DUELING OVER DEFECTS Lawyers line up to go after developer

Las Vegas Business Press

April 13-19, 1998

By Ken Ward

Special to the Business Press

 

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A new wave of litigation is crashing into Southern Nevada. Following the housing boom from California to the Silver State, lawyers specializing in home defect cases are setting up shop in Las Vegas.

Their goal, as one attorney bluntly puts it: "To bring developers and insurance companies to their knees."

Like personal injury lawyers, these attorneys work on contingency. They sign up homeowners who have been frustrated in their efforts to get builders to repair structural and mechanical problems. Disputes range from minor complaints over cracked stucco to multimillion-dollar claims involving soil subsidence and faulty foundations.

To avoid logjams in court, the Legislature established a pretrial arbitration program.

"Builders found they were being sued without being given a chance to correct the problem," said Jim Wadhams, a local attorney who represents a number of home contractors.

But plaintiffs' attorneys such as Thomas Miller say the mediation process has its own flaws. He says it does not allow sufficient time to gather the necessary facts in cases that can become complicated and contentious.

Furthermore, he notes that insurance companies will not consider paying claims unless a suit is formally filed in court.

"The bill was a quick fix, knee-jerk reaction to what (builders) knew would be a tidal wave of complaints," Miller said.

If California's experience is any guide, the results may be disappointing to developers. Only 5 percent of the cases are settled through mediation there.

The crux of home defect disputes comes down to two questions: "What is specific? and "What is a defect?" Aside from obvious and egregious problems, builders say there is a large gray area. Concerns over "chipped tile" may be too generic to be identified. Hairline stucco cracks are inevitable in a climate that has 80-degree temperature swings. And reasonable people can disagree on whether mismatched paint qualifies as a "defect."

Particularly vulnerable targets are condominium and town home communities, where homeowner associations representing hundreds of owners can lump all units into what amounts to a class action. Complaints range from sprinklers that spray on walls to ill-fitting doors and poor air conditioning.

Wadhams, and even some homeowners, have likened the associations to "little dictatorships." But Miller says these rapidly growing community organizations are just standing up for the consumer. "Property managers are better educated these days. They know their rights," says Miller, who has taught consumer law classes at UNLV.

To press their cases, plaintiffs' attorneys hire firms known as destructive testing companies to take housing units apart piece by piece.

For example, they will measure the distance between studs in walls. Any deviation from the building plans is added to the complaint. Once one unit has been analyzed, lawyers file a lawsuit covering all dwellings in the community.

Defect cases in California have typically been settled for $20,000 to $40,000 per unit. Locally, no cases have been decided and, thus, no damages have been awarded. But builders maintain that defect attorneys are overreaching when they try to extend their claims from association-controlled common areas into individual units.

Builders also warn that homeowners, even if they prevail in court, stand to lose. Defects, no matter how minor, must be disclosed to potential buyers. But as long as insurers won't open their wallets without a lawsuit, most cases seem destined for court. Observers of the home-defect field predict that the 20 or 30 cases currently winding their way through the system could triple in the next year.

The construction industry may ask the 1999 Legislature to tweak the mediation law to include a couple of builder-friendly provisions.

The first would require builders to pay only for the loss of fair market value instead of actual repair costs. While costs of repair are usually clear, fair market value is subject to widely varying interpretations.

The second would shorten the term of "latent defects." Currently, state law says latent defects are covered for eight years and known defects for 10. "They might want to cut this to two and four years," Miller speculates.