Under the New Jersey Consumer Fraud Act (the "CFA"), a home improvement contractor commits an act of consumer fraud in any one of three ways: (1) affirmative misrepresentations, (2) knowing omissions, and (3) certain regulatory violations. Since Hurricane Sandy, we have seen contractors who have committed one - and often - all three types of consumer fraud.
An "affirmative misrepresentation" is a statement made either negligently or intentionally, which is factually untrue. For example, if the contractor promises to install Anderson windows and he instead installs generic windows, the contractor has committed an act of consumer fraud by an affirmative misrepresentation.
A "knowing omission" occurs when a contractor knows a material fact but fails to tell you. For example, if you tell a contractor that the project has to be completed by a date certain, and he knows that he cannot meet that date but fails to tell you that the date cannot be met, then the contractor has committed an act of consumer fraud by a knowing omission.
The third type of consumer fraud - a regulatory violation - is the most common type committed by home improvement contractors. Having seen over 100 home improvement contracts, the author has found that nearly every home improvement contract violates the CFA in one respect or another. Thus, this type of consumer fraud is often very easy to prove. Even a "technical", regulatory violation results in the contract being declared invalid and unenforceable (i.e., the contractor cannot collect on any claimed unpaid balance) and the contractor must pay the consumer's reasonable attorney fees and costs. The CFA requires trebling of damages. However, an isolated violation of a regulation may not result in actual damages - and thus no treble damages. However, a pattern of many regulatory violations may result in the court finding that all damages that arise out of the transaction will be trebled.
There are several New Jersey court decisions that have held that a consumer may sue not only the home improvement company, but may also sue the workers who committed the violations and the owners of the company who selected the use of an illegal contract. Thus, despite a contractor operating through a corporation or an LLC, the contractor may nonetheless be personally liable under the CFA.
Many consumers - and their attorneys - misunderstand the concept of what damages are available in a CFA action. Some mistakenly believe that any act of consumer fraud - technical or otherwise - results in the amount paid to the home improvement contractor, or the amount of the contract, being trebled. That is not the case. It is, as a general rule, only those out of pocket costs to repair or replace defective work that is an "ascertainable loss" subject to trebling.
Here are just some of the requirements of a legal home improvement contract:
(1) The contractor must be registered as a home improvement contractor with the Division of Consumer Affairs (DCA).
(2) The contract must provide the name and address of the contractor.
(3) The contract must provide the contractor's registration number.
(4) The contract must provide the toll free telephone number for the DCA.
(5) The contract must annex the contractor's certificate of general liability insurance.
(6) The contract must provide the telephone number for the contractor's insurance company.
(7) The contract must set forth the full price for the project.
(8) The contract must state the date that work will begin.
(9) the contract must state the date that work will end.
(10) the contract must provide a three day right to cancel.
(11) the contract must identify the brand, type and quantity of material to be provided.
(12) the contract must state what warranties for goods or materials are to be provided.
(13) The contract must be signed by the parties.
(14) Once the contract is signed, any modifications / change orders must be in writing.
(15) All communications - such as letters and invoices - must contain the contractor's registration number.
(16) The contractor may not begin work until all required permits are obtained (working without permits is prima facie consumer fraud).
(17) The contractor may not begin work until the contract is fully signed.
(18) The contract may not require that the homeowner pay in full prior to completing the job.
(19) The contractor's work vehicles must display his "13VH" registration number.
(20) The contractor may not mislead the prospective buyer into believing that the down payment or any other sum constitutes the full amount the buyer will be obligated to pay.
The list above is not exhaustive. There are other requirements found in the Contractor's Registration Act (NJSA 56:8-136 et seq) and the Home Improvement Practices regulations (NJAC 13:45A16 - 17). Given the myriad requirements, only the most diligent home improvement contractor may comply with the law. The vast majority of home improvement contractors are not diligent and are using illegal contracts that are unenforceable.