Building-Defect Law Says Talk Before You Sue
Every time it rained, residents at a Santa Clarita Valley condo development could only hope that the downpour would not cause any more damage to their homes. Water was seeping into many of the more than 700 condos through walls, patios, windows and roofs, making life miserable for the residents.
Experts hired by the homeowners’ association to test the units found more problems. The framing was not adequate to support the roofing because of design defects, they said. When walls were opened up, construction defects and building-code violations were discovered--including failure by the builder to build fire-protection walls between units.
The homeowners filed suit and reached a $12-million settlement that has been paid by the builder, subcontractors and various insurance companies. Although the money won’t make up for the inconvenience that residents have suffered, it will help get them the kind of construction they originally thought they were buying--free of defects.
Property owners, like those in the Santa Clarita Valley condo project, are fueling a recent avalanche of construction-defect cases. The 1980s California building boom has turned into a cottage industry of sorts for construction-defect attorneys, experts and insurance companies, as many property owners rush to pursue builders and developers before their claims are barred by a 10-year statute of limitations.
To try to limit the growth in construction-defect lawsuits, Gov. Pete Wilson signed into law last month a bill that will require condo and townhouse associations with 20 or more units to attempt alternative dispute resolution with a builder for 90 days before filing a lawsuit.
Because alternatives like mediation or arbitration are essentially voluntary, the lawsuits are expected to continue despite the new law--just 90 days later.
Most cases do, however, end up being settled out of court.
Construction-defect cases can arise from a variety of causes--negligent construction, defective building materials or negligent design by the civil, soils, structural or mechanical engineers or the architect or landscape architect, said Daniel Cervenak, vice president in the Downtown Los Angeles office of construction consultant High-Point Rendel.
A problem that won’t go away after repeated repairs is usually the surest signal to owners that their home may have a defect. One easily repaired roof leak, for example, probably isn’t a defect. With several leaks happening over time, though, there is a greater chance that the roof is defective.
Property owners who think they may have a defect need to start gathering evidence, soliciting repair estimates and identifying who they believe are responsible--and capable of paying to fix the problem, Cervenak said. Early analysis by hired expert inspectors and contractors is important. Most inspection firms, like Cervenak’s, will perform an initial inspection free of charge, but subsequent inspections may become costly, especially if the fact-gathering involves what is known as destructive testing--in which walls or other structural components may need to be torn apart to be properly inspected.
“Too many property owners only try to treat the symptoms instead of the source of their problems,” said Robert I. Schwartz, president of Schwartz, Romano & Associates Inc., a Marina del Rey-based company staffed with forensic architects and engineers.
“People see mold and mildew and they apply mildew killers, which only causes wood to rot more from the inside of a building,” he said. Schwartz’s role is to get beyond the building surfaces and to discover what construction defects may be causing something like a water leak.
“The 1980s building boom brought a lot of problems,” said Jim Bynum, president of Bynum & Associates Corp., an Irvine-based company involved in analyzing and inspecting construction defects. “People were standing in line to buy homes and condos; there was more construction than qualified workers, supervisors and inspectors.”
The result is plenty of business today for Bynum’s structural, acoustical, plumbing and soil engineers, who are usually hired by construction-defect attorneys.
Attorneys can pursue a variety of claims in construction-defect cases, including negligence, breach of contract, strict liability in the case of mass-produced and marketed housing developments and breach of warranty. Defendants usually counter with an assortment of defenses, including failure by an owner to maintain the property, statute of limitations or the contention that something else caused the damages.
Timing is critical in assessing a potential construction-defect case. For patent defects--those observable when construction is completed--California law sets a four-year limit from the date of substantial completion of the building or improvement for bringing suit. A lawsuit founded on a latent--or not apparent by reasonable inspection--defect must be filed within 10 years of the date of substantial completion of the construction. Whether a defect is patent or latent, though, owners must file a case within three years from the date of discovery.
If it seems as if time is running out, some property owners and managers suggest filing a lawsuit even in the initial stages of discovering problems. A surface check may provide the basis for beginning a lawsuit, said Kimberlee A. Moore, president of Exclusive Property Services, a Tarzana-based condominium-management company. If further testing reveals serious problems, the lawsuit can proceed. If the problems aren’t too serious after all, she said, “you can always terminate the suit.”
Moore said she’s not “sue-happy” but just wants to be sure there aren’t any defects that her condo owners pay for when someone else could be paying.
Fewer than 10% of all the construction-defect cases get to trial, said Ross R. Hart, a mediator and arbitrator with the American Arbitration Assn. in Los Angeles, who specializes in mediating construction-defect cases. Some litigants voluntarily agree to mediate or arbitrate; others may be ordered to by a court.
CLARIFICATION: The Sept. 15 “Property Values” column headlined “Get Home Loan Relief With ‘Short Pay’ ” stated that cancellation of debt is not considered taxable for non-recourse property loans. This issue has not been fully clarified by the Internal Revenue Service, however. Property owners are advised to consult an accountant and/or tax attorney before concluding a short pay or short sale.
Ron Galperin is a real estate attorney with Wolf , Rifkin & Shapiro in West Los Angeles and a syndicated real estate columnist.