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Home /  Home Warranty Scam / How to identify home warranty scams?
last_updated_date Last updated: December 21st, 2021

Is Home Warranty a Scam? An Overview of the Worst Experiences

PUBLISHED: DEC , 21 2021 • 6 MINS READ

Home warranty plans can help save significant money, especially from reputed companies. But it often happens that customers fall prey to some shady business practices by some players. Things were worse in the early 2000s (when homewarrantyreviews.com was established to give voice to genuine customers’ feedback). Thanks to stricter regulation, strong customer opinion, and companies pursuing real growth, the industry has evolved.

 Is home warranty a scam?

Despite this, people often have bad experiences and conclude that home warranties are a scam. This post will help you understand why this happens and how to identify fraud companies, as well as steps to take if you suspect you’re being taken for a ride.

The Most Common Scammy Practices

There have been home warranty companies that were outright ripoffs, and you can jump down to read about them.

Fake Paper Companies

By far the most bothersome of scams, there have been companies that popped up, enrolled a bunch of customers into their plans, and shut shop in a short period. They usually aren’t registered with state authorities. Their contractor relationships aren’t reliable either, and people find out the reality when every customer reports claim denials.

Ponzi Schemes

A Ponzi scheme relies on enrolling new buyers and paying older ones or investors or old customers from the money acquired from these new joiners. The new buyers are assured of huge returns or discounts if they refer people.

Now, this is not the same as a regular referral program. These companies are very aggressive about spreading their word. People get hoodwinked because they would have provided exemplary services to a handful of old buyers (they may be in cahoots with).

Misrepresentation

Legally, home warranty companies have landed in hot waters due to various aggressive marketing misdirections. It is necessary to read the contractual fine print because many marketing claims are subject to fulfilling terms and conditions. For instance, they cover items regardless of their age; but only as long as they have not developed anything that could be called a pre-existing condition. Fake reviews are another scammy tactic.

The Final Notice Scam

Many homeowners have reported receiving a letter from some company threatening loss of coverage due to non-payment of dues in a mildly worrying situation. They may make it appear like it is coming from a mortgage lender. It may be a pink letter and mention that the home warranty has been secured by your bank or recorder of county deeds. This is a total scam, and you should discard these letters. Do not attempt to contact them via the number given.

Phishing Scams

Fake salespersons may call up people and make them buy home warranty plans from non-existent companies. This call could be a way to get credit card details or get the person being duped into bearing false charges on their card.

These practices are scammy enough to have the fraudsters embroiled in litigation. Generally, the companies usually want to settle.

Misunderstanding vs. Exploitation

Most of the time, people refer to specific practices rampant among some dodgy companies when they complain about scams. There have been times established companies have gotten a bad name due to some of these actions. These misleading practices are usually due to overzealous sales agents or unscrupulous real estate agents trying too hard to make a warranty sale.

Some standard exploitative practices include:

  • Hurrying the customer into signing a contract and paying before they have read the service contract and figured out loopholes like small coverage caps
  • Claiming specific models are covered when they are not like some companies don’t cover split window air conditioning units but may not admit that initially.
  • Delaying payments of contractors
  • Hiring unprofessional contractors who agree to carry out services at meager rates and cut corners in repairs
  • Overlong service visit delays
  • Prolonging the claim processing and not following up on whether scheduled technicians have completed repairs
  • Unexpected costs like cancelation fees not previously specified, renewal without permission, etc.

You may come across many horror stories about people feeling cheated. It’s a good idea to read the stories in detail and figure out whether the negative experience is a result of a misunderstanding like:

  • Making a claim for a not-covered part or component – home warranty contracts have exclusions, and any defects involving excluded parts and components won’t be covered
  • Expecting a full reimbursement for a replacement- the contracts offer only an amount equivalent to the depreciated price of the item
  • Inability to provide expedited services during an emergency
  • Maintenance records missing or improper maintenance
  • Breakdowns due to pre-existing defects
  • Poor customer service due to inadequate workforce

Tips to Avoid Getting Scammed

You can do many things to avoid getting scammed, and the most obvious step is to choose a reputable company. Even then, you should do your due diligence to make sure that the home warranty plan suits your needs.

Things to verify when zeroing in on a home warranty company:

  • Whether they are licensed to operate in your state
  • Membership with industry bodies
  • Whether the third-party seller is authorized (if you’re buying from a realtor or a seller)
  • Nuances of coverage- items, parts, components, coverage limits, etc. mentioned as inclusions and exclusions
  • Cost breakup to clarify any hidden costs
  • Duration of the plan and cancellation procedure

A great tip is to talk to friends and neighbors about their experiences with the company you’re considering. You should also check out reviews from recognized sites like homewarrantyreviews.com, BBB, etc. Read both negative reviews and positive experiences carefully.

