, or does not have the warranty

insurance?

In cases where the builder is no longer in business, and therefore is unavailable to

perform the warranty work and did not maintain warranty insurance, the

homeowner may seek the same relief under the warranty from the state of New

Jersey, Department of Community Affairs, Bureau of Homeowner Protection.

When making a claim to this agency, the agency will inspect and make a decision of

whether the claimed defect falls within the warranty terms. If it decides the defect is

not within the warranty, the homeowner may request arbitration of the decision.

Home Inspection Licensing

Practically all contracts for the purchase of a home include the ability of the buyer

to have the home inspected before completing the purchase. Most homebuyers do

not have the level of expertise necessary to allow them to walk through a house and

determine whether it is constructed properly, whether all the systems are working

or whether there are defects that could impact their future life in the house or

require further expenditures after they have purchased the house. In an effort to

prevent unqualified inspectors from marketing themselves to homebuyers, and

to assure that the inspectors have a level of responsibility, the Legislature has

adopted laws requiring home inspectors to be licensed and to maintain financial

responsibility for the homebuyers who are relying upon them to provide a

thorough and accurate description of any problems, defects or limitations that

may exist in the house being purchased.

What is the Home Inspection Professional Licensing Act?

In response to numerous complaints by homeowners that their home

inspectors failed to properly perform home inspections, the New Jersey

Legislature decided, effective July 6, 1998, to enact legislation governing the

actions of residential home inspectors. The legislation, which can be found at

N.J.S.A. 45:8-61, was designed to address certain problems with home

inspections, including:

a. poorly trained home inspectors;

b. home inspection companies that failed to carry insurance to protect

consumers from negligently performed home inspections; and

c. home inspection companies that hire unqualified inspectors.

The Act does not apply to code enforcement officials, licensed architects,

engineers, electrical contractors, master plumbers, licensed real estate

appraisers or insurance adjusters.

Why is the legislation and regulation of home inspectors necessary

for consumers?

The purchase of a home is one of the most important decisions in a person’s

life. For this reason, the New Jersey Legislature deemed it necessary to protect

consumers who seek the advice of home inspectors so that they are properly

informed of any construction-related problems in the home. A home

inspector should properly advise consumers of any potential material

deficiencies or other substantial deficiencies to the home so that homeowners

can properly evaluate whether it is in their best interest to purchase the home

and/or whether adjustment in the price of the home is warranted.

Who is covered under the Home Inspection Professional Licensing Act?

All residential real estate consumers of a one- to four-family dwelling. New

construction is not covered by the Act.

How can consumers insure that a home inspector is properly licensed?

When hiring a home inspector, a consumer should simply ask whether they are

properly licensed and ask to see a copy of their license certificate.

What should a homeowner expect from a licensed home inspector in

terms of insurance and licensing requirements?

A home inspector with a current and valid license will be deemed to meet the

following qualifications:

a. good moral character;

b. a high school education or equivalent;

c. being engaged as a licensed associate home inspector for not less than

one year and having performed not less than 250 home inspections for

compensation; and

d. passed the national home inspection exam administered by the

Examination Board of Professional Home Inspectors (EBPHI) or the exam

offered by the American Society of Home Inspectors (ASHI).

With regard to insurance requirements, a licensed home inspector must

maintain and file with the Board of Professional Engineers and Land Surveyors

(a department of the state of New Jersey) proof of a certificate of an errors and

omissions insurance policy which should be in the minimum amount of

$500,000 per occurrence.

The insurance certificate guarantees that there is insurance coverage for you in

the event that your home inspector is negligent in the performance of the home

inspection. In other words, in the event your home inspector commits errors

and/or omissions in the way the home inspection was conducted and in the

resulting conclusions, there may be insurance coverage to cover your loss.

Which state agency oversees enforcement of the Home Inspection

Professional Licensing Act?

The Division of Consumer Affairs, under the State Board of Professional Engineers

and Land Surveyors.You can contact them if you have any questions regarding a

particular home inspector by calling the following number: 973-504-6460.

Can the state board refuse to grant or suspend and/or revoke a home

inspector’s license?

Licenses may be revoked upon proof that the home inspector:

a. disclosed any information concerning the results of the home inspection

without the approval of the client or the client’s representative;

b. accepted compensation from more than one interested party for the same

service without the consent of all interested parties;

c. accepted commissions or allowances, directly or indirectly, from other

parties dealing with their client in connection with work for which the

licensee is responsible; or

d. failed to disclose promptly to a client information about any business

interest of a licensee, which may affect the client in connection with the

home inspection.

The State Board of Professional Engineers and Land Surveyors is also responsible

for establishing certain ongoing standards for continuing education of home

inspectors, as well as a code of ethics and standards of practice.

What is an “associate”home inspector, and can they perform home

inspections on my home?

Associate home inspectors must train under and be supervised by a fully

licensed home inspector. While an associate may perform inspections for a

fee, he or she is obliged to perform at least 250 inspections during a year or

more. In addition, associate home inspectors must also pass the EBPHI test.

Is a general liability insurance certificate the same as an errors and/or

omissions insurance certificate?

No. General liability insurance is insurance for accidents and damage caused

by the home inspector during the course of the inspection. In other words, if

the home inspector drops his or her hammer through the roof causing

damage, the home inspector’s general liability insurance would pay for the

repair. General liability insurance does not provide insurance to a homeowner

in the event the home inspector was negligent in the performance of the

inspection.

The errors and omissions liability insurance provides the home inspector with

insurance coverage in the event that it is determined an inspection was

performed negligently. For example, if your home inspector indicates in the

inspection report that the house has no noted deficiencies and you discover

substantial deficiencies in the roof, foundation and plumbing systems one week

after your closing, you may be able to seek compensation for the home

inspector’s failure to properly detect those deficiencies. This insurance coverage

would protect a consumer regardless of whether or not the inspection company

has assets or is still in business.

Is there a time limitation on suing a licensed home inspector?

Yes. An action for an error or omission in the performance of a home

inspection contract must be commenced within four years of the date of the

home inspection.

Can a licensed home inspector engage in the practice of architecture or

engineering?

No.

