June 19, 1994 - In the wee hours of Jan. 17, when the Northridge earthquake shook all the
way to San Diego, Barbara Murphy scooped up her cats and ran downstairs
to stand under the front doorway of her condominium.
Unfortunately for Murphy, the door had been nailed shut by workers repairing
construction defects in the La Jolla condominium complex in which she lives.
"There I was dancing around in the living room, not knowing where
to go next," she said. "That was definitely the strangest thing
that happened in all this."
Murphy and most of her neighbors at the Woodlands West I project couldn't
use their front doors from last October until the end of March. Front porches
were torn off and replaced, as were back decks and balconies.
The reconstruction of their 118-unit community also included new irrigation
systems and repaired stucco walls and driveways. For nearly a year, the
residents of Woodlands West I had to wade through dirt and mud past bulldozers
and chain-link fences to get to their mailboxes.
The reconstruction of Woodlands West I was the culmination of construction-defect
litigation that dragged on for four years until insurance companies for
the project's builder, the Lyon Co., and a number of subcontractors agreed
to settle for $3.5 million.
The residence of Woodlands West I are, of course, not alone. Currently,
106 construction defect cases are stacked up in San Diego's halls of justice,
according to the Building Industry Association of San Diego's Construction
Quality Task Force.
The largest jury award for a construction-defect case in San Diego came
in 1990, when builder Donald Bren was forced to pay the La Jolla Village
Homeowner Association $22.4 million. But most cases settle before
trial in the $1 million to $2 million range, said San Diego construction-defect
attorney Thomas Miller.
Any judgments or settlements larger than actual reconstruction costs typically
go into the association's reserve funds for future repairs or maintenance,
Miller said.
The groundswell in these kinds of cases has made insurance for residential
builders nearly impossible to come by.
Premiums paid by condo builders for liability insurance have increased
tenfold since 1980, said Ed Whitney, principal consultant with Risk Management
Advisers, a local corporate insurance brokerage. And while the number of
insurance carriers who offered such coverage a decade ago topped 40, they
can now be counted on one hand.
The likelihood of being involved in a construction-defect suit has forced
many of the county's architects out of the condo business, industry officials
say, and the profusion of suits here has helped attract seven of the nation's
most-active 10 construction-defect attorneys to San Diego County, analysts
say.
Turned Topsy-Turvy
While the impact on the local building, insurance and legal industries
has been substantial, those most affected by construction-defect litigation
and reconstruction have been homeowners.
People like Murphy find that lenders are often hesitant to finance purchases
or refinances during litigation, and they can find their lives turned upside
down while their homes undergo extensive renovation.
"Our being there (in litigation) never makes homeowners happy,"
said Miller. "But we don't ignore the anger. There's no way to avoid
their calls. We try to deal with it by being visible and answering their
questions."
Ninety percent of the homeowner calls to his office are concerns about
having their property tied up and being unable to sell or refinance, Miller
said.
The reason lenders are hesitant to make loans for condos going through
construction litigation comes down to money.
Lenders don't know who will win the case, so they don't know what will
happen to the condo association's reserve funds and its ability to keep
up with repairs and maintenance in the long run, said Randy Kramb, president
of Uniwest Mortgage Corp.
"Ninety-nine times out of a hundred, it's a 'no-go', and they won't
do the loan because they're uncertain what will happen to property values,"
Kramb said. "I would say you just have to hunker down until it all
blows over and it gets sorted out who's going to get stuck with paying
for everything."
Homeowner Rich Wilson faced just this problem when he bought his condo
at Bonita Views in Bonita. Two days before closing escrow in 1989, his
lender became skittish about litigation that had just begun and pulled
out. Wilson found another lender, but ended up paying nearly 2 percent
more in interest.
Once he moved in, he became active in the community and joined the homeowners
association board of directors. He then led the charge to collect a $500,000
settlement from the builder of Bonita Views, a now-defunct local development
firm.
As president of the board, he's dealt with angry homeowners who couldn't
agree on anything from hiring attorneys to spending the settlement money.
And he's had to explain why monthly homeowner dues jumped from $135 to
$190, an increase that was necessary to pay for additional work left uncovered
by the settlement.
But the hardest thing for this retired naval officer, who is more familiar
with building ships than condominiums, was standing with a homeowner whose
living room floor had a 6-foot-deep trench dug down the middle of it.
"These people just stand there shaking their heads asking, 'Why did
I move here?'", Wilson said.
Meeting the Challenge
Charles Cutter shepherded a similar struggle as president of the board
of directors at Shadow Glen, a 130-unit complex in San Carlos.
Reconstruction of water-damaged attics wrapped up two months ago, after
a lengthy settlement process that grossed $1.3 million from the insurance
companies of builder Brehm Communities and a number of subcontractors.
"It's an enormous relief to have it all over," said Cutter, a
political science professor at San Diego State University. "The board
members were drained emotionally and physically and wanted it to end any
way possible."
Cutter said he kept an open-door policy for homeowners who needed to vent
their emotions about the $1,400 special assessment each homeowner had to
ante up to pay the initial costs of hiring an attorney.
Other homeowners were upset over the workers climbing on roofs early in
the morning, especially when 11 chimney caps were removed on a Friday and
it rained over the weekend, soaking living rooms with water.
