Home Warranty Scams – What Do You Need to Know?

Are there scams in the home warranty industry?

When you look at the words most often used in emotional complaints about home warranty companies you may find that “scam” is a very common term. But if you look very closely at the home warranty industry it’s hard to find evidence of a scam rooted in the established home warranty companies.

Home Warranty Scams

Though homeowners are not always happy with the speed or manner of the response to their claims it takes more than just complaints to make a true scam. So are there no scams in the home warranty industry? My personal opinion is that there are plenty of scams and if you look back you’ll find plenty more in the past. Does that make the home warranty industry unique? I definitely don’t believe so. Auto insurance, health insurance, home building, government, religion – you name it, there have been scandals and grounds to throw words like scam around. A home warranty is not unique in that it has unhappy customers. Show me an industry without unhappy customers and I’ll be the first to change careers. But like I mentioned before, home warranty customers have been victimized and are probably being victimized even today.

Spotting the scams and the companies that are not operating with the best interests of their customers in mind is the very first priority. This is where homeowners and legitimate home warranty companies can work together. Real estate agents, home repair contractors, home inspectors, and many other professional and customer advocacy groups can also help to point out the signs that home warranty companies are not doing what is right for their customers.

How do you spot home warranty companies that may be scamming customers?

How can homeowners identify home warranty companies that are likely to be scams or just not be doing what is right in terms of their commitments to customers? There are a few basic approaches to getting a good read on a home warranty company and all of them involve some time spent doing homework. What this comes down to really is customers taking their time and not making impulse purchases of home warranty contracts. And during that period of finding out about a home warranty company here are some things homeowners would be wise to look out for:

  • Is the home warranty company well established? This one is important. Many home warranty companies that fail to take care of their commitments due to greed or negligent management practices still cannot be labeled scams. But like the companies that are intentionally misleading customers, the ones that do a bad job with customer service or mismanage the company’s assets tend to wind up being fly-by-night companies. If a company hasn’t been around long then homeowners should be extra cautious.
  • Are people you know talking about the company? If you ask everyone you know about a home warranty company and nobody can tell you a thing about them then, again extra caution is wise. Keep in mind that hearing about other people you know signing up for a home warranty doesn’t necessarily mean a company will be good to deal with as a customer. Until you file a claim you don’t really know what you’ve gotten yourself into.
  • Do your state government’s insurance regulatory authorities or other public offices know anything about the home warranty company? Some states have rules for home warranty companies while others do not. If you live in a state that has no regulations, licensing requirements, or other rules for home warranty companies then you should tread very carefully. If you choose a home warranty company that fails to deliver on its promises your state may have little or no recourse available for you. If your state licenses or otherwise sets limits on home warranty companies don’t sign or buy anything until you know where the home warranty company stands with your state’s regulatory entity. And ask about complaints. Some officials can tell you if there have been complaints filed with their office or other offices against the home warranty company you are inquiring about.
  • Find out more about the company in terms of physical location and ownership. As mentioned earlier in this article, there are sometimes signals that a home warranty company isn’t legitimate. The harder it is to find out about the ownership and location of a company the more cautious a homeowner should be about doing business with it.

What sorts of home warranty scams should you watch out for?

It’s difficult to predict what sort of stunt criminals will pull tomorrow but in terms of what scams I’ve heard of up to now, here are a few. The names may be funny but the financial losses and wasted time on the parts of the jilted customers are nothing to smile about.

“The Emperor’s New Clothes”

This one involves a company that isn’t a company at all. It has none of the financial depth that is required to cover the costs of handling repairs and replacements when home warranty customers file claims. In fact, these companies rarely have a real office and follow the same pattern almost every time. They deny all the claims they can, approve the ones they can’t but then don’t pay anyone for the work performed, and then when frustrated customers cancel they promise refunds which they also fail to pay.


“The Ponzi Scheme”

These companies oftentimes pay their contractors and approve returns but do so in such a way as to gradually put the company further and further behind on various debts. While they do this they use positive customer reviews to attract more customers and also spend a great deal on advertising in some cases. By the time they become fat with customers and reach their peak they’ve already bankrupted the company through poor management. The customers who are holding new home warranty contracts the day the company finally sneaks out its back doors and turns off the phones are the ones who get hit the hardest. Sometimes this type of scam leaves a long-term trail of customers who don’t find out their contract is worthless until they attempt to contact their home warranty company’s customer service center. This grab-the-cash-and-dash routine has burned many, many homeowners over the years.