If you get a direct final notice letter, check your receipts. Most likely, you’ll have no prior communication with the company.

Note for contractors looking to sign up: Most home warranty companies issue open invitations to join their contactor network. They promise a high volume of regular work and a steady money flow. You should talk to other contractors working with them and try to ascertain the quality of their work. Also, find out how regular they are in making payments.

What should a good home warranty company offer?

A good home warranty company is transparent about its legitimacy, affiliations, limitations, and marketing claims. Besides, they also offer high-quality customer support and try their best to cut down delays in work. They regularly pay their contractors to feel motivated to do their best.

Good home warranty companies are also open about the number of claims they have processed, how many homes they cover, and such details about their actual performance. They don’t expect blind faith from their customers.

The companies try to ease their customer lives by sending notifications before plan lapses and to inform about customizable plans, a wide range of optional items, etc. They come up with innovative solutions over time, like digital platforms with ancillary services like transaction tracking.

further-reading-scam-iconFurther Reading: Check out the top 10 home warranty companies of the year

Home Warranty Companies That Had A Bad Turn

Numerous home warranty companies have shut down their services in the last 20 years alone. In some cases, they were suspected of being fraudulent, while in others, they couldn’t keep up with the nature of the business. Most of these companies are also poorly reviewed by homewarrantyreviews.com users.

Here are a few such companies:

1.Delta Home Protect

This company shut shop in 2017 after numerous negative reviews about services not being provided. The company website went offline, and they stopped taking phone calls.

2.Secure Home Warranty

A Philadelphia-based company, they were established in 2015. Within a year, negative opinions and complaints were everywhere, alleging unauthorized credit card charges and unjust denials. Lawsuits were filed over defrauding more than 160 customers, and the company closed in 2017.

3.National Home Protection

A nationwide company, they closed down in 2010 after the New York Attorney General sued them for defrauding customers in 32 states.

4.American Home Guard

This company began operations in 2013 and did pretty well initially, growing across 38 states. By 2018, reports were rife about their delays in scheduling technicians, payments, and claim denials. The company then shut down.

5.Service America Home Warranty

They ran for 43 years, a Fort Lauderdale-based company, before going out of business in 2018. They operated only in Florida and had 23,000 subscribers. This company was reported to have sent prorated refunds for unused portions. Many people, however, said that they hadn’t received their refunds, and some also saw their credit cards being charged later on.

6.Sensible Home Warranty

Sensible Home Warranty was a Nevada-based company hauled up for taking money from people and not providing services. The company no longer exists after furnishing security bonds in court to compensate customers.

Recently, the California Department of Insurance issued cease and desist orders to Global Home Protection, Complete Care Home Warranty, and Priority Home Warranty. This happened because they were operating unlicensed. The decision may be reversed if they remedy the situation. However, we don’t have enough positive reviews to recommend that anyone purchases their plans in other states where they may be licensed.

Many small businesses get acquired by large home warranty companies when they aren’t doing too well. In these cases, existing customers are generally enrolled in the new company at no extra cost.

What to do if you feel cheated by a home warranty company?

Claim denials happen due to tricky terms, and if you are experiencing one, then the first thing to do is get a second opinion if you think the repair should be eligible. You can verify the coverage with the service contract.

If the second opinion validates your version of the events, that is, the item that broke down should get coverage, present your case to the company. If they don’t respond favorably, leave a review in our CRP system. Many companies are a part of our program to facilitate communication between representatives and customers.

For further escalation of disputes, most home warranty companies make the arbitration route mandatory. The contracts also contain class action lawsuit waivers. However, some companies have faced action from state attorney generals themselves in recent years, and class action lawsuits have been filed. Many of the more prominent companies chose to settle.

Concluding Note

While home warranties are not scams, most companies try to cut corners to varying extents. Fortunately, there are many ways to hold them responsible for their actions. Empowered consumers should always hold the companies accountable and force them to place customer welfare first. If a home warranty company sounds way too good to be true, it may just be. So always do thorough research and don’t believe their claims at face value.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q.

My home warranty company charged me a deductible but didn’t send anyone! What to do?

A.

An egregious error on their part, a home warranty company should ideally send a technician and then charge the deductible. Reach out to the customer service team, and if you don’t hear from them, place a CRP complaint with us. You should also use their social media pages to register your complaint.

Q.

What is a home warranty notice?

A.

Technically, it should be a notification about something connected to your home warranty for you to be aware of, like the upcoming expiration date. A home warranty notice may also refer to the letter sent as part of the direct final notice scam.

Q.

Who sends the direct home warranty final notice?

A.

Some unethical home warranty companies send these final notices to unsuspecting people after obtaining email IDs. However, they may also come from phishing scam artists.

Q.

Are home warranty resolutions real?

A.

