Attorneys Owe a Duty to Clients Purchasing New Homes

30/06/2010

 

By Walter T. Wolf, Esquire 

A home buyer today is well aware that they should obtain a home inspection, and if they are not, their realtor or attorney will advise them to do so. However, many home buyers, as well as many realtors and even attorneys, do not believe that it is necessary to inspect new construction. After all, what could be wrong with a new house? In fact, much can go wrong with new construction and attorneys, in particular, have a duty to advise their real estate clients to engage a competent home inspector for these types of purchases.

The attorney-client relationship creates a duty on the part of the attorney to advise his or her clients of the foreseeable risk of defects in the new construction and their option to obtain an independent inspection of the home.

It is often believed that an attorney’s reasonable and customary practices include review of real estate contracts and related documents but that attorneys have no duty beyond those standard practices. It is not commonly understood that the buyer has the capacity to inspect the home during the building process to determine if a home is being properly constructed. Home buyers and even some attorneys believe that inspections are something that the builder’s architect and the permitting municipality generally perform. However, the builder’s interests are obviously not the same as those of the home buyer.

In fact, some standard construction contracts may even forbid periodic inspections prior to conclusion of construction, with language such as “Buyer shall not be authorized or permitted to enter the property or to discuss any matters pertaining to construction with any of seller’s construction personnel or contractors.” In this case, it would be in order for an attorney to negotiate inspection rights for his client or their agent during the course of construction with a new home builder.

An attorney cannot rely on “standard” or “custom” in the profession to explain his failure to raise the inspection issue with respect to clients who are purchasers of new home construction. The issue is not what is considered the standard or custom, but rather what is the duty. The standard of conduct is reasonable care and, in this case, that means strongly recommending that purchasers of new home construction engage a competent, independent professional to inspect the home during construction and, certainly, prior to closing.

“The Good, the Bad and the Ugly – New Home Construction in New Jersey” is a March 2005 publication which reports on the Commission of Investigation’s findings and recommendations stemming from an investigation of abuses in new home construction and inspections in New Jersey. The commission’s key findings fall into four major categories: (1) Deficient and Incomplete Construction; (2) Subversion of Inspections and Code Enforcement; (3) Lax Government Oversight and Regulation; and (4) Adequate Consumer Protection and Remediation.

The foregoing points to the obvious fact that it is impossible and inappropriate to rely upon the local municipal building inspector or construction official to act as the line of defense between a new home buyer and the developer/builder, and to do so can lead to disaster.

The “New Homebuyers Bill of Rights Act,” S1028, is an act “necessary for the protection of new home buyers of this State against inequitable practices and contractual provisions. . .” proposed as a supplement to P.L. 1977, c.467 (C. 46:3B-1, et seq.). This bill indicates that the problems with new construction have become so pervasive that the legislature must now deal with them. S1028 was introduced to the Senate and referred to Senate Community and Urban Affairs Committee on Jan. 28, 2008, and upon the second reading, with amendments, was referred to the Senate Budget and Appropriations Committee on March 6, 2008.  Specifically paragraph 5 states:

“The Legislature declares the following to be among the rights of new homebuyers: A new homebuyer shall have the right to make progress inspections during construction and during the pre-closing period or to have inspections made by an engineer or home inspection company designated by the new homebuyer.”

Attorneys, as professionals, are held to a higher standard and owe a duty to their clients. A client involved in a real estate purchase specifically seeks to engage counsel for their transaction because they are aware of their own limited knowledge and feel a need for professional advice to protect their interests. There has been substantial information available for many years about the problems with new construction and the need for purchasers of new construction to be vigilant in order to avoid a loss of their investment. For attorneys working in the real estate forum, it is negligent not to make themselves aware of this issue so as to properly advise his or her clients.

　

　
Reprinted with permission from the JUNE 7, 2010 edition of New Jersey Law Journal. © 2010 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. All rights reserved.