Cracks in the system

Like many pre-owned houses, buyer Donna Van Gundy’s came with a home warranty -- a renewable service contract, usually paid for by the seller or real estate agent, that shields a buyer from costs associated with the repair or replacement of major systems and appliances in the first year of ownership.

Ninety percent of existing homes sold in California have a warranty, according to the Home Warranty Assn. of California, up from 25% a decade ago. For sellers, and buyers stretching financially to make a home purchase, industry experts say knowing that post-closing repair problems could be fixed for a $35-to-$100 co-payment offers a measure of budget protection and peace of mind.

But buyers who have been dissatisfied warn that a home warranty is not a cure-all. Slow response times, under-qualified service people and policy loopholes that favor warranty firms are among common problems reported by consumers.

Van Gundy, 37, a human resources director, bought her home in March. When her water heater broke in July the Torrance resident called the toll-free number on the warranty paperwork, provided a policy number, described the problem and waited for a qualified service technician to be dispatched within 24 hours, as the automated system promised.

Four days and several phone calls later, Van Gundy said, the first plumber dispatched said he couldn’t work on the model’s sealed burner.

“The water heater is the kind that Lowe’s sells,” she said, “so it’s not unique.”

Eight days, several dozen phone calls and two more plumbers into a home-repair nightmare, American Home Shield gave Van Gundy an emergency authorization to hire an independent plumber, who fixed the problem for $75. The warranty company reimbursed Van Gundy’s repair bill, minus her $45 co-payment.

Why was the experience so drawn-out? According to Diane Pieper, manager of legal services for American Home Shield, the water heater’s sealed system was not typical.

“The process was lengthy due to the unusual nature of the water heater in question,” Pieper said.

For Van Gundy, the ordeal left its mark.

“I had to leave work and come home day after day to meet plumbers who didn’t know what they were doing. I lost more money missing work, making phone calls, heating water and being aggravated,” she said. “I should have just paid for it myself.”

When her ceiling leaked later in the year, rather than risk a repeat of her previous encounter, Van Gundy hired a contractor on her own and absorbed the cost. “Had [the warranty company] become involved, I’m convinced it would have become a horrible disaster,” she said. “If it’s something crucial to your existence, like hot water or plumbing, don’t use [the warranty].”

Van Gundy isn’t the only homeowner unhappy with a warranty. The California Department of Insurance, which licenses and oversees the state’s protection firms, tracks complaints and offers dispute resolution resources, received 593 consumer complaints related to home warranties in 2003. A preliminary report estimates about 700 complaints were filed last year.

But those numbers represent a fraction of the 500,000 warranties sold by California’s seven major vendors each year, said Art Ansoorian, a spokesman for the Home Warranty Assn. of California.

Although the industry reportedly responds to more than 100,000 claims in the Southland each month, Ray Adams, president of the Burbank-based Buyers Home Warranty Co. and former president of the Home Warranty Assn. of California, said recent rains increased the number of service calls related to roofs and heating.

“We’ll take as many as 1,000 roof calls on a rainy day,” he said. Although not usually included under a basic home warranty, extra coverage can be purchased to cover a roof.

A standard home warranty plan costing $300 to $500 a year normally covers breakdowns caused by wear and tear on a home’s major systems and appliances. Extended coverage for nonessentials such as pools and spas can be added for an extra fee.

Buyers should ask their seller or real estate agent for sample contracts before the sale closes, Adams said.

Review contract carefully

Contract in hand, carefully read and review coverage, limitations on repairs, exclusions and costs. Some plans have limited coverage on faucet replacements, for example. Call the warranty company to inquire about service-call and emergency response times. Ask real estate agents, family and friends about their own warranty experiences and referrals. Make sure the policy has been paid in full for the entire year after closing.

When complaints arise, consumer misunderstanding is sometimes the culprit, said Jay Indeck, owner of Rancho Cucamonga-based Jay Indeck Plumbing.

“The idea that everything in the home is covered is a common home-warranty misconception,” said Indeck, who has been taking warranty service calls for 10 years.

When in doubt, ask what is covered. Indeck recommends buyers question “sweeping statements about wall-to-wall coverage” before closing escrow.

Warranty companies require items to be in good working order before a policy is issued, and they must be well-maintained throughout the contract. Still, most firms rely on contractors to provide condition information when problems arise.

But a home warranty is no substitute for a comprehensive home inspection, warned Michael Solender, principal owner of the Los Angeles-based Solender Group Inc., which provides experts for construction defect litigation.

Preexisting conditions are not covered, Solender said, so a buyer with a rusty leak under the sink and a 10-day-old policy is probably going to have a repair bill. Consequential or secondary damages -- replacing carpet or tile damaged by that rusty leak under the sink -- fall under the purview of home insurance and are not covered by a home warranty plan.

Some firms offer an upgrade option. However, if they don’t, there may be additional out-of-pocket costs for upgrading a system due to code violations, haul-away charges and permit fees. And covered items may not be replaced with similar ones.

When Orange County resident Valerie Herz, 44, needed to replace a faucet in her La Palma home, the home warranty covered only a stock item, so the middle school teacher paid extra for a faucet comparable to her old one.

Buyers should make sure the policy meets their specific needs. During the purchase of his Brentwood home in 2001, Sheldon Lewenfus, a 49-year-old financial officer, asked the seller to add the pool option to the warranty. When the pool heater failed that year, the home protection policy covered a new one.