Home warranty resolutions refer to the false marketing tactic of direct final notice letters. Do not fall for them.

Q.

Is home warranty direct a scam?

A.

The home warranty direct letters are a scam to get people to call without checking if they even have a plan. They attempt to pass it off as coming from a legitimate sender, who nevertheless should have nothing to do with a home warranty.

Q.

Is a home warranty worth buying?

A.

A home warranty plan can be worth buying if you want to save money on breakdowns of home systems and appliances, especially as they wear out with age. You also get the peace of mind of accessing repair services with a call.

Q.

Which are some legit home warranty companies?

A.

Some of the biggest home warranty companies in the US are legit, like AHS, Cinch Home Services, Select Home Warranty, etc., that are licensed to operate in the states they are present. You should note that even these companies may have dissatisfied customers.

Q.

Should I offer my buyer a home warranty?

A.

Most homebuyers expect a home warranty to be part of the closing. Sellers find it easier to get their homes off the market and sell at better prices when they include home warranties in the deal.

Q.

Can a home warranty company drop you?

A.

A home warranty company could choose to terminate the service contract with you. However, this is a rare circumstance.

Q.

Who regulates home warranty companies?

A.

In most states, the insurance departments regulate the home warranty companies. There is also a self-governing industry council called the National Home Service Contract Association.

Q.

How to file a complaint against a home warranty company?

A.

That depends on where you want to file the complaint. If it’s with BBB or our CRP system, you just have to fill out a form. If you want to file a complaint with the state Department of Insurance, you should go to the consumer complaint form of their website.

Q.

What to do when the warranty is not honored?

A.

If the warranty is not honored, you can move to use the dispute resolution process after sending a registered mail asking them to honor the claim. You can approach the Federal Trade Commission and the state Attorney General and sue the company in small claims court.

Q.

Are home warranties different from home insurance?

A.

Yes, a home warranty and home insurance are not the same things. The latter is a policy protecting your home against damage, theft, injury and offers coverage for temporary housing, etc. The former covers repairs and replacement of home systems and appliances.

Q.

Is the US Home Guard legit?

A.

US Home Guard appears to have their website, but we cannot vouch for its legitimacy, nor are they accredited by BBB.

Q.

Can I cancel my home warranty?

A.

You can cancel your home warranty by emailing the company about your decision to cancel. Or they may have an account on their website that you can log on to and cancel the plan.

Q.

Can I get a refund on my home warranty?

A.

If you cancel your home warranty within 30 days from the date of purchase, you can get a full refund from most companies minus an administrative fee. After 30 days, you would receive a prorated refund of the remaining period left on the home warranty term along with an administrative fee deduction.

Q.

Why is there a waiting period after buying a plan?

A.

The waiting period of 15 to 30 days after buying the warranty plan is meant to provide an opportunity to detect any pre-existing conditions that may arise before the policy begins to operate. It reduces the chances of the plan being exploited.

Q.

Can I get a refund on my home warranty?

A.

If you cancel your home warranty within 30 days from the date of purchase, you can get a full refund from most companies minus an administrative fee. After 30 days, you would receive a prorated refund of the remaining period left on the home warranty term along with an administrative fee deduction.

Q.

How long does a home warranty last?

A.

The home warranty lasts for one year unless it is a multi-year plan.

Q.

Who is responsible for buying a home warranty?

A.

If the home warranty is part of a real estate transaction, the liability for purchase generally falls upon the seller. Realtors sometimes add home warranty plans to sell homes faster, although buyers would pay and offer a seller’s market. In the case of rental property, the landlord would provide the home warranty.

Q.

Do I need a home inspection?

A.

Home warranty companies don’t make home inspections mandatory but it is a good idea to get one, to reduce the chances of claim denials due to pre-existing conditions.

Q.

Do home warranties not cover everything?

A.

No, home warranty plans have numerous exclusions as well as limits placed on the total amount value of services offered. They typically don’t cover parts and components that aren’t integral to the functioning of the item.

Q.

What are the drawbacks of a home warranty plan?

A.

The drawbacks of a home warranty plan are primarily the exclusions and coverage caps. Although a home warranty helps save a lot of money based on the degree of complexity of the repair, the deductible may work out to be more than a DIY fix.

Q.

How can we trust companies when they have pending lawsuits?

A.

Any company should earn consumers’ trust. One way to check if a company with a lawsuit is worthy of getting your business is to look at the nature of the lawsuit. If it is something that can be settled or won’t affect the day-to-day operations, whichever way it goes, it’s unlikely to affect your business. You should also check if user reviews were uploaded after the company entered the lawsuit.

Q.

How do home warranty companies make money?

A.

How home warranty companies make money is similar to how insurance companies do it. They take the premiums paid by the customers and invest them in different asset classes. They also operate on the probability that a particular customer may not experience a breakdown that year.

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