NOTE: Despite the Home Inspection Professional Licensing Act’s enactment in

1998, New Jersey’s Home Inspection Advisory Committee has taken some time

to fulfill the statute’s requirements and the licensing process continues to take

more time than originally anticipated. As of May 2006, there were approximately

600 licensed home inspectors. Thus, for the past several years it appears that with

some exceptio

n, home inspectors have been permitted to operate without a

license. A list of licensed home inspectors may be obtained from the Division of

Consumer Affairs’ website (www.state.nj.us/lps/ca/nonmedical/hiac.htm).

Inquiries or complaints about a home inspector should be sent to the

Home Inspection Advisory Committee, P.O. Box 45043, Newark, NJ

07101, Attn: Executive Director. The Home Inspection Advisory

Committee may also be reached at 973-504-6460.

Home Improvement Contracts

Other than buying a house, a homeowner’s largest expense in

owning a home is likely to be the expense of having a

contractor perform improvements to the house. Contractors

who perform home improvements may specialize in a

certain type of work, such as plumbing or roofing, or may

be gene

ral contractors who claim they are able to

perform all types of improvement work. In an effort to

protect homeowners from poorly performing or

dishonest contractors, New Jersey has, through the

Consumer Fraud Act, developed certain minimum requirements that

contractors must meet to make a contract for home improvements that is

enforceable, or valid. The same regulations allow a homeowner to seek to

recover damages against contractors who fail to meet the act’s minimum

requirements.

The following are some of the more significant portions of the statutes and

regulations that cover home improvement construction projects.

Where can I find the statutes and regulations that deal with home

improvement contracts?

The basic statute is the New Jersey Consumer Fraud Act located at New Jersey

Statutes Annotated 56:8-1

et. seq. In general, this law provides a remedy for

a consumer victim of commercial fraud as defined by the statute. Specific

regulations have been adopted by the Division of Consumer Affairs

located at the New Jersey Administrative Codes 13:45A-16.1

et. seq. entitled

“Home Improvement Practices.” These regulations identify specific actions by

contractors or sellers of home improvement services, which are established

by law as unlawful practices.

What is a home improvement?

The Home Improvement Practices Regulations broadly define a home

improvement as any remodeling, altering, painting, repairing or modernizing

of residential property. It also includes the construction of additions, and

work on the property outside of the house, including driveways, sidewalks,

swimming pools, patios, landscaping, fences and the like. It includes specialty

trade work such as electrical, plumbing and heating and air conditioning. It

includes aesthetic work such as carpeting, painting, floor and wall coverings.

In general, if the work that is being performed will be an improvement to the

property it will very likely fall under the definition of a home improvement.

Are rental homes covered by the law?

Yes. As long as the property is used for residential purposes, or the specific

portion of the property is used for residential purposes, it is covered under the

definition of residential property, and therefore any improvements would be

covered under the law.

When I am contracting for home improvements, should I get

a written contract?

Yes. For all home improvements where the cost will be more than $500, the

contractor is required to give a formal written contract to the homeowner and

the contract must be signed by both the homeowner and the contractor in

order to be enforceable or valid.

What if I do not receive or do not sign a written contract?

If the contract is for home improvements having a value of more than $500, and

if there is no written contract signed by both the homeowner and the contractor,

the contractor does not have the right to enforce payment by the homeowner.

The contractor will also be found to be in violation of the Consumer Fraud Act,

which may give the homeowner additional rights. A contractor may still have a

right to demand the reasonable value of any services or materials provided, but

this would not be under the terms of an unsigned or verbal contract. Where no

written, signed contract exists, there is no contract to enforce.

What must be in a written contract?

At a very minimum, a written contract (for work in excess of $500), to be

enforceable or valid, must include:

• the legal name and business address of the seller as they are referred to in the

statute (the contractor) as well as the legal name and business address of any

sales representative or agent who negotiated the contract;

• a description of the work to be done and identification of the primary

products and materials to be used;

• the total price to be paid, including all finance charges involved, if any

• if the contract is for time and materials, the hourly rate for the labor;

• the date when work is to begin and end, or if no dates are given, a time

period for the completion of the work;

• if the work is being financed, a statement of the existence of the mortgage

or any other security interest;

• all guarantees and warranties.

What if these contract terms are not included in the written contract?

A writt

n c

ntract that does not include these essential terms is unenforceable

or not valid according to the statute. If the homeowner incurs damages or

costs as a r

ult of the lack of any of these terms in a contract, the homeowner

may be entitled to damages under the law.

What if there are changes in the work?

If anything is changed before or during the work, for example the homeowner

decides to upgrade the carpeting to a more expensive type or a contractor

cannot get the type of kitchen cabinets the homeowner wanted and suggests a

more expensive type, those changes must be shown in a written form, which is

called a change order. All changes, including extra work, additional costs for

unexpected problems and the like must be included in a written change order,

signed by the homeowner and contractor, or the contractor will be in violation

of the law.

What rights does the homeowner have if the contractor misrepresents

any of the work he or she is going to perform, changes the type of

materials used or misrepresents his or her experience?

The Home Improvement Practices Regulations provide that misrepresentation

of products or materials, unapproved substitutions of products or materials,

misrepresentation of the contractor’s identity, misrepresentation of price or

financing terms, or misrepresentation of the contractor’s capabilities are

unlawful practices giving the homeowner the right to damages under the

Consumer Fraud Act.

When do I have to pay the contractor for the work?

A home improvement contract can include any number of payment

arrangements. If it is not a financed agreement where the homeowner makes

periodic payments over an extended period of time, the contract will usually

say that partial payments will be made at the outset of the work, and at certain

identified times during the work, with the balance due upon completion. If a

contractor seeks final payment before it is due under the terms of the contract,

or before the work is completed, it is an unlawful practice and a violation of the

Consumer Fraud Act, entitling a homeowner to a right for damages against the

contractor.

Must the contractor warrant its work?

The law does not require that the contractor provide any specific warranties. If

warranties or guarantees are provided by suppliers of materials or equipment,

those m

ust b

e id

ifie

d in the contract and must be given to the homeowner.

If the contractor makes verbal warranties or guarantees, but does not include

them within the w

ritten contract, and if the homeowner can prove that the

warranties were made, it would represent an unlawful practice not to include

them in the contract.

Does the law require completion of work in any specific time period?

