THE ELEVEN MOST FREQUENTLY ASKED QUESTIONS

The following questions are designed to offer broad information for various topics in construction defects. Some of what is discussed here is developed further in various parts of this website.

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 landslide settlement conditions. Courts throughout the United States have recognized two primary categories of defects for which damages are recoverable by the homeowner or homeowners' association.

Defects in design, workmanship and materials: These include dry rot: water seepage; faulty drainage; improper landscaping and irrigation; termite infestation; improper materials; structural failure or collapse; defective plumbing; faulty electrical wiring; inadequate environmental controls; defective lighting or security; insufficient insulation and poor sound protection; and inadequate fire walls or equipment.

Landslide and earth settlement problems: Examples are expansive soils; underground water or streams; ancient land slides; vertical settlement; horizontal movement; land sloughing or sliding; surficial failures; 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 roofs; cracks in slabs, walls, foundations, and ceilings; disturbance of public or private utilities; and sometimes a complete undermining of the structures.

2. How do I prove that a defects exists?

In most cases, you will need to hire the services of an 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, an expert architect who has designed effective roofs, evaluated other leaky roofs and knows how roofs should be built would be in a good position to testify on why your roof leaks. And while a general contractor can adequately repair a damaged roof, he is not 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 $125.00 to $250.00 or more per hour.

3. What kinds of damages can I recover in a lawsuit, and can I recover attorney's fees?

California 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 mitigate the damages 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 shown a "conscious disregard" for the rights of the buyer. With few exceptions, attorney's fees are generally not recoverable.

4. 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 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 absolve the developer of liability except for the limited and defined repairs being made, and then only after the repairs have proved effective. The developer 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 should other defects 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.

5. How long do I have to file a lawsuit?

In California, nearly 95% of construction defect cases are covered by one of two statutes of limitation. One statute requires the homeowners' association to file suit within 10 years from the time of substantial completion of each phase of the development. Under the other statute, if you are within the 10-year period of time, you must file within three years from the time you first discovered each defect. Under the three year statute, courts are not too rigid on when "discovery" of a defects occurs. Generally, the defect must be of such a magnitude that a reasonable person should have discovered it. However, letters to the developer, surveys of homeowner's complaints, board of director's minutes, committee reports, reserve studies and experts' reports may prove a defect has been discovered. Upon discovery of the defect, take prompt, appropriate action to protect your rights.

6. How much will a lawsuit cost?

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 the homeowners association, property manager and attorney is necessary to reduce the costs as much as possible. One of the major costs is the cost of expert consultants; these costs are usually included 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 $150 and $250 or more per hour for one with experience. If the attorney works on a contingency basis, expect the fee to be between 28% and 38% of the gross recovery. These fees are always negotiable. Whatever the agreement, get it in writing.

7. Where do I get the money to pay for a lawsuit?

If your property has a homeowner's 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.

8. How do I recover if the builder/developer is out of business, cannot be located, or is bankrupt?

Homeowners' associations should carefully assess available developer's assets. The most important asset is the developers 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(ies). Determine how much insurance the developer maintained from completion of construction to the present.

9. Will the association's insurance company cover damages caused by construction defects?

No. The language in most homeowner association insurance policies has dramatically changed over the last several years. Association insurance companies have now rewritten their policies to exclude most of the types of coverage which previously provided benefits for construction defects.

10. Am I required to make repairs while the lawsuit is pending, and can I recover those costs in the lawsuit?

Yes. You are required to take all reasonable steps to protect the association's 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. If you can delay some of the temporary repairs until permanent repairs can be made without causing additional damage to the property, a great deal of money may be saved.

11. Can I sell or refinance my home during the litigation?

Yes. The 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 and fix the problems. During this time, California requires a homeowner to disclose to a potential buyer common area defects and litigation. Any such disclosure may have an impact on sales. Due to fluctuating interest rates, many owners may want to refinance their homes. While in litigation, any lenders are cautious about refinancing. However, there are several mortgage companies that specialize in refinancing homes involved in litigation.