CONSTRUCTION DEFECTS - 12 MOST FREQUENTLY ASKED QUESTIONS
The following questions offer broad information for various topics in construction defects.
1. What is a construction defect?
Almost any condition that reduces the value of a home, condominium, or common area can be legally recognized as a defect in design or workmanship, or a defect related to land
movement. Prior to 2003, Courts recognized two primary categories of defects for which damages are recoverable by the homeowner or homeowner association.
Defects in design, workmanship and materials: These include, water seepage through roofs windows and sliding glass doors; siding and stucco deficiencies; slab leaks or cracks; faulty drainage; improper landscaping and irrigation; termite infestation; improper materials; structural failure or collapse; defective mechanical and plumbing; faulty electrical wiring; inadequate environmental controls; improper security measures and devices; insufficient insulation and poor sound protection; and inadequate firewall protection.
Landslide and earth settlement problems:
Examples are expansive soils; underground water or streams; landslides; settlement; earth movement; improper compaction; inadequate grading; and drainage.
Structural failures and earth movement conditions can be catastrophic in nature and present both personal injury and substantial property damage exposure. Landslide and settlement conditions may result in collapse of buildings; cracks in slabs, walls, foundations, and ceilings; disturbance of public or private utilities; and sometimes a complete undermining of the structures.
In California, for any home or condo completed or closed escrow after January 1, 2003, SB 800 (Civil Code Section 895 et seq.) clarified the types of defects that the builders are responsible to fix. This statute takes the guesswork out of defining a defect and clearly identifies by statute all categories of defects for which the developer is responsible.
2. What does the builder's warranty really cover?
Try to read the warranty. Every warranty is different in what is covered and what is not, how long the warranty lasts, and what the builder will do to fix construction problems. Most will not address ninety percent of typical construction defects. Many require you to arbitrate and give up your right to sue in court. Read the fine print because it may state that you also may end up paying the developer's arbitration costs if you lose. Do not be duped into believing they will repair defects to your satisfaction. The warranty is more a marketing tool than any real effort to address serious problems in your home. Most developers' concept of what constitutes a construction defect falls far short of what most building standards and state statutes, like the California SB 800 (Civil Code Section 895 et seq.), consider to be construction defect.
3. How do I prove that a defect exists?
In most cases, you will need to hire the services of an independent expert. Experts
are those who have the necessary training, education and experience to give testimony in court as to the cause of a defect. For example, if your roof leaks, a waterproofing expert who has designed effective roofs, evaluated other defective roof systems and knows how roofs should be built would be in a good position to testify. And while a general or roofing contractor can repair a damaged roof, he may not be the best person to act as your expert. Your lawyer cannot, in most cases, prove his case against the developer unless he has a qualified expert. Experts are available in nearly every aspect of residential construction. An expert's services usually run from $150.00 to $300.00 or more per hour. Caution: Do consult with counsel before hiring an expert to protect the information and control the expenses.
4. What kinds of damages can I recover in a lawsuit, and can I recover attorney's fees?
All courts are clear in awarding condominium owners' associations the cost of repairing the defects. You can also recover whatever reasonable fees you have had to pay for your experts to investigate the cause of your defects and their costs in supervising the repairs. The costs of doing temporary repairs during and before the lawsuit to prevent further the damage are also recoverable. If repairs require owners to vacate their homes, these relocation costs are included. Punitive damages, or damages awarded to punish the developer and to deter similar conduct in the future, may be awarded where the developer defendant has defrauded the buyer. With few exceptions, attorney's fees are generally not recoverable but are negotiated in every settlement by experienced counsel. These damages can now be found in a specific law, SB 800 (Civil Code Section 895 et seq.)
5. What should I do if the developer has agreed to make the necessary repairs?
It is wise to consult an experienced lawyer who can assist in locating an independent expert (one who has no relationship with the developer) to evaluate the developer's investigation of the problem and his proposed repair. The same expert should oversee actual repairs. Once repairs are agreed upon, the attorney can draft a proper settlement agreement that does not release the developer of liability except for the limited and defined repairs being made, and then only after the repairs have proved effective. And under SB 800 (CA Civil Code 895 et seq.), repairs made by a development pursuant to this statutory "right to repair" law does not require a release at all. The developer working outside of SB 800 (CA Civil Code 895 et seq.) typically demands a broad form general release of all future liability in exchange for making repairs. Such a release may result in board of director liability and eliminate your right to sue for other defects that appear during the time remaining on your statutes of limitation. For that reason such a release is rarely, if ever, recommended. In other words, insist on a specific limited release.