The statute and regulations do not require that the work be completed within a

defined time period. The regulations do require that the contract include as one

of the terms a start and end date, or a period of time for completion of the work.

The regulations also require that it is an unlawful practice for the contractor to

go beyond a stated time period, or beyond the stated completion date, without

providing, in writing, a notice to the homeowner seeking a time extension

because of labor stoppage, unavailability of supplies or materials or other causes

beyond the contractor’s control. Any request for an extension of time by the

contractor must be in writing and signed and agreed to by the homeowner.

Do contractors require a license to perform home improvement work?

The Consumer Fraud Act and the Home Improvement Practices Regulations

do not require that the contractor have a license to perform the work. Certain

trades, such as electricians and plumbers, do require that the contractor hold

licenses. Depending on the type of work involved, the improvement being made

to the home may require the issuance of a construction permit, either to the

contractor or to the homeowner, before the work begins. A contractor that

requires a license or municipal registration, but performs work without one, or

performs work without the issuance of a construction permit where a permit is

needed, may be found to have committed an unlawful practice under the

regulations and the homeowner may be able to make a claim for damages against

the contractor. Under the Contractors’ Registration Act, (see related section in

this booklet) a home improvement contractor must be registered.

What are my rights if a contractor commits an unlawful practice under

the Home Improvement Practices Regulations?

If a contractor violates the Home Improvement Practices Regulations, in

addition to a homeowner’s right to try to recover additional costs that they

may have paid or will have to pay as a result of the violation, such as

completion or repair costs if damages were actually caused by the violation of

the regulations, the homeowner would be entitled to three times (treble as the

regulat

ns cal

l it) those damag

es.

The homeowner would also be entitled to

recover costs, including legal fees, resulting from having to pursue the

contractor in court.

Am I automatically entitled to these additional damages?

The treble damage provisions and attorney’s fee provisions under the

Consumer Fraud Act are damages that a homeowner may recover in a lawsuit

if it is found that the contractor violated the terms of the Consumer Fraud

Act or the Home Improvement Practices Regulations. If a court finds a

violation it is able to award the homeowner damages related to the

homeowner’s attorney’s fees and costs.

The court is not required to fully reimburse the homeowner for all attorney’s

fees and costs. If the homeowner suffers damages as a result of the violation of

the Consumer Fraud Act, those damages may be trebled (or tripled) only if

they relate to a violation of the laws. If the homeowner’s damages are related

only to poor workmanship that is not a result of a specific violation of the act

or regulations, the act does not provide for treble damages. As an example, if a

concrete driveway is built, but is uneven and has cracks in it, this may be poor

workmanship to which a homeowner’s remedy may only be the cost of repair

or replacement without the treble damage claim and without the ability to

recover counsel fees. On the other hand, if work is performed without a

required building permit and must later be removed and replaced because of

the building permit requirements, the treble damages and attorney’s fee

provisions may apply.

How do I know if I have a claim under the Consumer Fraud Act

and Home Improvement Practices Regulations?

Some of the more common practices that occur in home improvement

construction that may allow a home improvement practices/consumer

fraud remedy are the following:

• Lack of a written contract—simply giving a written estimate without having

this signed by the homeowner and contractor does not represent a valid

home improvement contract.

• An estimate or contract that does not identify when the work is to start and

when it is to be completed, or how long it will take.

• Failure of a contractor to complete the work within a contracted time period

without proper reason or cause and a written extension of the time.

• A contractor performing work without being registered with the

municipality or performing trade work that requires licensing (electrical or

plumbing) without holding those licenses.

• A contractor performing work without the issuance of a building permit.

• A contractor seeking payment before it is due under the terms of the

contract or payment in full before the work is complete.

• A contractor starting to work and failing to return to complete the work.

• A contractor substituting materials; for example substituting certain brand

name products with generic products when the brand name products were

either verbally promised or called for in the contract.

• Despite verbal promises of certain types of products, the failure to list those

products in the contract.

• A contractor attempting to charge additional money for work claimed to be

outside of the scope of the contract, without having a written and signed

change order, where scope means the general size and type of work that the

contract is for.

What can I do to protect myself when searching for a contractor

to perform home improvements?

When seeking estimates for home improvement work, more than one

contractor should be contacted. Each contractor should be asked to provide

references. The references should be contacted and asked questions regarding

the quality of the work, the timeliness of the contractor’s performance of the

work and other information about the contractor’s ability to complete the

project. A list of all registered home improvement contractors is available on

the Division of Consumer Affairs website. The construction code office

representatives should also be asked whether they have any experience with

this particular contractor and asked to describe the nature of their experience.

The Better Business Bureau and the county’s office of consumer protection

should also be contacted to see if they have any record of problems with a

particular contractor. When speaking with your municipal construction code

office, the homeowner should also ask whether the type of work anticipated

requires a building permit.

Once a contractor is selected, the contract must be in writing and signed by both

the homeowner and the contractor. It should include the full name and address

of the contractor, the price, and the start and completion dates (or a period of

time in which the work is to be performed) and identify when payments are

supposed to be made. If a construction permit is required, the contract should

state who is going to obtain the permit, and that the last payment will not occur

until the construction code official inspects and approves the work by issuing

what is called a certificate of occupancy. In the event that the contractor has

verbally identified any particular products that are going to be included within

the work, they

should be

specifically listed

in the contract.

The contract should

state in detail what is going to be performed. A homeowner should not

sign any contract containing blanks. The homeowner should ask that the

contractor provide proof that it has insurance. The contractor should have

liability insurance to cover both damage that the contractor may cause to the

homeowner’s property, and automobile accidents. The contractor should also

have workers compensation insurance that covers claims by other persons that

could, under certain circumstances, be brought against the homeowner if the

contractor does not have that type of insurance. The written contract should

include the contractor’s representation or promise that he or she does maintain

these types of insurance coverage and that the contractor will provide a

certificate from its insurance carrier to the homeowner as proof.

Other than the Consumer Fraud Act and Home Improvement Practice

Regulations, do I have other rights against a contractor who fails to do

the work, does it improperly or otherwise causes damages to me?

