Newly Built, but Not Worry-Free
Shelly and Jeff Comings could have handled ants, even spiders in their brand-new Riverside home. But when winged beetles drilled through the walls of the four-bedroom house about a month after they moved in, the couple thought they’d better investigate how much damage the insects could cause.
After learning that the beetles’ offspring can bore through wood and metal years after eggs are laid and that extermination cannot be guaranteed, the couple asked the builders of the 120-home development to buy back the house. The developers, according to the Comingses, offered instead to fill in the wall holes created by the beetles and extend the home’s warranty.
The Comingses and several neighbors whose homes also were built with infested wood sued the builder, who declined to comment about the lawsuit. That was two years ago; the case is still pending. Each year, builders and homeowners--and a legion of attorneys--square off over construction defects, from leaky roofs to collapsing decks.
Builders claim that many cases, especially those involving condominium developments, are frivolous. They assert that typically, a few units in a complex have roof leaks or squeaky stairs, but once lawyers become involved, the liability claims include everything but the kitchen sink.
The proliferation of such lawsuits, builders say, has forced much of the insurance industry to stop covering attached-housing construction, resulting in a huge decline in affordable housing in California.
Homeowner advocates counter that if builders had taken more time, care and money in producing their product during the construction boom of the late 1980s, costly lawsuits wouldn’t be necessary.
Furthermore, if builders responded promptly to requests for repairs, the defects wouldn’t mushroom into the larger problems that force frustrated homeowners into lawsuits, said Kelly Hayes-Raitt, director for HomeSafe Campaign, a consumer-advocacy group.
As the defects multiply and lawsuits are filed, builders sue their subcontractors, leading to layers of liability issues that take years to sort out.
“The blame game is present on all sides,” said Keith Bremmer, a Newport Beach attorney who specializes in construction-defect litigation. “We thought these cases would go away ... but there is still a steady stream of them.”
Recently, for example, residents of the Glen at Hillsborough in La Mirada were awarded $5 million to fix decks, reset stairs and repair roof leaks at the condominium complex. The lawsuit took 21/2 years to settle; repair work on the development only recently began.
“It took years to get the attorney, file the lawsuit, go through mediation ... then interview the architects, contractors and construction workers,” said Kimberly Truitt, one of the plaintiffs in the suit. “But it was worth it; we couldn’t have been able to address the magnitude of the problems on our own.”
Defects generally fall into two categories: faulty design, workmanship and materials, such as water seepage, damaged or infested lumber and defective plumbing; and landslide and earth-settlement problems, such as expansive soils, underground streams, horizontal movement, and inadequate grading, according to attorney Thomas E. Miller, a Newport Beach construction-defect expert.
Statistics are not kept on the number of lawsuits filed, but most experts agree that they increased dramatically following the ‘80s condo boom. Homeowners were helped by the implementation of “strict liability” laws, which say that homes are defective if the builders fail to construct them as well as they should be built, and by the statute of limitations that lasts 10 years after the building is completed. The vast majority of cases are settled out of court.
Two decades ago, construction-defect lawsuits were nearly unheard of, as homeowners operated under the legal principle of caveat emptor, or buyer beware, according to lawyers. But the condominium boom of the mid-80s ushered in an era of lawsuits, as homeowners challenged builders’ warranties that virtually guaranteed defect-free construction.
According to builders and homeowners, most cases begin when several condominium owners, for example, complain of water intrusion or faulty plumbing, perhaps three or four years after the complex is completed.
The owners approach their association board, which may hire a plumber or roofer to make repairs, if they’re inexpensive, or go back to the builder right away demanding fixes. What happens next, however, is at the crux of the faulty-construction fray.
Homeowners complain that often the builders perform only perfunctory repairs, and when the problems recur, refuse to address them adequately. Builders say that they don’t have an adequate chance to address the problem before they’re slapped with a lawsuit.
Tom Thacker, 50, bought his Dana Point condo in August 1994.The land surveyor noticed water coming through his windows not long after buying the unit. After discovering other problems, his homeowners association board authorized $30,000 to make temporary repairs.
Eventually, Thacker asked the board members, two of whom were representatives of the builders, to rectify the construction defects, but only minor repairs were made, he said.
By 1998, the builders’ representatives were off the board, and Thacker presented the new board with a 50-signature petition requesting legal remedy for the defects, which by then had worsened. The legal team conducted “destructive testing” on several units, a process in which plaintiffs’ experts open up several walls in a complex, looking for defective construction or noncompliance of codes. Among other defects, the testing revealed violations of the electrical wiring in some units.
