Lawsuits Allege Home Warranty Companies are Deliberately Scamming Homeowners

In researching our recent story on home warranty companies “Are you risking your Client Relationships by Recommending a Home Warranty Company” we became aware of several class action lawsuits filed against two of the biggest companies in this space: Old Republic and First American.

The actual class action complaints are: Michael D. Friedman vs. Old Repbulic Home Protection Company case no: EDCV 12-1833 and Nancy Carrera, Anna Hershey, Karene Jullien and Brent Morrison v. First American Home Buyers Protection Company case no: 13-cv-1585 H.
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Both suits were filed in the US District Court, Southern District of California as class action lawsuits by attorneys from Bottini and Bottini in La Jolla, California.

The Old Republic complaint specifically alleges “False Advertising to Real Estate Agents”. Old Republic sells its home warranty plans primarily through real estate agents and they have a memo specifically designed for agents entitled “How to Offer a Home Warranty Plan to a Home Buyer”. The plaintiffs claim that information listed under “The Benefits of Buyer’s Coverage” section of this memo deceives the public because they fail to deliver on their promises as detailed by Old Republic customers with their experiences with the actual company and their service providers (see sections 50 and 54 of the complaint.

Both lawsuits share many common characteristics and the following allegations can be found in both:

  • Contractors are chosen based on their average claim, and only the lowest average contractors are called
  • This encourages contractors to refuse expensive repairs (i.e. especially replacements as they are more costly)
  • If a contractor refuses, the repair will take additional time as the warranty company will try to find a contractor that will repair vs. replace the product
  • Contractors will do the least amount of work possible in order keep claim costs low
    • In some cases this has put homeowner safety at risk

And if you think licensed contractors are always sent out by home warranty companies you might be surprised to know that in California if a repair cost is under $500 the contractor does not need to be licensed.

According to these lawsuits, Old Republic and First American pay their contractors far below the market average for repairs:

  • They encourage contractors to charge customers additional fees which are not covered by the warranty
  • To cover their tracks, the warranty providers keep extensive records about the fees which they pay to their contactors, but little to no records of what the contractors are charging the homeowners

Additionally contractors are also encouraged to ALWAYS repair rather than replace:

  • When several contractors investigate a problem, they all give different reasons for appliances not working, performing repairs which only last a short period of time if at all.
  • One contractor even reported this practice to a homeowner upon service.
  • In the Old Republic case, one homeowner had six different contractors come to repair unit. The first claimed the unit needed to be replaced and was promptly dropped from the service by Old Republic. After six attempts to repair it was deemed that the unit needed to be replaced, so Old Republic dropped the homeowner from service.

These lawsuits claim that Old Republic and First American have committed:

  • A breach of good faith and fair dealing
  • False advertising
  • Breach of contract
  • California Civil Codes:
    • 1710(3) – The suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact
    • 1710(4) – A promise, made without any intention of performing it
  • California Business and Professional Code:
    • 17200 – Any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.

It’s not clear exactly what liability you might have as an agent when recommending a home warranty company to a client, but if you are providing a home warranty plan with the hope of keeping a buyer happy and to possibly have them as a client in the future you should be wary of the potential damage an unresponsive home warranty company could do to that relationship.

We reached out to Bottini and Bottini in La Jolla to see if they would comment on the cases but they didn’t want to comment on the open cases at this point.

There are many online sites with information about home warranty companies but several sites we found worth checking out before recommending a home warranty company include:

http://www.home-warranty-company-reviews.com/
http://www.homewarrantyreviews.com/reviews
http://www.consumeraffairs.com/homeowners/aaa_warranties.html
https://www.bbb.org

Have you had clients share complaints with you about the home warranty providers you have recommended? What are your thoughts?

  • A. Cat

    I am a Realtor in North San Diego county who had a home warranty plan on her own house. (up until last year).I put a plan on my own residence. 6 months later my front stove burner wasn’t working. I called the Home Warranty company. Next they had a contractor call me, he would be out the following day between 1-3. My husband who has flexible job hours came home early to be there. I got home at 6 PM–the guy didn’t show. Then 6:30, he shows up.
    Hubby wasn’t happy–no dinner started–no explanation from the guy. I went into my bedroom for 1 minute and then walked back out to kitchen–the guy was gone…I left him in the kitchen, went down to the bedroom, came back out and the guy was driving away! He never said two words to my husband–“i will be right back”-“I need to come back tomorrow with the part” nothing–so the next two days go by…nothing from the guy or the Home warranty company so my husband says “forget this-we are buying a new stove!”–so we get a new stove…never hear back from the guy or the company–3 weeks later, I get a bill in the mail for a $60 service call. I call up the company and explain what happened and that we got a new stove–company says..too bad–he went out there–you owe us the $60!!
    They didn’t know I was a realtor that had WRITTEN IN THEIR NAME COUNTLESS TIMES ON MY CONTRACTS FOR BUYERS/SELLERS! So I call the company rep who visits our office and leaves brochures and notepads–looking for realtors to send them business-. This rep proceeds to side with the company! She says the same thing–he came out there didn’t he?? I said maybe a body showed up–but there was no repair, no dialogue, nor communication–no follow up calls or showings back at my door to repair the stove…it had been over 3 weeks since he left my house and never repaired it! She would not back down stating this was company policy..arguing with the very source of her lead generations! Can anyone spell D U M B?? So I told her it was evident that her company does not serve the customer–I saw it first hand–and so I now tell Realtors far and wide no to use this company– they don’t care about the clients—and they get all the orders from the realtors who don’t know how the clients are being treated!