“The Disguise”

Some people who found bad home warranty companies get away with their misdeeds or only receive a slap on the hand that holds the checkbook. They then go on to start other home warranty companies using new company names and sometimes using different people as the officers or owners of the company. By disguising themselves they evade the public scrutiny that would otherwise stop their scams cold. Homeowners caught up in the web of these characters can count on denied claims, shoddy work, unpaid contractors pursuing the homeowner for debts the home warranty company owes payment for, and many other unpleasant circumstances.

What can homeowners do if they suspect they are dealing with a fraud that is posing as a home warranty company?

For the sake of other consumers, friends, and the home warranty industry where companies work diligently to satisfy their customers, any homeowner who feels that a claim was handled unfairly or that there are signs of misconduct on the part of their home warranty company should not remain silent. All too often home warranty companies give the overall industry a bad name with their poor handling of claims, contractor relations, or other important areas of their businesses. And in the case of true scams, more often than not, the people behind the scams only get away with what they do because it takes so long for anyone in a position to stop them from realizing what is happening. As consumers realize their options to use government offices, social media, and word of mouth to sound the alarm about bad home warranty companies it will become more and more difficult for new scams to find victims.

This is a guest article written by Kevin Wallach. As owner and writer at CompareHomeWarrantyQuotes.com  Kevin spend a great deal of time collecting information to help his readers better understand home warranty plans. Though home warranty is not the most popular topic online, it does mean a lot to homeowners who need help with questions about it.


Recent Comments
I did what I thought were all the right things, had the place inspected prior to purchase, had the HVAC serviced after purchase, and still am out a great deal of money for nothing. I phone calls with HMW Home Warranty I also offered to have the heat pump/blower service completed and then have them only take care of the motor for the air-conditioning unit, they still refused to honor the warranty I had been paying for two years. Below is my cancellation e-mail that details all of it (they require it in writing). Bought property in 2011, had property fully inspected by "Home Authority" prior to purchase. In a detailed report there is no mention of heat pump/blower portion of HVAC being incorrect. Had HVAC serviced including vent cleaning prior to renting out property (did not trust it had been properly maintained by previous owners). Have had same company do seasonal maintenance since. HMS sent service tech from AirTechOne in Jan 2012. Technician removed entire side panel of heat pump/blower to access control panel at which time he tightened a loose wire. Technician did NOT indicate in any fashion that the unit was not installed correctly, nor that when I had paid a company to service the HVAC that they apparently had NOT vacuumed out the coil area. I addition to the $490/yr insurance I pay HMS I paid $100 for this visit, and the average HVAC service call/diagnostic in the area is $79. HMS sent service tech from AirTechOne in March 2012. Technician removed entire side panel of heat pump/blower to access control panel to replace control panel.Technician did NOT indicate in any fashion that the unit was not installed correctly, nor that when I had paid a company to service the HVAC that they apparently had NOT vacuumed out the coil area. I addition to the $490/yr insurance I pay HMS I paid $100 for this visit, and the average HVAC service call/diagnostic in the area is $79. Today, 13 SEP 13, HMS sent service tech from Assured Comfort concerning the outside air conditioning unit no longer working. It was found that the outside unit needs a new motor. When technician then went inside and entered the room with the heat pump/blower he stated that it did not look as if it had been installed correctly. Technician walked over, pulled over a small area of insulating tape and confirmed that it was incorrectly installed with a heat pump from a different maker fitted into the side of the blower encasement. Without removing the access panel he was then able to also determine that the maintenance I had been paying for was not including vacuuming off the coils. Due to the improper installation of the heat pump/blower by a previous owner none of the repairs would be covered, not the motor, not any future replacement of either, nothing. So, again, in addition to the $490/yr insurance I pay HMS I paid $100 for this visit while an average HVAC service call/diagnostic in the area is $79 and NOTHING WAS DONE, NOTHING WAS FIXED. I spoke with no less than 5 HMS personnel today. During some of those phone calls I was asked if I'd had a home inspection and what did he say about the HVAC yet even when I offered to send a copy that was refused as it would not change the determination by HMS that none of it would be covered. So in addition to taking my money to insure an item that was never going to be covered in the first place and sending out technicians multiple times that never inform me of this (so I could proactively have it replaced correctly, serviced correctly or at the very least have it removed from my warranty) my time was wasted profusely on the phone by personnel asking questions with no point or relevance to the outcome and NOW, to cancel I was asked to type up the incident and why I am cancelling. There you go, at least now I have a copy to post online, send to the county and send to the lawyer.
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