In addition to the specific protections and remedies provided under the

Consumer Fraud Act and the regulations, homeowners have the right to

enforce the specific terms of the contract. They additionally have the right to

assure that the work is performed in at least a good and workmanlike manner,

which is consistent with the industry standards for that type of work. A

contractor that does not perform consistent with those standards could be

liable to a homeowner for the costs in completing, correcting or replacing

work that is incomplete or improperly constructed.

Additionally, other laws have been adopted that may become involved in

home improvement contracts. Contracts for home improvements often fall

under the control of other New Jersey Consumer Protection Statutes. These

laws, known as the Home Repair Financing Act, and the Door-to-Door Home

Repair Sales Act, apply to home improvement contracts, particularly where

longer term financing is involved.

The

Home Repair Financing Act is an extension of some of the provisions of

the Retail Installment Sales Act specifically directed to home repairs. The

Door-to-Door Home Repair Sales Act adds another level of protection where

the seller of home improvements solicits the homeowner to the extent that

paperwork is presented for signing at the home.

Each of these statutes provides for certain disclosures to the homeowner,

including language that is required to describe financing costs where a home

improvement is being paid for over a period of time. They provide

homeowners with a right to terminate the contract within three business days

after signing and provide for penalties to contractors and other sellers of

home improvements who fail to meet these provisions.

What contracts are controlled by the Home Repair Financing Act?

Under the terms of the Home Repair Financing Act,“home repair installment

contracts” are controlled. This includes contracts, where the buyer is paying

the purchase price for home repairs in two or more installments over a period

of time, that extend beyond the completion of the repair work.

As a homeowner contracting for home improvements, how does the

Home Repair Financing Act help me?

The Home Repair Financing Act requires that a purchase over a period of time

thr

ough installments must be clearly identified, and each of its terms, including

the interest rate, the amount of payments, the total financing cost that will be

paid over the perio

d of time, the monthly payments and other details with

respect to what is being paid, must be stated on the face of the contract.

Does the Home Repair Financing Act protect me only from

the contractor?

No. The Home Repair Financing Act applies not only to a seller of goods or

services, such as a contractor, but also to finance companies that typically will

provide the financing by paying the initial purchase price to the contractor and

then receiving the payments back from the homeowner together with the

financing charges.

hat is required in a home repair contract?

All home repair installment contracts must be in writing and must be signed

by the homeowner and the contractor. They are invalid if they are signed at a

time w

n the

y c

ontain blank spaces. A copy of the contract is to be provided

to the buyer or homeowner and the contract must include language notifying

the buyer of his or her right to receive a copy at the time he or she signs.

Are there any provisions that cannot be put in a home repair

installment contract?

Yes, the law includes a number of prohibited contract provisions. These

provisions have been identified because, in the past, they were frequently

included in contracts and used against consumers who tried to protect their

rights. A home repair installment contract cannot include what is known as

an acceleration clause, which would allow the seller or finance company to

immediately demand payments that were to be due in the future if they felt

insecure with the buyer’s ability to continue payments. The contract cannot

include any provisions where the buyer waives any right, claim or defense

against the seller or the sales finance company. The contract cannot include

any provisions that would relieve the seller or the holder (this is a company

that may buy the rights to receive payments under the installment sales

contract from the seller or original finance company) from liability.

What happens if required terms are not included in the contract or if

impr

oper terms are included?

While this may depend on the specific terms, including terms that have been

determined as improper by the law, in effect removes those terms from the

contract. In other words, if one of the prohibited contract provisions is

included in the contract, it will be considered by the court to be

unenforceable. If the seller has failed to include required provisions, while the

Home Repair Financing Act does not, itself, discuss or address damages or

other remedies to the buyer, it does provide for fines and penalties against the

seller. Additionally, if the seller includes improper charges, the entire contract

may be found to be void and unenforceable, and the buyer may be entitled to

recovery of all monies previously paid.

What additional protections does the Home Repair Financing

Act provide?

a. If an installment agreement for home repairs has terms that are in violation

of the act, no finance, delinquency, collection or refinancing charge may be

recovered. This means that if the contract is in violation of the requirements

of the act, a homeowner may not have to pay all of the financing charges

that were otherwise included in the purchase of the home improvements.

b. This act now also places a criminal sanction or penalty on a contractor

or finance company that knowingly violates the act.

Do the Home Improvement Financing Act protections apply

to a contract where there will be more than one payment, but there will

be no financing costs involved?

Most home improvement contracts involve a series of payments

during the course of the work with the first payment being made before work

starts, and the last payment being made once the work has been completed.

Under the definition of a home repair contract, this applies only to contracts

where installments will extend over a period of time greater than 90 days,

and where the homeowner is agreeing to pay what is known as the time sales

price that includes financing costs. If the contract simply involves periodic

payments during the course of construction without any financing costs, the

Home Repair Financing Act provisions would not apply.

What protections do I have under the Door-to-Door Home Repair

Sales Act?

The Door-to-Door Home Repair Sales Act applies to situations where the

contract papers are brought to the homeowner’s home or to some other

location other than the contractor’s place of business for signing. In this

situation, the act requires that a period of three business days be afforded a

homeowner after signing such a contract, during which time the homeowner

can change his or her mind and terminate or rescind the contract.

es a Door-to-Door Home Repair contract require any specific

ovisions or terms?

Yes. The contract that is to be signed at the homeowner’s home, usually

resulting from telemarketing or door-to-door marketing efforts by a

contractor, must include a bold print notice to the homeowner advising her of

her right to rescind the contract within three business days. The contract must

also state the manner in which that termination must occur. The homeowner

must receive two copies of the contract, including the notice at the time of

signing. The contract must include the home repair contractor’s name and

place of business, a description of the goods and services sold, the amount of

money to be paid, and the homeowner’s signature.

What if

the c

actor delivers materials for the job before the three

days run out and/or the homeowner wants to terminate or rescind?

If the not

ice of termination or rescission is given within the three days, the

contractor must, within 10 business days after receipt of the notice of intent to

rescind, pick up any goods or materials, at his or her own expense, which were

delivered, and must refund the homeowner all monies paid.

What if the contractor fails to honor the terms of the statute?

In that event, the contractor faces a disorderly persons charge (semi-criminal)

and a fine. Additionally, the homeowner has a right to sue for any monies that

were paid, but not returned, as well as attorney’s fees and costs of the lawsuit.

