CURRENT MARKET CONDITIONS EXPOSING A GAPING HOLE IN THE NEW HOME WARRANTY STATUTESWith the housing market as stagnate as it has ever been, foreclosures have become more and more commonplace. Whether the foreclosure is on a home owned by the builder which was never occupied, or is on a home owned by an individual or family that has been inhabiting the home and just can’t make ends meet, foreclosure notices have riddled our newspapers. The first scenario, involving a foreclosure on a new home still owned by the builder, reveals a gap in the warranty statutes, which is best understood by comparing it to the scenario of a foreclosure on a home owned by an “initial vendee” (purchaser) of the home. The definitions contained in Minn. Stat.§ 327A.01 are of great importance to the analysis that follows. The warranties provided in chapter 327A are not effective until after the “warranty date”. “Warranty date” is defined as the earliest of the following: (a) the date of the initial vendee’s first occupancy of the dwelling; OR (b) the date on which the initial vendee takes legal or equitable title in the dwelling. Minn. Stat. § 327A.01. The definition of “Initial vendee” is “a person who first contracts to purchase a dwelling from a vendor for the purpose of habitation and not for resale in the ordinary course of trade.” “Vendor” is defined by the statute as “any person, firm or corporation which constructs dwellings for the purpose of sale. . .”. If a dwelling is sold by the builder to a person(s) who inhabits the home, the “warranty date” is triggered and the warranties are effective because there is a purchase by an “initial vendee”. Even if the home is later foreclosed upon by a lender, a subsequent purchaser of the home by and through the foreclosure sale would have standing to sue the builder under the statutory warranties provided in Chapter 327A. Remember that the warranty period has been triggered by the purchase and/or occupancy by an “initial vendee”. Furthermore, home warranty claims survive the passing of title in the dwelling. See Minn. Stat. § 327A.02, subd. 2. The first scenario, however, identifies what is quickly becoming a noticeable gap in the statute. In the case of a bank foreclosing upon a home still owned by the builder, it appears that under Chapter 327A, the “warranty date” is never triggered. If a bank purchases the home through a foreclosure sale while the builder is still the owner, the bank is not the “initial vendee” under the statute because it does not fit the definition. First, the bank is arguably not a person. Second, the bank is not purchasing the home/dwelling for purposes of habitation. Lastly, the bank is purchasing the home, more than likely, for resale in the ordinary course of trade. Since the bank is not an “initial vendee”, the warranty date is not triggered and the warranties are not effective. So, the question remains: If the bank forecloses on the dwelling while still owned by the builder, does a subsequent purchaser of the dwelling from the bank have standing to sue the builder under the home warranty statutes? Under the statute, the answer, surprisingly, is no. The purchaser of the home from the bank is not an “initial vendee”, as they are not purchasing the home from a “vendor”. The bank, having not constructed the dwelling, does not fall within the definition of “vendor”. This means the subsequent purchaser is not an “initial vendee”, having not purchased the home from a “vendor”. In this scenario the warranty date, or the beginning of the warranty period, never begins and never will. This is a situation the Minnesota home warranty statutes fail to address and there is no case law in Minnesota which provides guidance. The legislature has left a hole in the statute, which in the current market is becoming ever more apparent. The result is a situation where the warranties never become effective. Until the legislature addresses this situation, the possible effect of a foreclosure sale and purchase by a lender of a dwelling still owned by a builder is that no warranty period is ever triggered. I think it is safe to assume this was not the intent of the legislature. Nevertheless, the current statute and the current housing environment may leave in its wake many homes, that have never been occupied, without warranties. Nicholas Delaney is an associate at Rinke Noonan in St. Cloud. He practices in the areas of real estate, construction law, land use and civil litigation. ©2008 - Nicholas Delaney and the Rinke-Noonan Law Firm US Bank Plaza |