A lawsuit representing 325 units was filed in September 1998, and was settled three years later for $8.7 million. The plaintiffs’ lawyers received 30% of the settlement; the remainder of the money went toward repaying out-of-pocket costs that accrued before and during the lawsuit, and will go toward repairing the complex. A confidentiality agreement prevents the homeowners from revealing the name of the builder.
“These lawsuits are worth it because homeowners are stuck with a choice: either pay for the damages out of their pockets, or make the builder responsible,” said Rachel Miller, the homeowners’ attorney. “The average consumer doesn’t have the expertise to investigate the cause of defects or make proper repairs.”
The cost of lawsuits to builders has been significant, said Ray Perl, a Building Industry Assn. spokesman. Condominium construction, once a staple of the housing industry in California--comprising about 30% of all residential construction in the late ‘80s--has slowed significantly, Perl said.
In 1994, 18,691 condos were built, according to the building association, while only 2,945 went up in 1999.
First-time buyers, who for years counted on purchasing less-expensive condominiums, have had to shift to costlier single-family detached homes, the demand for which far outstrips the supply.
Insurance costs also have skyrocketed, especially for smaller builders and subcontractors, said Pete Moraga, a spokesman for the Insurance Information Network of California.
For every dollar collected in premiums, insurance companies are paying $4 to $4.50 in lawsuits, said Dan Dunmoyer, president of Personal Insurance Federation, an insurance trade group.
It’s difficult to assess the risk involved in insuring a project today, attorney Bremmer said, when, for example, a $2,000 plumbing problem can end up costing $300,000 after workers have to break up and then replace Italian marble to get to the broken pipes.
“These lawsuits are full of inflated items to drive up the scope of the repair,” said builder Mick Pattinson, president of Barratt American in Carlsbad. “I once had to pay $29,000 to tighten loose shower heads. This guarantees that insurance companies get involved and settle.”
The building industry, which until two years ago had few legislative successes in limiting lawsuits, applauded a December 2000 California Supreme Court decision that prevents plaintiffs from recovering damages for developers’ negligence that have not yet caused personal injury or property damage.
However, a state Senate bill would nullify the ruling, known as the Aas decision. Homeowners’ groups are pushing hard to get the legislation passed, saying homeowners should not have to wait until hazards occur to recover damages to repair known building-code violations.
Other legislative efforts have had mixed results. The so-called Calderon Process, enacted in 1996, is a pre-litigation procedure requiring that homeowners’ associations notify builders of a potential lawsuit and try to work out settlements before filing lawsuits.
That process has been revamped under a 2001 law, which will go into effect on July 1. The revised procedure includes the participation of subcontractors, testing by the builder and subcontractors and the exchange of insurance information, all during the pre-litigation stage.
While builders, homeowners and legislators continue to try to find a middle ground for handling construction defects, homeowners such as Julie and Dick Haynes feel they have no recourse but to sue.
The Palos Verdes couple, who purchased their newly built five-bedroom home in an existing neighborhood in 1998, encountered backed-up showers and a flooding water heater their first night in the house. The builder made some quick repairs, but they were temporary, Dick Haynes said.
Next came water pouring into windows and doors, warped floors, a slumping fence and rotting patio posts. The couple has spent $20,000 so far on repairs on the million-dollar house, and has hired a lawyer. The lawsuit, which involves multiple subcontractors, is headed for trial.
“Nobody wins in this situation,” Julie Haynes said.
Many developers now videotape and photograph the construction process to ensure proper construction, and make sure their supervisors are well-trained.
“Builders are concerned with construction defects; they want to still be around in 10 years,” said John Burns, an Irvine consultant to new-home builders. “They have a lot of processes in place now to make sure the job is done right.”
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How to Minimize the Pitfalls of Defects
It’s not unusual for some defects to crop up in a new home, but builders and homeowners’ groups say that cautious consumers can help protect their investment by following these guidelines:
* Make sure your builder is licensed. To check, call the California Contractors State License Board at (800) 321-CSLB or visit www.cslb.ca.gov.
* Check out your builder’s reputation. Ask neighbors if the builder responds satisfactorily to complaints.
* Verify with the state license board that your builder has a good record. The board provides information about complaints and legal actions.
* Inquire about the training your builder’s workers and subcontractors have received.
* Hire an independent licensed inspector. The cost is about $250. Get referrals from agents or neighbors.
* Make sure you read and understand your written contract thoroughly. Read warranties, as well as mediation and arbitration clauses.
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Source: HomeSafe Campaign