The homeowner is also entitled to all other rights that he or she may have,

including those discussed in the previous sections of this manual that deal

with the New Jersey Consumer Fraud Act, breach of contract claims, or any

other damages that may have occurred.

Contractor Registration

What is the Contractors’Registration Act?

The Contractors’ Registration Act (N.J.S.A. 56:8-136 et seq.) took effect

December 31, 2005 as an amendment to the Consumer Fraud Act. It requires

contractors who sell or make home improvements in New Jersey, unless they are

otherwise exempt, to be registered with the Division of Consumer Affairs

(DCA) in the Department of Law and Public Safety. To carry out the provisions

of the new statute, the DCA passed new administrative regulations (N.J.A.C.

13:45A-17) for the application, disclosure and other program requirements, and

amended existing home improvement practices regulations (N.J.A.C. 13:45A-

16.1) to make those rules consistent with the new law.

Can I find the Contractors’ Registration Act on the Internet?

Yes. The DCA has a link to the text of the Contractors’ Registration Act (N.J.S.A.

56:8-136 et seq.), as well as the new and amended regulations on its website at

www.state.nj.us/lps/ca/contractor.htm. The site also has an application packet for

registration, and related bulletins for those who must register.

Can I get in trouble if I hire an unregistered contractor?

No, not under the present setup.

Why should I care if my contractor is registered?

The Contractors’ Registration Act was passed in response to the problem of

consumer fraud in the home improvement business. The new law and

regulations require an applicant’s disclosure of any history of misconduct, with

continuing updates to the DCA of further incidents. The DCA may refuse to

issue or renew, or may suspend or revoke any home improvement contractor’s

registration, so that a valid registration is at least some minimum assurance of

the business character of the contractor.

A valid, current registration also depends on the contractor’s having commercial

general liability insurance in required minimum amounts, although such

insurance does not cover claims for abandoned or shoddy work. Under the new

Contractors’ Registration Act, a registered contractor must provide his customer

with legally compliant contract forms, disclosures required by law, and a three-

day right of rescission. Should he fail to obey the home improvement practices

regulations, his registration and thus his livelihood are at risk if he does not play

by the rules.

What happens to a contractor who does not register?

Any home improvement contractor who is required to register but who has not

received a registration number by December 31, 2005 is barred by law from

advertising, selling or making home improvements. An unregistered contractor

who continues to sell or make home improvements or who violates any other

section of the Contractors’ Registration Act is subject to civil monetary penalties

of up to $10,000 for the first offense and up to $20,000 for each subsequent

offense. Anyone who knowingly violates the Act is considered guilty of a crime of

the fourth degree and faces additional fines as well as possible jail time.

Moreover, municipalities are barred from issuing construction permits to an

unregistered home improvement contractor who is required to register. There is

an exception for pending applications, discussed below.

How can I check to see if a contractor is registered?

A home improvement contractor who is complying with the law will have its

registration number displayed on all contracts, advertisements, correspondence

and vehicles. The DCA has a link to its searchable database of registered home

improvement contractors on its website at www.state.nj.us/lps/ca/contractor.htm.

Who has t

o register with the DCA?

It’s easier to say who doesn’t have to register, since unless they come in under a

specific exemption, all home improvement contractors and persons who

advertise as home improvement contractors in this state must be registered.

Out-of-state home improvement contractors working in New Jersey, and

subcontractors who are hired by other home improvement contractors to make

or sell home improvements are all required to be registered as well. Important

exemptions from registration include:

• Any person registered pursuant to the “New Home Warranty and Builders’

Registration Act”in conjunction with the building of a new home;

• Any person performing a home improvement upon a residential or non-

commercial property owned by that person or by the person’s family;

• Any person performing a home improvement upon a residential or non-

commercial property owned by a bona fide charity or other non-profit

organization;

• Any person regulated by the state as an architect, professional engineer,

landscape architect, land surveyor, electrical contractor, master plumber,

locksmith, burglar alarm business, fire alarm business, or any other person in any

other related profession requiring registration, certification, or licensure by the

state, who is acting within the scope of practice of that profession;

• Any person employed by a community association or cooperative corporation

who is making home improvements within the person’s scope of employment at

the residential or non-commercial property that is owned or leased by the

community association or cooperative corporation;

• Any public utility;

• Any person licensed as a home financing agency, a home repair contractor or a

home repair salesman as long as the person is acting within the scope of such

license (licensed on a financed job); or

• Any home improvement retailer with a net worth of more than $50,000,000 or

any employee of such home improvement retailer who is making or selling such

home improvements within the person’s scope of employment by the home

improvement retailer.

My remodeler is already registered with the state as a new home builder and

says he doesn’t need to be registered for home improvement. Is that correct?

No. Except for public utilities, the exemptions listed above are applicable to

the exempt classes only when persons in that class are acting within the scope

of practice, performance or employment applicable to that exempt class. So, in

the case of an improvement project on an existing house, a license to build

new homes would be insufficient. The new home builder would be breaking

the law if he or she were not also registered with the DCA under the

Contractors’ Registration Act.

My contractor was sent to me by my local home improvement warehouse

store, and says he is exempt from the registration requirement. Is this right?

No, not unless he is an employee of the “big box” store. Most such tradesmen

are actually independent contractors, and are working as subcontractors to the

referring retailer. As such, they need to be registered.

I have a landscaper mow my lawn and trim my shrubs. Must he be

registered, too?

No, but the landscaper must register if he plants flowers, shrubs and trees or lays

sod to establish a lawn, or plants bricks in a pathway. Even though the regulatory

definition of “home improvement” includes landscaping, it requires some

element of “remodeling, altering, painting, repairing, renovating, restoring,

moving, demolishing, or modernizing of residential or noncommercial property

or the making of additions thereto.” Cutting grass and trimming shrubs doesn’t

fit the definition, but almost everything else does.

My contractor works for a registered home improvement contracting

company and is working for me on the side. Does he need to be separately

registered?

Yes. If he is moonlighting, he needs his own personal registration. Even if his day

job is w

ith a company that is exempt from registration, your contractor still

needs to be registered. Officers and employees of a registered home improvement

contractor are not required to register separately from a registered business entity

as long as their home improvement activities are done solely within their

respective scope of performance for that registered business.

