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New Jersey Court Finds Broker Liable Under Consumer Fraud Act
The appellate division of the New Jersey Superior Court held that a real estate brokerage firm was liable under the New Jersey Consumer Fraud Act for treble damages and the plaintiffs' attorneys fees when its agents represented to prospective new home buyers that a builder was one of the best builders in the state, had built "hundreds" of homes, was "dedicated to quality workmanship." In fact, the builder did not have any prior experience as an independent builder, and constructed the plaintiffs' homes using inferior materials and grossly substandard construction techniques.
The appellate court held that the plaintiffs need not prove under the Consumer Fraud Act that the defendant broker had actual knowledge of the builder's lack of credentials and poor construction methods. The broker's liability under the Act was based solely upon the broker's misrepresentations about the credentials and expertise of the builder who had listed his lots for sale with the broker. The appellate court expressly noted that the state Consumer Fraud Act established a lower threshold for liability than common law fraud or negligence.
This case illustrates the hazards of failing to check the references of homebuilders before promoting their building skills to the general public as part of an agreement to market the builders' homesites. Brokers should guard against assuming liability for alleged misrepresentations about the builder's expertise and quality of construction by insisting upon indemnity agreements backed by insurance or other assets in any listing or marketing agreement with a builder. In addition, a broker should insist that language be included in any construction contract with a buyer that provides that the broker does not make any representations about the ability of the builder to build the home called for by the contract and that the home buyers have conducted their own investigation into the capabilities and skill of the builder to perform under the contract. 672. A.2d 1190 (N.J.Super.A.D. 1996).
Please note that the comments and opinions contained herein are not to be construed to be legal advice by the author, Victor O. Schinnerer & Company, Inc., or the CNA/Schinnerer errors and omissions insurance program. This information is made available to you for your risk management program. No action should be based on this information without appropriate advice from legal counsel and a review of currently applicable statutory and case law.
This article is taken from the March 1997 Risk Management Reporter. The author, Robert D. Butters, works for the law firm of Arnstein & Lehr, which concentrates in the representation and defense of real estate brokers and agents.
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