Like about 55% of other American Home Shield policyholders, Lewenfus renewed his warranty after the first year. Industry renewal rates in the state are about 40%, according to Ansoorian.

Lewenfus said the protection is worth the annual fee. Still, not everyone thinks a home warranty is such a good deal. Adams said consumers who haven’t used a home warranty within the first year often don’t think they need it.

Ansoorian agreed. “Most problems occur within the first year, so people feel like they may have weathered the storm,” he said. “But the more they use the product, the more comfortable they are renewing.”

Consider lifestyle

Though a newer home might not appear to need coverage, the age of a home and its systems shouldn’t be the only consideration for getting a warranty, said Adams of Buyers Home Warranty. Consumers should look at the lifestyle of the former occupant.

“A home occupied by a conservative older couple that set the thermostat at 80 degrees and drew the shades before going to work each day might never have a problem with the air conditioning,” Adams said. But if an active family then moves into the home, he said, air-conditioning problems could arise.

“But [the sellers are] long since gone. So they come after us,” he said. “We’re like the third-party complaint department for a real estate transaction.”

Inserting a third party into the post-sale process might take some of the burden off sellers and real estate agents, but Ansoorian said a policy isn’t a loophole for nondisclosure.

From the industry’s standpoint, regulating quality service standards is the biggest challenge, according to Steve Burnett, chief marketing officer for American Home Shield.

Most warranty firms rely on a network of local repair technicians dispatched to consumers’ homes. To mitigate service problems, providers try to weed out contractors with numerous service complaints.

“We stay on top of them ... because the costs are tremendously high if they don’t do it right the first time,” said Adams, whose firm follows each service call with a mailed questionnaire to rate the contractor’s performance.

Even so, Indeck said 25% of his business comes from return work on warranty service calls in which a contractor failed to do an adequate job or didn’t follow up after the initial call when a repair was not satisfactorily completed.

Mark Lightfoot, president of the Home Warranty Assn. of California and general counsel for American Home Shield, said a core group of quality contractors handles 80% to 90% of American Home Shield’s warranty repairs. The company uses monthly customer surveys to track timeliness, professionalism and workmanship.

Customers concerned about repairs should contact the technician who performed the repair or the contractor’s main office and report the problem, Lightfoot said.

But what if the problem is with the home warranty company? Burnett of American Home Shield recommends consumers go straight to the source.

“We constantly need to hear from our customers,” he said, “so that we can listen to what they say and figure out ways to do it better than we did yesterday.”

If that fails, homeowners can take warranty claims of up to $5,000 to Small Claims Court. However, Solender recommended consumers write to the company before taking legal action. He did.

When a slow leak ruined the air conditioner in his Los Angeles condominium, Solender’s initial claim for a new system was denied. Undaunted, Solender, 76, outlined why his claim should be honored in a detailed letter and sent it certified to the warranty company’s senior vice president, who honored the claim.

“Let them know that your next step will be to take legal action,” Solender said.

Buyers can also ask the real estate agent involved in the sale for help. Carolyn Theriault, with First Team Real Estate Inc. in Seal Beach, receives two or three warranty-related calls for help from frustrated clients each year and contacts the warranty company’s sales representative or a manager.

Most cases, she said, have good results.

“Once the sellers are gone, who does the buyer have to turn to?” she said. “The agent is going to have the clout because we have an ongoing relationship with companies that have provided service to our clients in the past.”

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Warranty details, at your fingertips

Here are some resources for information on home warranty coverage, prices and service fees:

* For a consumer home warranty checklist and a list of frequently asked questions, visit the Home Warranty Assn. of California, (805) 653-1648, www.warrantyassn.com/hwac. Select “Consumer Tips.”

* National Home Service Contract Assn., (800) 223-8261, www.homeservicecontract.org.

Among the state’s home warranty providers:

* American Home Shield Corp., (800) 735-4663 for purchasing or selling, (800) 247-4749 for existing homeowners, www.ahswarranty.com.

* Buyers Home Warranty Co., (800) 223-8261 claims, (800) 443-5599, www.bhwc.com.

* Fidelity National Home Warranty Co., (800) 308-1422, or (800) 862-6837 for sales, www.homewarranty.com.

* First American Home Buyers Protection Corp., (800) 444-9030 sales, (800) 992-3400 claims, www.firstam.com.

* HISCO Home Warranty Co., (800) 831-8200, www.hiscohome.com.

* Old Republic Home Protection Co., (800) 445-6999 sales, (800) 972-5985 claims, www.orhp.com.

* 2-10 HBW Warranty of California, (800) 795-9595, www.2-10.com.

To check out a company or file a complaint:

* Better Business Bureau of the Southland serves Los Angeles, Irvine and Pasadena areas, (909) 825-7280, www.labbb.org; BBB of San Diego, www.sandiego.bbb.org, (858) 496-2131.

* California Department of Consumer Affairs, (800) 952-5210, www.dca.ca.gov.

* California Department of Insurance, www.insurance.ca.gov, consumer hotline (800) 927-4357.

* Los Angeles County Department of Consumer Affairs, (800) 593-8222 or (213) 974-1452, www.dca.ca.gov.

* California Contractors State License Board, (800) 321-2752; www.cslb.ca.gov. At this site, view citations against a contractor, check license status or file a complaint:

Additional resource:

* California Courts Self-Help Center, www.courtinfo.ca.gov. Select Self-Help for small claims assistance and low-cost legal help.

Michelle Hofmann is a Los Angeles freelance writer. She can be reached at michellehofmann@earthlink.net.