In the past I’ve hired day laborers directly or from a temporary help agency

for household projects. Do they each need to be registered, too?

The new law makes no distinction between individuals who hire out as

laborers and any other contractor or subcontractor.

My handyman is retired and only does home improvement jobs “on the

side.” Does he have to be registered?

Yes. The Contractors’ Registration Act applies to any person, corporation,

partnership or association engaging in the business of making or selling home

improvements — regardless of whether the home improvements are done on

a full-time or part-time basis.

My remodeler says his company already has a license to work as a home

improvement contractor in my town. Is that sufficient?

No. The Contractors’ Registration Act supersedes any municipal law or

regulation that provides for the licensing or regulation of home improvement

contractors. However, contractors must still obtain construction permits from

the municipality in which they are working and must submit to inspections by

municipal construction code officials.

My contractor says he or she applied for a license but it hasn’t been issued

yet. Can he or she legally work for me?

He or she probably can if the application for registration was submitted

before the December 31, 2005 deadline. For the purpose of compliance with

the Contractors’ Registration Act and the regulations which interpret it, the

DCA will consider a contractor registered for the purpose of obtaining a

construction permit from a municipality when the contractor has, prior to

December 31, 2005: 1) filed with the DCA a completed application, including

the disclosur

e statement and all documents required to be filed with the

application, which has not been denied, 2) the required minimum $500,000

per occurrence commercial general liability insurance policy in full force and

effect, and 3) paid the registration fee and, when applying for a construction

permit, provides the appropriate municipal official with a certification

attesting to the fact that a completed application for registration has been filed

with the DCA by December 31, 2005, which as of the date of the certification

has not been denied by the DCA. Consumer advisory forms are available on

the DCA website to be given by contractors to consumers before signing a

home improvement contract, to make the consumer aware of the contractor’s

registration status and compliance with the Act. If you have questions

regarding your contractor’s pending application for registration, you may

contact the DCA at 1-888-656-6225.

How long is a home improvement contractor registration valid?

Initial registration is valid for one year and may be renewed for additional one-

year periods by filing an application on a form to be provided by the DCA.

Residential Construction Liens

A construction lien is a claim for payment recorded against real estate for the

price of labor or materials used to improve the property. A construction lien,

also called a mechanic’s lien, provides a way for a contractor to get paid by

forcing the sale of the liened property. A construction lien may be claimed by

a contractor, a subcontractor or a supplier. A lien is like a line that ties the

property to the debt. Liened property becomes collateral to secure repayment.

Why treat residential construction liens differently?

Buying a house and making home improvements are two of the largest

expenditures that a person will ordinarily make. Disputes can and do arise

among homeowners, contractors and subcontractors. As a fair compromise of

these competing rights, the Construction Lien Law places the residence at risk

of a lien sale to satisfy an unpaid bill, but it also provides a homeowner with

protections not found in commercial construction.

What is residential construction?

The law defines a residential construction contract as any written contract for the

construction or improvement of all or part of a one- or two-family dwelling.

Dwelling means a house, condominium, co-op, townhouse, and other more

exotic types of housing so long as the structure is intended for occupancy by one

or tw

o families. The owner can only have his or her property legally liened if

there has been a written contract for the construction.

What if

the residential c

onstruction contract is between a contractor

and a tenant?

If a tenant contracts for home improvement without written authorization from

the owner, a lien will attach only to the right of the tenant to occupy the

property. If the terms of the lease do not forbid, the leasehold can be sold on

foreclosure of the construction lien. This rarely happens, and a smart contractor

makes sure the true owner signs any improvement contract.

What if the residential construction contract is between the contractor and

a condominium or co-op owner?

For work performed solely within a unit in a condominium or cooperative, the

lien will only attach to the interest of the homeowner in the condominium or

cooperative unit. Other units and common areas stay free of the lien.

What if there is no written contract between the owner and

the co

ntractor?

An enforceable written contract is a prerequisite to the filing of a valid lien

claim. Without a residential construction contract between the owner and the

prime contractor, a lien is void.

What if there is no written contract between the contractor and the

person who claims a lien?

The Construction Lien Law provides no remedy for unwritten contracts. In

the absence of an enforceable written contract to support the claim, no

construction lien should be recorded. A subcontractor or supplier who claims

a lien must also have an enforceable written contract for the services or

supplies which are the subject of the claim.

Can a subcontractor claim a lien when the contractor has been paid?

Yes, but only to the extent there is money owing on the owner/contractor

contract at the time. The amount of a lien claim is limited by law to the lesser

of the contract price or any unpaid portion of the contract price for the work,

services, material or equipment provided.

What can a homeowner do if a subcontractor or supplier claims it has

not been paid?

A homeowner whose property is liened can withhold and deduct the amount

claimed from the unpaid part of the contract price. The homeowner can then

pay that amount directly over to the lien claimant, and credit the payment to

the contract price, unless the contractor or subcontractor who allegedly owes

the money responds to a written request within 20 days to state why the claim

is no good.

How does a homeowner know if a lien has been recorded?

Within 10 business days following the filing of a lien claim, the claimant is

supposed to personally serve or mail (registered or certified) a copy of the lien

claim to the last known business address or place of residence of the

homeowner. In the absence of notice, a homeowner who suspects a lien has

been filed can search the records of the county clerk.

How can a homeowner avoid liens?

A homeowner will want ongoing assurances that all subcontractors and

suppliers have been paid by the prime contractor, and can condition paying

bills or payment requests by the prime contractor on proof of its payment to

its subcontractors. An owner should make sure he or she gets a list of all

subcontractors, to stay on top of these payments and avoid liens. The

homeowner can send a written request to a contractor, a subcontractor, or

both, for an accurate and full list of the names and addresses of each

subcontractor and supplier who may have a right to file a lien against the

residential property. The law requires that the contractor or subcontractor

must, within 10 days, provide the owner with that list, verified under oath.

This requirement can also be written into the contract, to require the

contractor to perform similar requests of the subcontractors, so that second-

tier subcontractors (suppliers or subcontractors to a subcontractor who could

be potential lien claimants) can be identified.

Can a lien be recorded at any time?