6. How long do I have to file a lawsuit?
All construction defect cases are covered by statutes of limitation. In California, for homes completed or escrow closed after January 1, 2003, the rule is now found in SB 800 (Civil Code Section 895 et seq.). It provides for one, two, four, five, and ten-year statutes of limitations. The statute also requires a claim to be submitted with in three years from the date of discovery. Before Jan 1, 2003, your statute of limitation is still ten years maximum from completion but three and four-year statutes also apply.
7. How much will a lawsuit cost?
Under another statute, you are required to file within three years from the time you first discovered each defect. Under the three-year rule, California courts are not too rigid on when "discovery" of a defect occurs. Generally, the owner must have known or observed a condition that a reasonable person should have discovered it. However, letters to the developer, surveys of homeowners' complaints, boards of directors' minutes, committee reports, reserve studies, maintenance invoices, and experts' reports may prove a defect has been discovered. Upon discovery of the defect, take prompt, appropriate action to protect your rights. By all means, before you start your lawsuit, get it in writing from your lawyer that none of these time limits have been blown. Don't try to analyze statute of limitations legal issues. They are very complex and require expert legal opinion.
The total cost of prosecuting a lawsuit will depend on a number of factors, including the nature and amount of damages, the number of parties, and the attitude of the parties. Some lawsuits are settled within a relatively short period of time, while others are not resolved until just before trial. Lawsuits can be expensive, and close cooperation between homeowners, the homeowner association, property manager and attorney is necessary to contain the costs as much as possible. One of the major costs is the cost of expert consultants; these costs are usually recoverable in the lawsuit. Experts' costs will depend upon the nature and extent of defects and the size of the project. Attorneys generally either bill by the hour or take a percentage of any recovery. If the attorney charges by the hour, expect to pay between $250 and $450 or more per hour for one with substantial experience. If the attorney works on a contingency basis, expect the fee to be between 33-1/3% and 40% of the gross recovery. These fees are negotiable. Whatever the agreement, get it in writing. Most owners prefer the attorney to take the risk and ask for a contingency contract. Under a contingency agreement, if you don't get paid, your lawyer doesn't get paid.
8. Where do I get the money to pay for a lawsuit?
If your property has a homeowner association, several ways exist to raise money for pursuing your legal rights. First, your association's reserves are a good source. California allows associations to borrow for reserves as long as it is paid pack in a limited amount of time. Another source is to increase your monthly assessments by the percentage allowed in your CC&Rs or pass a special assessment. Finally, certain lenders will finance the investigation, securing the loan with the potential recovery. You also can ask your lawyer to advance expenses. Contingency lawyers typically have a line of credit from which the expert fees and costs can be advanced to the client. In a class action, these costs are split among all the participants. The larger the group of homeowners, the less you will be responsible to pay in costs.
9. How do I recover if the builder/developer is out of business, cannot be located or is bankrupt?
Homeowner associations and homeowners should carefully assess the developer's ability to pay damages. The most important asset in many states is the developer's insurance. Even if the developer cannot be located or is bankrupt, the insurance companies must defend and pay claims that are covered under the policy(s). Determine early on how much insurance the developer maintained from completion of construction to the present and how much is left. It is critical to evaluate the insurance assets not only of the builder, but also of the general contractor, subcontractors, architect and engineer, as well.
10. Will the homeowners or homeowner association's insurance company cover damages caused by construction defects?
Not usually. The language in most owner and homeowner association insurance (first person) policies excludes coverage for faulty design, workmanship on materials. Disaster coverage (flood, disaster coverage, earthquake, and hurricane) must be separately evaluated.
11. Am I required to make repairs while the lawsuit is pending, and can I recover those costs in the lawsuit?
Yes and yes. You are required to take all reasonable steps to protect the property from sustaining additional damage. These costs are normally recoverable in the lawsuit. Carefully review any temporary repair program with an expert to guarantee correct documentation of the repairs.
12. Can I sell or refinance my home during the litigation?
Yes. The HOA board of directors has a fiduciary duty to investigate homeowner complaints of common area construction defects and timely pursue a claim against the developer to recover damages to fix the problems. During this time, a homeowner must disclose to a potential buyer common area defects and litigation. Such disclosure may have an impact on sales, but so will the condition of the home when you fill out a residential disclosure statement and hand it to a prospective buyer. Consult a real estate broker who is experienced in working with homes in litigation. Due to fluctuating interest rates, many owners may want to refinance their homes. While in litigation, lenders are cautious about refinancing. Consult with an experienced mortgage broker.