Builders beware: Home construction contracts are afforded consumer fraud protections

Ben Bruner Iowa Real Estate & Land Use Iowa Commercial Litigation Dickinson Law Firm Des Moines, Iowa

Posted on 05/29/2011 at 01:24 PM by Benjamin Bruner

In Scenic Builders vs. Peiffer and Peiffer, the Iowa Court of Appeals recently was presented with the issue of whether contracts for the construction of personal residences are deemed consumer merchandise as contemplated under Iowa's consumer fraud act.  Iowa Code Section 714H (the 'Act') is cited as the state's "Private Right of Action for Consumer Frauds Act," and provides in pertinent part that 'a consumer who suffers an ascertainable loss of money or property as the result of a prohibited practice or act . . . may bring an action at law to recover actual damages.'  The Act goes on to list 'prohibited practices' and 'acts' as those relating to 'the advertisement, sale, or lease of consumer merchandise.' In Scenic Builders, homebuyers appealed the dismissal of their counterclaim that their contract for the construction of a personal residence with the builder entitled them to damages pursuant to the Act. The builder had previously filed a petition against the homebuyers alleging they breached a contract for new home construction. The homebuyers answered, claiming the document they signed was not a contract but instead a preliminary estimate.  They counterclaimed for damages under the Act, alleging that the builder engaged in unfair practices, false promises, and misrepresentation by altering the preliminary estimate and attempting to bind them to it.  The district court ruled that the consumer fraud act did not apply to a contract for home construction, but the Iowa Court of Appeals now reverses that lower court determination. The Court of Appeals reviewed the language of the Act, the legal definition of 'real estate' and 'services' as provided for in the Act, and also prior case law in determining that the plain language of the statute affords homebuyers the consumer protections contained in the Act. The court noted that the term 'consumer merchandise' is defined in the Act as 'merchandise offered for sale or lease, or sold or leased, primarily for personal, family, or household purposes.'  The court further noted that the Act utilizes a definition of 'merchandise' that includes 'any objects, wares, goods, commodities, intangibles, securities, bonds, debentures, stocks, real estate or services.' This ruling should put all home builders on notice as to the 'prohibited practices' and 'acts' which they should seek to avoid in order to ensure they do not incur liability to homebuyers under the Act. Conversely, all homebuyers should be aware of these consumer fraud protections when contracting with a builder for the construction of a personal residence.


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