The key to keeping the community intact was sending out minutes of the
monthly association board meetings, Cutter said.
Communicating with homeowners during reconstruction and litigation is the
biggest challenge for any project, said Wayne Hanson, president of Property
Management Associates.
It's usually the property manager's job to schedule access to homes or
relocations for homeowners having extensive interior work. The property
manager also deals with claims of work-crew damage and calms the homeowner
who walks upstairs to find a pair of legs dangling through the ceiling.
"It's a rare roof tear-off that someone doesn't step through a unit,"
Hanson said. "Nobody likes to have their lifestyle interfered with,
and the best we can do is mitigate the extent of that interference."
Hanson has worked through construction litigation and reconstruction on
more than half of the 35 local condo developments he manages. The minimum
cost he's encountered for an association beginning the litigation process
- including plaintiff filing fees, depositions, expert witness fees and
hiring legal representatives - is $100,000. If the developer doesn't cooperate
immediately, that figure can rise substantially, he said.
That Rainy Day
The typical construction defect scenario begins with a heavy rain. A few
roofs leak, so the property manager calls the builder on behalf of the
homeowners association.
The builder responds, fixing the roofs the first few times. If it happens
repeatedly, the association board becomes concerned that something could
be wrong with the roof construction, so it hires an attorney or consultant
to advise it.
From there, things can escalate rapidly, with a lawsuit being filed and
the builder naming dozens of subcontractors as cross-defendants, including
architects, contractors, plumbers and civil, soil and mechanical engineers.
Experts give their opinions; depositions are taken; pretrial research is
conducted; and finally, trial begins. The average number of lawyers involved
in this process: 40.
So, how pervasive are construction-defect suits in condominium developments?
Attorneys, insurance brokers, builders and property managers questioned
for this article say the likelihood that a condo project will be involved
in construction defect litigation is nearly 100 percent.
The 10-year statute of limitations makes decade-long sitting ducks out
of residential contractors. And in many cases, builders share at least
some of the blame.
Beginning in the building boom of the late 1970s, residential demand stretched
the limits of everyone from skilled labor to building inspectors, resulting
in increasing instances in which work was shoddy.
"There are a lot of contributing factors to how out of hand construction-defect
litigation has become," said Paul Tryon, executive vice president
of the Building Industry Association of San Diego. "There was definitely
a lot of housing construction in the '80s, and it's getting some age on
it now. But you also have to look at the manner in which this litigation
is handled and the lucrative nature of this business for the legal profession."
Like Tryon, many in the building industry say much of the blame rests with
aggressive construction-defect attorneys who convince association board
members that it's their fiduciary duty to file a lawsuit.
In their defense, construction-defect attorneys say they earn their 33
percent cut of any award and place the blame squarely back on the builders'
shoulders.
"Sure, the builders can point fingers at the lawyers and say they're
causing all the problems," attorney Miller said. "But the real
problem lies in the fact that there is inadequate plan review at the outset
of a project, and there is little or no supervision on jobs to make sure
the architect's plans are followed."
Curing Ills
These days, Superior Court immediately sends most construction-defect cases
to a mediator - usually an attorney or retired judge who specializes in
this area. Mediators can reduce the time it takes to unravel a construction-defect
case from three years to about a year and a half.
A community's board of directors can file a construction-defect lawsuit
against a builder without notifying individual homeowners, but not all
construction problems can be taken to the courts. In fact, once the legal
10-year statute of limitations on a builder's warranty runs out, any defect
repairs have to be paid for by the condo association.
Typically, if a builder is no longer in business when defects begin to
show up, a homeowners group still has recourse against the builder's original
insurance company as long as the 10-year statute of limitations has not
expired, attorneys said.
And now two proposed bills are making their way through the state Legislature
that aim to remedy the overwhelming number of construction-defect cases
flooding courts and mediation conference rooms. But they take opposite
tacks.
Senate Bill 2073, proposed by Charles Calderon (D-Montebellow) would require
that a majority of homeowners, not just the board of directors, approve
filing a construction defect lawsuit.
The other - Assembly Bill 154, proposed by Assemblywoman Deirdre Alpert
(RSolana Beach) - would require notification of homeowners within 30 days
of filing.
Both bills are in the Senate judiciary committee. Lobbyists for builders,
attorneys and insurance companies are meeting in Sacramento in the meantime
to encourage legislators to reach a compromise.
Meanwhile, the bottom line remains: construction-defect litigation and
reconstruction are interrupting the lives of condo owners throughout San
Diego County.
What homeowners need most to make it through this lengthy, often grueling
process is patience, property manager Hanson said.
"There is no way to do this without interfering with the quiet use
and enjoyment of their property," he said. "A good board can
limit those interferences, and a good contractor should be sensitive to
those issues, but a good homeowner will find patience and charity go a
long way."
Condo owner Barbara Murphy is just glad she can get her mail now without
risking a nail in her foot. And last month she finally got to meet her
neighbor who moved in across the way a year ago.
"We've all been so isolated," Murphy said. "Our usual means
of visiting is the front door; you just don't stop to chat when you're
in cars."
© Copyright 2008 The Miller Law Firm. All rights Reserved.
If you experience problems or have questions, contact us at Info@ConstructionDefects.com.
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