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Consumer Warranty Law: Truth in Lending Rescission

Home improvement sales often result in the seller or lender gaining a security interest in the consumer’s home, either by taking a non-purchase money first or second mortgage in the home as part of the credit sale, or when a statutory lien in the home is created because of the seller’s improvement to the home. In either case, a right of rescission arises under the federal Truth in Lending Act (TILA).166 The creditor must give the consumer notice of this right of rescission in the form prescribed by TILA and Regulation Z.

Consumer Warranty Law: FTC Cooling-Off Rule for Off-Premises Sales

The Federal Trade Commission (FTC) Cooling-Off Period Rule173 provides consumers with a right to cancel, within three business days of a sale, any contract not made at the seller’s principal place of business. Cancellation can be for any reason, and is not contingent on the nature of the contractor’s work. This rule is analyzed in detail in NCLC’s Federal Deception Law.174

Consumer Warranty Law: 19.9.2 Failure to Complete Work; Completion Certificates

Even when work is not being performed or is being performed poorly, contractors and those enforcing home improvement loans may claim that the consumer is obligated to make payments on the work. But if the contract specifies that the first payment is due “on completion” or “X days after completion,” the consumer does not owe any payment until the work is completed.

Consumer Warranty Law: 19.9.5 State UDAP Statutes and Regulations

Misrepresentations and refusal to correct shoddy work violate the general prohibitions of deceptive or unfair practices under most state UDAP statutes.204 In addition, Massachusetts, New Jersey, West Virginia, and Wisconsin have promulgated home improvement regulations under their state UDAP statutes.205

Consumer Warranty Law: 19.9.6 Other State Statutes

A number of states have predatory loan statutes that, like the federal Home Ownership and Equity Protection Act (HOEPA),216 single out certain high-cost mortgage loans for special consumer protections. These statutes may include provisions specific to home improvement credit.217 For example, the statute may restrict the manner of payment of the proceeds of a home improvement loan so that the contractor cannot access the funds without the consumer’s signature.218

Consumer Warranty Law: Introduction

A common problem with home improvement contracts is that a consumer has valid warranty, tort, UDAP, and even fraud claims against a judgment-proof contractor. Business entities doing home improvement contracting are frequently thinly capitalized, often are voluntarily or involuntarily dissolved as corporations, sometimes disappear or declare bankruptcy, and sometimes, after going insolvent, open up and begin doing business under a new name.

Consumer Warranty Law: Raising Contractor-Related Claims and Defenses Against the Holder of the Obligation

Asserting claims and defenses against the entity that financed the transaction is another way to deal with the contractor’s insolvency. The financer will often be able to pay a judgment even if the contractor cannot. In most cases a consumer who has valid defenses against the contractor is entitled to withhold payment from, or even assert affirmative claims against, the financier.

Consumer Warranty Law: Other Theories of Lender Liability

In addition to the derivative liability created by the FTC Holder Rule, an entity that finances home improvement contracts may be liable in its own right if it participated in the contractor’s fraudulent conduct, failed to warn the consumer of fraud of which it was aware, or directed the fraudulent conduct of its agent. While the creditor may be liable under the FTC Holder Rule for the seller’s misconduct up to the amount of the debt,230 direct tort liability is a basis for damages, including punitive damages, exceeding the amount of the debt.

Consumer Warranty Law: Photographs and witnesses

Obtain good, clear pictures of work that was done, unfinished work, resulting damages, and remaining debris. Photographs should show as much detail as possible, and should include both close-ups and distance shots of the overall area. The photographs need not be taken by a professional photographer. The consumer, who will probably be a witness in the case, can take them. Have the person who took the photographs label them immediately upon receiving them, as close as possible to the actual taking of them.

Consumer Warranty Law: The opposing parties

Keep tabs on the opposing parties. If one is a corporation or other entity, check periodically with the appropriate agencies as to its status and addresses, and so forth. If an entity is not a corporation, it may be doing business under an assumed name. If so, it may be required to register with a governmental agency. Is the contractor required to be licensed? Is it licensed? If not, the contractor may not be able to enforce its contracts. Is the entity required to be bonded or to set up an escrow account, and has it done so?

Consumer Warranty Law: Pleading Tips

Home improvement litigation often begins with the lender suing the homeowner in a mortgage foreclosure action. In such cases, if court rules allow, the homeowner should bring the contractor and its principals in as third party defendants, even though they may not be the deep pockets. This allows a broader exploration of the consumer’s defenses and claims without limitations based on the lender’s liability and can be used as a vehicle for presenting the entire story to the jury, which will probably be aligned in sympathy with the consumer.

Consumer Warranty Law: Dealing with Mortgages and Liens on the Consumer’s Home

Most home improvement contracts are secured by a mortgage on the home, either in the name of the contractor or in the name of a financer. In addition, statutory liens such as mechanic’s liens can arise. Subcontractors who have no direct contractual relationship with the buyer may have a lien if the contractor has not paid them. The enforceability of home mortgages and statutory liens is a complex area covered in NCLC’s Home Foreclosures.239 This subsection examines several practice tips.

Consumer Warranty Law: Discovery

Discovery will be necessary to obtain facts regarding the nature of the transaction, the parties and their relationships. The pleadings should be phrased broadly enough to encompass all possible characterizations of the transaction so as to avoid any relevancy or “fishing” objections in discovery.

Consumer Warranty Law: Consumer’s Remedy When Repair Shop Has No Right to Retain the Car

A repair shop’s right to keep the car until it receives payment in full is based on a statutory or common law lien allowing a merchant to retain a good based on improvements made to that good.242 A repair shop will be liable for the tort of conversion if it retains a car when it does not have a valid lien,243 or sells the car pursuant to a valid lien when the sale does not follow proper procedures.244 Generally, conversion requires intentional conduct by the repair shop,

Consumer Warranty Law: General

Most states have enacted some special statute or regulation dealing with repair services in general or automobile repairs in particular.259 These statutes or regulations are of three basic types: