Home Warranty Bankruptcy Leaves Customers Holding the Bag

In writing our recent stories about home warranty companies we discovered that you don’t have to look very far to find unhappy home warranty policy holders, but this story illustrates firsthand how precarious some of these provider’s financial situations are.

In our original story “Are you Risking Your Client Relationship by Recommending a Home Warranty Company”, we realized that there aren’t many regional companies in the business anymore and that the market is dominated by larger players.

But as our past story indicated there are many reports of bad service from the larger home warranty companies too. It makes you wonder why the regulators aren’t on top of all of these complaints. With all these reported complaints why aren’t they taking action?

This brings us to the focus of this story – a home warranty company bankruptcy. We were able to speak to one of the customers directly affected by this situation and here is what we discovered.
In January of 2013, a SoCal homeowner started a three year plan with Colonial Home Warranty. Paying all three years up front, the homeowner believed that he would be protected against any problems which may occur with his new home.

Unfortunately, his dream of the perfect home – and perfect home warranty – soon turned into a nightmare. Within the first year of purchasing the warranty, the home began to show signs of wear.

The first incident occurred in August of 2013, when the homeowner encountered a simple plumbing issue. Believing it would be an easy fix, he filed a claim with Colonial, under the impression that they would promptly fix the problem. Colonial was nowhere to be found though, and after a couple weeks of resubmitting claims that seemed to be ignored, the homeowner began to feel hopeless. Fortunately enough, the issue seemed to resolve itself without repair, so the homeowner shrugged off the discouraging experience and continued on with his life – but not for long.

A couple months after the first incident, a new problem was discovered – an issue with the electrical system. Once again the homeowner reached out to Colonial, and to his surprise, this time they answered his cries for help. After a quick repair – and $50 spent on a service call – the wiring was fixed.

All seemed well again, the home was in working order and the owner’s confidence in Colonial was restored, but once again this was only a temporary state of bliss.

In February of 2014, a new problem arose, and this time it was a bit more serious. Our homeowner woke one morning to find that a pipe had burst, destroying one of his walls and flooding his home. Once again the homeowner filed a claim with Colonial, believing they would send a contractor like before, but a contractor never arrived. Disgruntled, he continued to contact Colonial, only to be met with runarounds over the phone. After several days with no help, the homeowner took measures in to his own hands and contacted a contractor.

Expecting to be reimbursed, the homeowner contacted Colonial again to inform them of the repairs, but again the homeowner was met with resistance – being placed on hold for extended periods and having his call transferred endlessly from one department to the next. Finally, he was told to have the contractor contact Colonial to verify the repairs and receive payment, but by this point it was too late.

On March 17th, 2014, Colonial Home Warranty made an announcement to its many customers and contractors, informing them that the company had gone bankrupt and their contracts were thereby voided.

As of now, the homeowner we spoke to has yet to receive any compensation for the money he spent – both for the two years remaining on his paid policy and the funds spent repairing his broken pipe – and it’s questionable whether or not this will be recouped in court.

While Colonial Home Warranty may be forever out of business, our previous research has shown that there are plenty of other home warranty companies out there just like them – more interested in making money than properly caring for their customers. It’s for this reason that we all must be careful when choosing the right warranty provider, and even more careful when suggesting a service to a client of our own.

Have you or someone you know used Colonial Home Warranty in the past? What have your experiences been like with other warranty providers? We’d love to hear your thoughts!

  • Justin T. Bonney

    Thank you for the post, interesting read. The onus again on the agent and buyers to do due diligence on the rating of carriers for this type of insurance. Glad I have not used them. Tough enough to trust the ratings of any rating agency coming from a seasoned lender and real estate professional. Question..after the 1st year of warranty, does the carrier change? I have seen renewal notices from past clients that are named differently than the original carrier. Is there a Home Warranty secondary market behind the scenes? Curious.

  • I have worked in my market for 10 years and our local home warranty reps visit us several times a month. We have working relationships with these companies that span more than a decade and we always use these trusted companies because of their long track record. Agents should develop these relationships so they have trusted companies they can recommend to their buyers. I’ve never even heard of Colonial–thank goodness!!

  • David Anderson

    Warranty always a nice option to protect our home. Extend warranty can help us in maintenance and repairing of our home. Home warranty is an appliance service protection plan that covers the maintenance expenses associated with household items such as refrigerator,dishwasher, HVAC units, plumbing system, electrical wiring etc.

    AMT
    Warranty Corp

  • Johan Michal

    Warranty always a nice option to protect ourhome. Extend warranty can help us in maintenance and repairing of our home.Home warranty is an appliance service protection plan that covers the maintenance expenses associated with household items such as refrigerator,dishwasher, HVAC units, plumbing system, electrical wiring etc.

    AMT
    Warranty Corp

  • Susan

    It’s not just this company, and no matter how much research you do, it happens. After having a nightmare experience with American Home Shield, I read tons of reviews and did a whole bunch of online research. I bought two policies, one for my home and one for my daughter’s, with Certified Home Warranties, who had glowing reviews from everything I read, they were the highest rated. 3 months later, I happened to click on their website and discover they were out of business and bankrupt. There was absolutely no one to talk to. Now my daughter has a $4000 plumbing bill that would have been covered had the company not gone out of business. So now I am out $5000. How do you decide who is safe?