    • RE_Insider

      A. Cat sounds like you got the run around. Your experience certainly supports the claims made in the lawsuits. I wouldn’t recommend them either given your lack of support after speaking to their sales rep!

      • SofiesVoice

        Yes, promises, promises…once they find they are not making money on your calls, they send you a notice that your policy will not be renewed on expiration of current contract. This happens too if you stick to your guns and insist that they live up to their contractual obligations. I had one guy come out to repair kitchen range. After fiddling with the range he said it was fixed. I asked him to show me and when he turned the burner on, the whole control panel across the top of the range burst into flames! He had to run outside to the electrical box and turn off that circuit. I was lucky that my kitchen did not catch on fire. The range was not reparable. They had to replace it. I believe they hire the cheapest people they can find….the bottom line is what counts for them. Since I was cancelled I have had a plumber come out on two different occasions, two different problems at different times, and he charged me $60.00 and $65.00 which is what I would have had to pay someone sent out by home warranty company….above paying the yearly fee! If the buyer wants a home warranty policy, better to research all companies, ask buyer to do research and have buyer choose the company they want. Don’t recommend a specific company. Same applies to pest control inspectors, home inspectors, etc. etc.

  • n6242

    Wow? Who can you trust these days?

  • Kira Morgan
  • L Claire

    According to the California Bureau of Electronic and Appliance the repair companies for appliances are supposed to have a license with the their bureau. The company has to be licensed, but not their employees. There is little training and/or education required for appliance repair personnel. If a subcontractor performs appliance repairs they are to have a license with the bureau. It doesn’t matter what the cost of the repairs are; they have to be licensed with the Bureau to perform any repairs on appliances. On their website appliances are refrigerators, freezers, ranges, washers, dryers, dishwashers, trash compactors, microwave ovens, and/or room air conditioners

    One of the companies First American uses to perform repairs on appliances in the bay area is ABM Appliance & Electronics/ABM Appliance Repair formerly known as Avalon Appliance. All three companies have the same Las Vegas, Nevada address; 5837 Lenapee Ct., (which is in a subdivision) and officers; Petro & Nataliya Stepanenko. In California, ABM Appliance & Electrical/ABM Appliance Repair have two Corporation numbers; C3593899 and C3411236, but it appears ABM Alliance Repair is no longer in business. The address for the processing agent is a PO Box number 218 at 1966 Tice Valley Blvd in Walnut Creek, CA. Although, for the current name they are using; ABM Appliance & Electronic Services the agent for service is Arslan Khakimov Additionally, it appears that Arslan could be a technician for ABM, but a license could not be found on the Bureau of Electronic & Appliance Repairs website for this individual.

    It appears that ABM Appliance often subcontracts the service calls from the Home Warranty Companies. It could be a possibility that ABM does not have technicians, but subcontracts all the service calls they receive. In fact, one business website it states they have one employee, which most likely is a director/officer. At times it is hard to get license numbers from the technicians,
    from the companies the Home Warranties call for service and/or from the Home Warranty Companies. When it is difficult to get license information the consumer has to wonder if the Home Warranty Companies are fully aware that the companies they call for service are sending unlicensed appliance repair technicians to their customers. Additionally, the consumer has to wonder if some of these licensed companies who subcontract their services calls are legitimate businesses especially if they have one employee and are out of the state. And, why would a Home Warranty Company refuse to give license information when the customer requests it especially when the companies/subcontractors are required to be licensed with the Bureau of Electronic and Appliance. You would think Home Warranty companies want to assure their customers that they are sending out licensed, reputable repair technicians to their homes. Furthermore, how can the customer feel safe under these circumstances?

    It is unethical for Home Warranty companies to rely on reports/recommendations from unlicensed appliance repair technicians or substandard technicians in any field of repairs. There needs to be a better examination of the companies these Home Warranties call for service, determine if they are legitimate, do the companies Home Warranties use subcontract the service calls to legitimate technicians, etc. Home Warranty Companies need to be held accountable and it is evident they need better oversight so the consumers are protected.