No. Construction lien claims must be signed, acknowledged and verified

under oath by the claimant and filed with the county clerk no later than 90

days following the date the last work, services, material or equipment was

provided for which payment is claimed. Warranty calls and service calls made

after completion or termination of the contract do not extend the deadline. A

lien claim can be recorded before the end of the contract work, but it will be

limited to the amount then due and owing. The claimant can update the lien

claim with amounts earned later by recording an amendment to the lien claim

with the county clerk, as long as the amended claim is filed by the 90-day

deadline.

Doesn

’t the c

ontractor have to file something else before the lien?

Yes, but it has to be the right something. Before the Construction Lien Law

took effect in April 1994, a New Jersey contractor had to record a mechanic’s

notice of intention before working or supplying materials, or else lose the

right to later claim a lien. That pre-filing process often created distrust and

friction between contractors and owners. In an effort to simplify the process,

the Construction Lien Law eliminated the notice of intention, but for

residential construction, the Construction Lien Law instituted entirely new

pre-lien filing requirements—the NUB and expedited arbitration.

What is a NUB?

NUB is short for Notice of Unpaid Balance and Right to File Lien. A NUB is a

form used to notify the owner and other interested parties that there may be a

lien filed at some future point, which will relate back to the record date of the

NUB. Before filing any lien arising under a residential construction contract, a

lien claimant m

ust fir

st file a NUB in the o

ffic

e o

f the county clerk. Although

they look similar, a NUB is not a claim of lien, and filing one does not substitute

for a p

operly recorded lien. A NUB can be amended in much the same manner

as a lie

y filing an amended NUB with the county clerk.

What is expedited arbitration?

Expedited arbitration is fast-track arbitration on limited issues relating to

the right to file the lien. A prospective lien claimant must file a demand for

arbitration for the right to file a lien with the American Arbitration

Association, and must serve that demand on the owner with a copy of the

NUB. The parties must then fulfill all the requirements and procedures of the

American Arbitration Association for expedited arbitration.

What if there’s no NUB or arbitration award?

If a residential construction lien is recorded without a prior NUB filed in the

records of the county clerk, or without a prior arbitration award of the right

to file that lien for the amount claimed, the lien is no good and must be

removed on demand.

Will filing a NUB extend the deadline for filing a lien?

No. The contractor or supplier has to file the NUB and complete arbitration

in advance of the 90-day deadline for filing its lien claim. In practice, this is an

extremely tight schedule.

What happens at a lien arbitration?

When a demand for arbitration is filed, the American Arbitration Association

will notify the parties that it is proceeding with administration of the claim. The

homeowner has a short period of time to respond in writing to the claim, by

filing a written answer, setoff or counterclaim, to which the claimant contractor

may reply. Arbitration follows on the papers submitted and without a hearing

unless one is requested. Other parties whose interests are affected (such as the

contractor if the claim is filed by a subcontractor) may join in the arbitration,

but the arbitrator will not determine the rights or obligations of those parties

except to the extent those rights or obligations are affected by the lien claimant’s

NUB. The American Arbitration Association has detailed rules for expedited lien

arbitrations, and these rules may change from time to time, so that anyone facing

arbitration should obtain a current copy of the rules from the association.

Can I argue all my points in arbitration?

No. The expedited arbitration is limited by statute to consideration of: (a)

whether the NUB was prepared and properly served in compliance with the

Construction Lien Law; (b) the validity and amount of any lien claim which

may be filed pursuant to the NUB; (c) the validity and amount of any setoffs

or counterclaims to any lien claim which may be filed; and (d) the allocation

of costs of the arbitration among the parties.

Does an arbitration award create a lien?

No. An arbitrator can only award the right to file the lien, which must still be

formally recorded by the prevailing lien claimant within 10 days receipt of the

determination and within the 90-day deadline prescribed by law.

Can the arbitration award be appealed?

Yes. If either the lien claimant or the homeowner feels wronged by the

arbitrator’s award, that party may sue in the Superior Court, Law Division, for

the vacation, modification or correction of the award. Although the

Construction Lien Law requires the court to render its decision after giving

due regard to the time limits and procedures set forth in the act, as a practical

matter there will be very little time left before the 90-day deadline to appeal

and record a claim of lien.

How long is a construction lien enforceable?

A lawsuit to enforce a lien can be filed up to one year from the date of the last

provision of work, services, material or equipment, payment for which the

lien claim was file

d, or within 30 days following the receipt of written notice,

by personal service or certified mail, return receipt requested, from the

homeowner requiring the claimant to start suit to establish the lien claim. If

the lawsuit is not started within either of these time frames, the claimant must

immediately discharge the lien of record in the office of the county clerk.

What happens if a lien claimant files an invalid lien, or fails or refuses to

discharge an invalid lien?

A claimant loses all claimed lien rights and rights to file subsequent lien

claims to the extent of the face amount claimed in a groundless or

procedurally defective lien claim. Such a claimant, as well as any lien claimant

who forfeits a lien and fails to discharge that lien of record, may be liable for

all damages suffered, and court costs and reasonable legal expenses incurred

by the homeowner, the contractor, or subcontractor, or any combination, in

defending or causing the discharge of the lien claim.

What happens if a homeowner presents a baseless defense against

a lien claim?

A homeowner arguing such a defense may be liable for all court costs, and

reasonable legal expenses, as well as judgment for damages suffered by anyone

adversely affected by the frivolous defense.

Post script

The Construction Lien Law is highly technical and easily overstepped by

homeowners and lien claimants alike. While the costs of compliance are slight,

the downside risks to mishandling a residential construction lien are

considerable. When confronted with a claim of lien, seek the advice of an

experienced attorney.

Resolving Disputes in Residential

Construction and Renovation

At some point in time, a homeowner or a purchaser of a home may reach a stage

where a dispute with the contractor cannot be solved through negotiations. The

homeowner, whether it involves the purchase of a new home or renovations to

an existing home, may then be required or need to use outside assistance in

resolving the dispute. The most common forms of outside assistance are the

court system, arbitration or mediation. In some instances, as discussed in the

previous sections of this manual, there are limits and requirements on whether,

and under what circumstances, the homeowner may look to the courts or

arbitration. As an example, on new home construction disputes, a homeowner

has the option of using the arbitration process under the Home Warranty or

using the court system. Similarly, in disputes involving residential construction

liens, there is a required arbitration proceeding administered by the American

Arbitration Association.

