Buying a home is one of the largest and most memorable purchases individuals will make in their lifetimes. At the same time, many have heard the Latin phrase caveat emptor—"let the buyer beware"—a concept that provides no comfort to someone whose new home has significant material defects. The result is an endless "money pit" of costly repairs.

Fortunately for New Jersey residents, current state law takes a more ethical approach to business dealings with one another. Here, our courts allow each of us to rely on representations made by others when purchasing a property. This state takes one step further, stipulating that those who claim to have superior knowledge by virtue of their training and experience are held accountable for that claim. Furthermore, the consequences of failing to comply with that enhanced obligation is correspondingly increased.

Among the flurry of parties involved in the sale and purchase of residential real estate—traditional and professional sellers (a/k/a "flippers"), realtors and their brokers, mortgage agents and their affiliated companies, appraisers, home improvement contractors and their subcontractors, title companies, lawyers, etc.—home inspectors play a critical role. This article will focus on a home inspector's potential liability under the New Jersey Consumer Fraud Act (NJCFA) and offers commentary on how claims based upon this act may be influenced by the current climate in the state and nation.

Standard of Review

A home inspection must be completed in accordance with the New Jersey Standards of Practice for Home Inspectors, as promulgated in N.J.A.C. 13:40-15.1, as set forth by the New Jersey Department of Law and Public Safety Division of Consumer Affairs ("Standards of Practice"). In short, if a home inspector fails to properly describe, or does not discover a material defect, or neglects to state the significance of findings regarding a system or component of a residential building, it is a violation of the Standards of Practice.

According to N.J.A.C. 11:5-6.4, information is considered "material" if:

a reasonable person would attach importance to its existence or non-existence in deciding whether or how to proceed in the transaction, or if the licensee knows or has reason to know that the recipient of the information regards, or is likely to regard it, as important in deciding whether or how to proceed, although a reasonable person would not so regard it.

This Administrative Code requires strict compliance with all of its terms. N.J.A.C. 11:5-6.4(a).

NJCFA 'Ups the Ante'

As mentioned, the State of New Jersey takes this matter so seriously that homebuyers are also protected through the NJCFA. The statutory scheme was, in part, "designed to promote the disclosure of relevant information to enable consumers to make intelligent decisions when selecting products and services." See, Leon v. Rite Aid Corp., 340 N.J. Super. 462,471 (App. Div. 2001). The NJCFA is intended to compel merchants—like home inspectors—to develop practices that minimize consumer fraud, such as requiring the use of written agreements. See, Marascio v. Campanella, 298 N.J. Super 491, 501 (App. Div. 1997). In addition, there are also specific guidelines as to the timing and content of pre-inspection agreements between home inspectors and their potential customers. N.J.A.C. 13:40 et. seq.

"There are three possible bases for responsibility under the Act. Two are established by N.J.S.A. 56:8-2; the third is derived from either specific-situation statutes … or regulations enacted under N.J.S.A. 56:8-4, listed in N.J.A.C. 13:45A-1.1 et. seq." Model Civil Jury Charge 4.43.

The first category makes "any unconscionable commercial practice, deception, fraud, false pretense, false promise or misrepresentation" unlawful. These are considered affirmative acts. The second category involves the "knowing concealment, suppression or omission of any material fact." These are considered conduct by omission. The third basis for responsibility under the Act involves either a specific-situation statute or administrative regulations enacted to interpret the Act itself. Such statutes and regulations define specific conduct prohibited by law. Importantly, when liability under the NJCFA is predicated upon the violation of a statute or regulation, "intent is not an element of the unlawful practice, and the regulations impose strict liability for such violations." Cox v. Sears Roebuck & Co., 138 N.J. 2, 18 (1994).

A violation of New Jersey's Consumer Fraud Act is unlike a violation of New Jersey's common law negligence standard or a basic breach of contract claim. Such infractions could result not only in the return of monies paid but lead to the imposition of triple damages and payment of the successful claimants' legal fees.

To help navigate the various types of fraud, there is also a very helpful chart and summary provided by Paul DePetris in his book New Jersey Consumer Fraud Act and Forms. He meticulously compares and contrasts consumer fraud, common law fraud, equitable fraud and negligent misrepresentation. It is well worth the time for those who want to know more about this trending area of law.

Home Inspectors' Possible Exemption from the NJCFA

New Jersey courts very recently addressed the "narrow issue" as to "whether semi-professionals such as home inspectors should be deemed learned professionals" and, by extension, exempt from NJCFA liability. See Shaw v. Shand, 2019 N.J. Super. LEXIS 129 (App. Div. August 15, 2019). Ultimately, after "considering the CFA's remedial intent and that exceptions to remedial statutes must be narrowly construed, [the Court] decline[d] to extend the learned professional exception to licensed home inspectors simply because they are regulated by the [Home Inspection Professional Licensing Act]."

Accordingly, our courts must continue to hold home inspectors liable for violations of the NJCFA's forceful reach, which is consistent with the intent of the New Jersey legislature when it was initially enacted. Further, it reinforces the rule of law that those who market and offer their services by claiming they are more knowledgeable than the average consumer shall be held accountable to a higher standard. Therefore, any breach of that enhanced standard will lead to more significant consequences than under typical common law and contractual theories.

Today's Climate

The sad truth, in this writer's opinion, is that human nature often causes more people to "cut corners" in times of significant strife. Consequently, as hectic lives return, the potential for mistakes will increase despite any lack of intent to harm anyone. The NJCFA speaks to that, in part, as it was "designed to promote the disclosure of relevant information to enable consumers to make intelligent decisions when selecting products and services" See Leon v. Rite Aid Corp., 340 N.J. Super. 462, 471 (App. Div. 2001). The NJCFA is intended to compel merchants to develop practices that minimize consumer fraud, such as requiring then use of written agreements. See Marascio v. Campanella, 298 N.J. Super 491, 501 (App. Div. 1997).

As previously described, there are numerous "players" involved in almost every real estate transaction. Pressure comes from the many moving parts and strict deadlines with which to comply. And, the real estate industry, like all, has some "bad apples."

In the coming months, perhaps more than ever, it will be each professional's obligation to make a serious and thorough assessment of unlawful conduct, including but not limited to home inspectors, on behalf of those who find themselves with the unexpected and unreasonable financial burdens of owning a "money pit."

Dan Posternock is Managing Shareholder and Practice Leader for the Litigation and Real Estate Departments at Posternock Apell, PC, in Moorestown.