By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929
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Tarion's "CONSUMER PROTECTION" Called Into Question: A Government Audit on Tarion Warranty Corporation Finds Twelve Disturbing Deficiencies.
Tarion Warranty Corporation (Tarion) in theory, is a consumer protection agency that is supposed to financially compensate new homeowners who make valid claims about aesthetic or structural defects found in their home that builders fail to repair.
In reality, however, homeowners have had to contend with corruption and politics for years instead of good policy that protect them. As a result, Tarion's mission of “consumer protection” has remained questionable.
Over the years, pressure has been mounting on the Ontario Government to regulate Tarion more closely mainly due to the shocking conflicts of interest present within the corporation's business structure, which has resulted in minimal transparency, credibility and even crime. One major area of concern is the fact that Tarion writes its own policies and regulates itself, which allows claim coverage (or lack thereof) to tip in favour of homebuilders, even allowing those with a track-record of failing to fix deficiencies to get re-licensed each year.
In October of 2019, The Office of the Auditor-General of Ontario conducted an extensive Audit on Tarion called "Value For Money Audit." What it found were major deficiencies in Tarion’s policies that ultimately called for significantly more government oversight and recommendations, which Tarion has since agreed to follow. The Auditor-General proposed stronger measures to be put in place to protect homebuyers from a builder's failure to uphold their contractual obligations under the warranties and eliminate unnecessary timelines in the process that nullified valid claims.
Here are a few of the problems the Auditor General uncovered while investigating Tarion:
1. Homebuilders could still register with Tarion regardless of how many times they denied to uphold their warranties in the past and did not fix deficiencies. Tarion found that in more than half of its inspections, builders had not honoured their warranties. For example, 6485 requests that Tarion assessed between 2014-2018 found 65 percent of the time, builders should have fixed items under warranty but did not.
2. Tarion dismissed thousands of requests for help from homeowners because the homeowners missed Tarion’s tight deadlines.
3. Homeowners can ask Tarion for help with defects in their homes covered by a one-year warranty by submitting a form - but only by submitting a form in the first 30 days or the last 30 days of that first year of occupancy (unless it is an emergency, for which they can make a claim anytime during the first year). Between 2014 and 2018, Tarion refused assistance on about 9,700 requests because the homeowners had missed the 30-day deadlines. About 1,300 of these requests had missed the deadline by a single day. Missing the first 30-day deadline does not disqualify the homeowner from the builder’s warranty coverage, but it does mean Tarion will not hold the builder accountable for its warranty obligation. In effect, these narrow windows mean people lose the right to get help from Tarion. The homebuyer protection plans in Quebec and British Columbia, in comparison, have no such 30-day deadlines.
4. Builders with poor warranty records continued to get licences from Tarion.
5. Builders were subsequently licensed by Tarion even when homeowners alleged that they acted dishonestly and broke the law. As of June 30, 2019, Tarion had a backlog of 41 complaints about builders’ dishonest conduct that it had not yet investigated. All of the complaints were outstanding for more than six months, with some dating back to early 2017. Five of the allegations were serious, including one where a builder refused to make emergency repairs that required immediate attention. In another case, a homeowner alleged that a builder broke the law by not having Workers Safety Insurance Board (WSIB) coverage for subcontractors, and by building homes without a Notice of Project from the Ministry of Labour, both mandatory by law. As of June 30, 2019, Tarion had yet to investigate these allegations or forward them to the WSIB and the Ministry of Labour—but it nonetheless renewed the builder’s licence in January 2019 despite these serious allegations, which appeared to have merit.
6. The Directory is compiled by Tarion for prospective homebuyers to consult when choosing a builder. The Auditor-General found that Tarion excluded 2,033 inspections that found warranty issues from 2014 to 2018 from the Directory because builders alleged that homeowners prevented them from honouring their warranty. However, their sample testing of 75 inspections found that 42 did not have sufficient evidence to support the builders’ assertions.
7. Tarion does not include other critical information such as Ontario Building Code violations, past convictions for illegally building homes, and the results of Tarion investigations into complaints against builders.
8. Tarion’s pilot program’s effectiveness in preventing illegal building is limited. In the past 10 years, Tarion has paid out about $19.8 million to homeowners to cover the cost of warranty repairs on 869 illegally built homes. Some builders engage in illegal building activity by declaring that they are building a new home for their personal use, and then selling the home for a profit. Tarion partnered with 15 municipalities to prevent these types of builders from getting municipal building permits. The Auditor-General questioned the overall effectiveness of this initiative because Tarion still had to investigate 37 individuals approved under the pilot program and convicted three of illegal building.
9. Tarion’s call centre did not always provide accurate and helpful information. Tarion operates a call centre with nine employees who field about 90,000 calls a year on average. We listened to a sample of 50 calls recorded between February 1 and March 31, 2019, and found that in 14% of our sample, Tarion’s response to caller questions was inaccurate and/or not helpful. For instance, without obtaining all the facts and inspecting the defect, Tarion told one caller that a roof leak was not covered by the builder’s warranty when, in fact, it would have been covered under certain circumstances.
10. Tarion’s senior management was rewarded for increasing profits and minimizing financial aid paid to homeowners. Bonuses to senior management totalling 30% to 60% of their annual salaries were based on increasing profits by, for example, keeping Special Audit of the operating costs down, including those of the call centre. Having such an incentive can affect the quality of service to the public. These approaches to compensation appeared more suited to a private-sector for-profit company than to a government-delegated not-for-profit corporation.
11. Tarion did not collect enough security from builders to cover payouts to homeowners. Tarion collects refundable security deposits from builders to cover the costs of any homeowner claims that it eventually pays out. However, Tarion bases those deposits on outdated information (for example, outdated home values that are lower than the homes’ current values), while paying out claims based on current values. As a result, it paid out about $127 million from the Guarantee Fund over the last 10 years, and recovered from builders only about 30% of the pay-outs.
12. Issues raised by Tarion’s own Ombudsperson not always resolved by Tarion. The Ombudsperson’s Office of Tarion raised concerns in 2009 and 2017 about the way Tarion investigated reported allegations of builders breaking the law or operating in a dishonest way. In 2010, the Ombudsperson recommended that Tarion always confirm directly with homeowners when builders claim that homeowners prevented them from fulfilling their warranty obligations. However, the Auditor-General’s review of a sample of 75 exempted inspections from 2018 found that Tarion still was not doing the verifications.
As mentioned, Tarion has agreed to work with the Ontario Government to address its recommendations, which include Tarion discontinuing its monetary sponsorship to the Ontario Home Builders Association, not allowing one stakeholder to have an advantage over any other, ensuring that homebuyers receive sufficient time to familiarize themselves with the Homeownership Information Package to they understand the importance of the Pre-Delivery Inspection (PDI), significantly more audits of builders to ensure they comply with the knowledge shared to homeowners about the PDI, to eliminate the word “Warranty” from its name, to address the issue of warranty coverage beginning before a house is finished by redefining “finished house” for the purposes of homeowners’ warranty rights and coverage period so that the one-year warranty period commences only once the home meets his new definition of a finished house; or developing a warranty that will protect homebuyers for unfinished items in their homes once the home has met the minimum occupancy standard, and ensuring that the one-year warranty coverage begins only after the items are finished, or working with the relevant ministries to expand what must be completed to meet the minimum occupancy requirement in the Ontario Building Code so that new home buyers are appropriately protected by their warranty rights, and so on.
For more information about the Auditor General’s recommendations of October, 2019, please click here.
Sarah A. Colucci
Mortgage Agent Lic. M14000929
Mortgage Edge, Broker 10680
Direct: (647) 773-4849