How To Protect Your Buyer When Purchasing a New Construction Home From a Non-Licensed, Self-Contractor

Question

I represent the Buyers.  My clients are purchasing a new-construction home from an individual who self-contracted the home.  This Seller is telling me that since he is not a licensed contractor and builds homes “on the side” he doesn’t have to provide a New Home Warranty pursuant to the Louisiana New Home Warranty Act.

Is he correct?

Answer

This question highlights the possible pitfalls Buyers may face when dealing with an unlicensed and/or uninsured contractor of a new residential home.

To answer the question directly:  the seller is absolutely incorrect.

According to La. R.S. 9:3143(1):

“Builder” means any person, corporation, partnership, limited liability company, joint venture, or other entity which constructs a home, or addition thereto, including a home occupied initially by its builder as his residence.

Based on the statute cited above, the builder does not have to be a licensed builder in order for the New Home Warranty Act to apply. The Act and its relevant provisions apply to anyone who constructs a new residential home.

So, your buyers are protected and covered with the New Home Warranty Act despite the fact that the builder is not licensed.

But the Louisiana New Home Warranty Act is only effective so long as your Buyers can locate the seller/builder if there’s a problem and so long as the seller/builder has the financial means to fix the problems when they arise.

What if the Seller/Builder has skipped town or gone bankrupt?  Who pays for the repairs in that instance?

Unfortunately, it is usually the Buyers that are stuck with the repair bill when the Seller can’t be located or is unable to pay for the repairs.

So, how does a Buyer guard against this scenario?

Prior to purchasing the home, the Buyer needs to get written assurances that a 3rd party (i.e. someone other than the Seller/Builder) will cover the repair costs covered under the Louisiana New Home Warranty Act, if any repairs arise in the future.

Previously, the Buyer could request the Seller/Builder purchase a 2-10 Home Warranty to cover any future repairs.

However, there is a question whether the Company that issues and backs the 2-10 Warranty is currently selling 2-10 Warranties in Acadiana.  A direct inquiry to this Company revealed the Company is no longer issuing 2-10 Warranties in Acadiana.  However, if you speak with certain, reputable builders in Acadiana, they’ll tell you they can still get a 2-10 Warranty from this Company, but the 2-10 Warranty Company is being very selective regarding which Builders can obtain a 2-10 Warranty for their Buyers.

So, it might be wise to ask the Seller to provide a 2-10 Warranty as part of the closing.

If the Seller can’t obtain a 2-10 Warranty, it might be wise to speak with a local insurance agent to determine if there’s another insurance product the Seller (or Buyer if Seller refuses) can purchase to cover any future repairs.

If there isn’t another insurance product that can protect your Buyers, it might be wise for your Buyers to set aside several thousand dollars to cover any future repairs.

A final consideration is for your Buyers to look for a home being built by a reputable, licensed, and insured Builder here in Acadiana!