Other than the above situations where specific arbitration or use of the courts

are required, the homeowner and the contractor/builder may include in the

contract the selection of a specific method of resolving disputes. The contract

may require that all disputes be handled by the courts or that all disputes must

be handled by arbitration. The contract may require that prior to arbitration or

use of the courts that the homeowner and contractor/builder must use

mediation. If the contract requires a particular method of resolving disputes, that

contract will be enforced by the courts and the homeowner and

contractor/builder will be required to use the method identified in the contract.

If the contract does not provide for a method of resolving disputes, any disputes

between the homeowner and contractor/builder are to be addressed in court.

The following comments describe some of the differences between these

methods of resolving disputes:

How can I resolve disputes with my contractor?

First, you should talk directly with the contractor to try to settle your

disagreements. If that doesn’t work, your dispute can be settled by arbitration

or by mediation or in the courts.

How do I know which method to use in settling my dispute?

In certain types of disputes such as residential construction liens and

homeowner new home warranty claims, the statutes will require that a

particular method be used. Otherwise, the contract may describe the method

that must be used. If the contract does not require use of the courts or

arbitration and the dispute is not controlled by a statute, the court system

would be the method of resolving the dispute.

What is arbitration?

Arbitration is a process in which the parties present their positions regarding

the dispute to at least one neutral third person who will make a decision based

on the merits of each party’s position. That decision is usually final and

binding, meaning that there is no right of appeal from an arbitration decision.

An advantage of arbitration is that it should be quicker and less formal than

using the courts. A second advantage is that the parties will select the

arbitrator, who will often have experience in the types of problems that would

be raised. The disadvantages of arbitration are that the award by the arbitrator

usually cannot be appealed and the parties must pay for the arbitrator’s time.

How can I get my dispute arbitrated?

Arbitration has been discussed in this pamphlet in connection with warranty

claims and lien claims. Arbitration may also be called for in your written

agreement with your contractor. Or, you and the contractor can agree after a

dispute has arisen to have it decided by arbitration. Arbitration organizations

and individual arbitrators advertise and are listed in business directories.

What is mediation?

Mediation is a process in which an impartial third party - the mediator - meets

with the parties in an effort to help them reach a mutually acceptable settlement

of their dispute. The mediator does not make a decision about the outcome of

the dispute. Instead, the mediator assists the parties in developing a solution to

the dispute. Advantages of mediation are that it may be less adversarial, is quick

and less expensive, is less formal, may be more flexible, and permits the parties to

arrive at solutions that may not be possible in arbitration or in court. Another

advantage of mediation is that if the parties do not reach an agreement, they will

still have the opportunity to have their disputes heard and resolved in either

arbitration or court. A disadvantage of mediation is that the parties must pay for

the mediator’s time. Also, mediation requires both sides to agree and neither side

can be forced to agree to any particular settlement. Mediation organizations and

individual mediators can also be found listed in business directories.

How does use of the courts differ from arbitration or mediation?

If your contract does not require arbitration, you are entitled to use the court

system to resolve your disputes with the contractor/builder. Depending on the

monetary value of your claim, you may use the Small Claims Court, the

Special Civil Part of the Law Division of the Superior Court or the regular

Law Division of the Superior Court. Your claim would be started by the filing

of a Complaint or, if the contractor/builder has filed a Complaint, you would

need to file an Answer.

At your county courthouse, you will find much free information to help you

decide whether and how to get your dispute to court. In general, how you

proceed depends on the amount of money in dispute. For smaller,

uncomplicated disputes you may decide that you can manage in Small Claims

Court or in Special Civil Part on your own. The advantages of use of the court

system is that other than the filing fee and attorney’s fees if you have

employed an attorney, you do not pay for the time of the judge. The decision

by the judge, or jury, is enforceable without seeking or starting a separate

lawsuit to enforce a judgment and if you are dissatisfied with the decision of

the judge or jury, you will have a right to appeal. Some disadvantages of using

the courts are that it can often be a longer process than using arbitration and

it is much more formal which may require your hiring a lawyer to assist you

in meeting the court requirements.

Must I have an attorney?

Whether mediation, arbitration or use of the courts are involved, there is no

requirement that a homeowner have an attorney representing them. In larger

and complex cases, particularly within the court system, you are well advised

to seek professional legal assistance. Even in smaller court cases, arbitrations

or mediations, particularly those arising out of some of the statutes discussed

in this manual, you may be best advised to at least consult with a lawyer

experienced in residential construction to determine whether you would

benefit from full representation.

AAbboouutt tthhee NNeeww JJeerrsseeyy SSttaattee

BBaarr FFoouunnddaattiioonn

The New Jersey State Bar Foundation, founded in 1958 as the charitable and

educational arm of the New Jersey State Bar Association, is an organization

dedicated to promoting free law-related education and giving all New Jersey

residents a basic understanding of the legal system. Programs sponsored by the

Foundation include seminars on such topics as wills, landlord-tenant matters,

divorce, special education, real estate, disability law and health issues. Dedicated

to providing programs for children and teachers, the Foundation sponsors mock

trial competitions for elementary, middle and high school students, training

sessions for teachers on conflict resolution and peer mediation, as well as teasing

and bullying. For students, the Foundation publishes a legal newspaper for kids,

The Legal Eagle, and a newsletter promoting tolerance called Respect.

Other publications published by the Foundation include Consumer’s Guide to New

Jersey Law, Law Points for Senior Citizens (second edition); Domestic Violence: The

Law and You

; AIDS and the Law in New Jersey; Disability Law: A Legal Primer

(fifth edition), cosponsored with the Essex County Bar Association; Students’

Rights Handbook (second edition), cosponsored with the American Civil Liberties

Union of New Jersey; and The Right to Special Education in New Jersey—A Guide

for Advocates, cosponsored with the Education Law Center. Some of these

publications are available in Spanish, and all are available in alternative formats

for individuals with disabilities. For more information or copies of program

materials, visit the Foundation online at www.njsbf.org or call 1-800 FREE LAW.

New Jersey State Bar Foundation

New Jersey Law Center

One Constitution Square

New Brunswick, NJ 08901-1520

www.njsbf.org

1-800-FREE-LAW