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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 41221
Experience:  Run my own successful business/contract law practice.
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In New jersey a home builder forms an LLC for each home built

Customer Question

In New jersey a home builder forms an LLC for each home built and then closes the LLC at home settlement. This was discovered when the home had damages due to poor workmanship which was discovered after the home was damaged in a storm---when the guts of the home were revealed, the damage was discovered an an engineer said that poor installation of fascia was the culprit---home is built facing a bay of the Atlantic Ocean----at least 8 other homes---all mostly attached--were done by same builder. Can the builder be sued for the poor workmanship as it seems that forming the LLC was for the purpose of shielding him from subsequent claims. I would think that the LLC and the builder himself are one in the same. Thank you.
Submitted: 5 years ago.
Category: Business Law
Expert:  Dimitry K., Esq. replied 5 years ago.
Thank you for your question. I am a New Jersey licensed professional and will do my best to assist you with your concerns.

Just to be clear, you stated that the damage was discovered 8 years after construction?
Expert:  Bbost1 replied 5 years ago.
There is nothing unlawful about creating an LLC for each home, and that is the standard practice in many places. Clearly, if you can show fraud or some other bad faith then the contractor could be liable.

Your claim may be barred by the statute of repose in NJ. A statute of repose is different from the statute of limitations in that it does not run from the date of discovery, but from the date of completion of construction. That is likely to bar your warranty claim.

The other claim is for negligence, and that is a personal claim that can be brought directly against the builder. The statute of limitations on these claims is generally shorter than the statute of repose. The statute of limitations is likely to bar this claim.

There is not likely to be insurance (title or property) that covers this damage. Frequently home buyers will receive a specific warranty for items like this at closing. These warranties can last up to ten years.

It is worthwhile to visit a NJ construction lawyer to discuss. I think you can get one to do a short consultation for not a lot of money or even free.
Expert:  Dimitry K., Esq. replied 5 years ago.
Thank you for your post.

My apologies but to best asssit you, could you kindly respond to my questions, since it would expressly assist me with giving you a valid answer pertaining to NJ laws, and not just a general response. Thank you!
Customer: replied 5 years ago.
As I said, the damage was discovered after 8 years. There was damage to the home recently where the siding blew off in a storm and small tornado. The workmen, adjuster and engineer noted extensive damage---joists and studs crumbling because of moisture damage due to faulty installation of fascia. The entity that the home was purchased from was an LLC---Harbor Vista LLC, but they used a private builder. It seems that the builder does this for each home he is building--forms a separate LLC for each home---is this not just acting as an alter ego?? He also had an insurance company do a 10 year warranty, which the insurance company now says that they do not cover negligent construction. It would seems to me that the relationship between the LLC and the insurance company is less than arms length, regardless. There are no exclusions of negligence in the insurance certificate either----seems they could be liable also. (not an expert, just a Googler and love to argue!!) Thank you.---Kerry
Expert:  Dimitry K., Esq. replied 5 years ago.
Thank you for your follow-up, Kerry, and thank you for the opportunuty to respond.

The reason I ask is because in the state of New Jersey, professional malpractice claims such as this have a 2 year statute of limitations from the date the injury took place, OR from the date the injury reasonably should have been discovered. That latter part is tricky because typically an inspection is deemed sufficient prior to sale and that 'may' cause the 'reasonable inspection' argument to be used by the other parties successfully and avoid liability. Since the home is 8 years old, I am more concerned over the 2 year statute than the potential Alter Ego arguments simply because this cause of action may have took place so long ago that the courts could refuse to hear it on grounds that it is beyond the threshold.

In terms of setting up separate companies, that is very common in the industry; it does not always mean that piercing the veil is possible unless there are grounds to show that the entity was being run in a manner that would give the Alter Ego argument validity.

The potential argument over the companies not being at arms length is good, but I am not sure I see enough here up-front to even bring this up as a legitimate suit. Sorry for the potentially unwelcome news, but until you can prove that the defect was so latent that it could not be reasonably discovered, you might not have a direct cause of action here.

Good luck.

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