Builders pay millions in settlements
November 18, 2001 - The number of construction-defect cases has soared in Maricopa County Superior Court in recent years, with some homeowners suing their builders en masse and winning out-of-court settlements worth millions of dollars.
Builders say cases have been settled to avoid court costs and to provide relief to buyers, but that litigation has grown so burdensome that they'll be more aggressive in fighting future lawsuits.
The Arizona Republic examined more than 200 home-defect cases filed in the past five years against the Valley's top builders. Among the findings:
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Lennar Corp., the third-largest builder in America, agreed in September 2000 to pay $3.6 million to settle an expansive-soils case in north Glendale's Pinnacle Hill development by buying back 15 homes and settling with four other homeowners. The company spent an additional $8 million to repair 80 homes in the 105-home development.
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Two years ago, Regal HOmes paid $2.6 million to repurchase seven homes in Glendale's Arrowhead Lakes development. Owners said water had leaked into the bottom floor of their tri-level homes.
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In the past year, Trend Homes spent nearly $1 million to repurchase eight homes in Glibert's Towne Park at North Shore development after homeowners alleged that homes were defective because expansive soil caused the homes to crack. Owners of seven other homes settled for an undisclosed amount.
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In July, Pulte Home Corp., settled for an undisclosed amount with owners of 85 homes in Mesa's Superstition Springs area. The owners alleged their homes were infested with termites and had concrete, roof, wiring and duct work problems.
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In March, Shea Homes settled for $2 million with 31 buyers of UDC Homes in Vistana in north Scottsdale after allegations of leaky windows and roofs and stucco problems. UDC, which Shea bought three years ago, also was accused of deleting waterproofing material that keeps water out.
Max Johnson, Shea's general counsel, said Shea settled because it didn't have reliable records from UDC. Pulte's corporate office in Bloomfield, Mich., did not return phone calls. Regal's attorney said the company nearly broke even by reselling all of the homes it repurchased in Arrowhead Lakes. And Trend said that it settled because the company was "outstragegized" and that most of the homes involved had problems because the owners didn't care for them.
Suits on rise
Maricopa County doesn't keep records on how many of the 30,000 civil suits filed annually are related to home defects, but builders and home-defect attorneys agree they have increased substantially since 1997.
"We think these defect claims are ridiculous," said Reed Porter, president of Trend Homes. "We will not let some attorneys come in and tell us what we do is defective....If there is a problem, we will fix it."
At a recent meeting, builders could not recall any construction-defect case involving multiple homes that they took to trial and won. And builders' attorneys couldn't recall any multiple-homes cases they were successful in getting dismissed.
That could change.
Regal currently is fighting three more homeowners from the Arrowhead Lakes development over allegations that water leakage caused mold in their homes. Closing arguments are set for this week before Maricopa County Superior Court Judge Pendleton Gaines.
Philip S. Coppola, a Scottsdale construction consultant for Rider, Hunt Levett & Bailey who often is used as an expert witness, estimates up to 100 construction-defect lawsuits were filed in the past year.
The Republic found cases moving through Superior Court that involve up to 3,300 homes. There also is no mandatory arbitration, but typically cases are settled through a mediation process.
Three pending lawsuits are against building giant Del Webb. The company has also paid $8.5 million since 1997 to purchase 42 homes from disgruntled buyers and repair several dozen homes in the Ahwatukee Foothills.
Lynne Reaves, a Webb spokeswoman, said the company took extraordinary steps to resolve the Ahwatukee Foothills homeowners' concerns, including offering lifetime foundation warranties to all and conducting extensive engineering investigations.
"We decided to buy the homes back because that is the kind of integrity Del Webb has," Reaves said.
Mark Upton, president of the HOme Builders Association of Central Arizona, said buying back a house is the ultimate coverage for the buyer.
But Buddy Satterfield, president of Shea Homes, said his company is reluctant to buy a home back because "it sets a bad precident."
He said Shea has only bought back one home in Arizona in the past decade.
Pressure on prices
Porter of Trend Homes said he would never buy back another house. He and other builders say that the lawsuits have doubled or tripled their insurance premiums and that they have no choice but to pass on that cost to buyers. Trend will increase the price of each home by $1,000 in the next year.
Homeowners who have sued say they felt they had no other option. Home warranties issued by builders usually run for a year, and the state Registrar of Contractors, the regulatory agency over builders, has a two-year statute of limitations to help consumers.
State law allows a homeowner to sue up to eight years after buying a new house.
"At first I felt bad we were taking them to court," said Cyndi Popevis, whose husband, Jay, is the lead plaintiff in a class-action case against Beazer Homes. "But I want my 30-year investment to last 30 years. I expect things to happen 15 to 20 years after you buy a home, but I don't expect it in two years."
The Popevis' home near Adobe Mountain has cracks in the drywall, water stains on the ceiling and a loose block fence. She said other homes in the north Phoenix neighborhood are worse.
Bill Nebeker, an attorney for Beazer said the home builder made repairs to all six of the named plaintiffs' homes during the mid-1990's, and the lawsuit alleges "bigger problems than actually exist."
Homeowners' attorneys say the suits are a result of poor workmanship from inexperienced, low paid workers.
Builders say that they would gladly fix the homes if the owners would let them, but that typically doesn't happen once the lawyers get involved.
Some home builders say settling cases is an unfortunate part of doing business, but it's less costly than going to trial. It's also a way to avoid facing a jury that may have an inherent bias in favor of fellow homeowners. Many times, builders say, their insurance companies force them to settle even if they want to fight.
Connie Wilhelm, executive director of the builders association, said some homeowners who sue are using their houses as a lottery ticket "to get something for nothing."
Jeff McKee, a home-defects attorney, countered: "Part of the problem is when a builder goes out to get bids, the practice is to get the cheapest. Its all about the bottom line. Then the sub (subcontractor) says, 'I need to make a profit' and the result is cutting corners."
Phoenix area builders cite Las Vegas as a case study in what goes wrong once home-defect suits get out of hand. Homeowners there have won an estimated $200 million the past five years, while the median home price during that time has increased 32 percent, to $170,000 from $128,650, according to the Southern Nevada Home Builders Association.
Without excessive pressure from lawsuits, Phoenix's median price for a new home has jumped nearly 27 percent in the past five years, to $162,000 from $128,000.
Cases in Court
In September, owners of six homes in Anthem sued the Phoenix division of Pulte, alleging their homes had shifting foundations, cracking walls and leaky roofs.
Del Webb, bought by Pulte, built the Anthem houses, and the case could turn into a class-action suit.
Webb also faces another lawsuit that could include up to 1,378 houses in the Terravita project in Scottsdale. And Webb goes to trial in January in a lawsuit involving 59 homes in the Camelot Summit and Camelot Canyon neighborhoods in the Ahwatukee Foothills.
Lennar faces allegations of fraud and negligence in three suits involving 44 West Valley homeowners who say their homes have cracks in the driveways, stucco, foundations and interior walls because the homes were built on land with expansive soils.
Two of the suits are from homeowners in Pinnacle Hill, off 55th Avenue and Pinnacle Peak Road, where Lennar already settled one case after building 105 homes from December 1993 to January 1995.
"Most of the families involved in the litigation already have received repairs to their homes," said John J. Balitis Jr., Lennar's attorney. "Lennar has a tradition in Arizona for standing behind its product. If there are issues that Lennar is responsible for, it will correct them."
The other suit against Lennar is from three homes in the Stonebrook community in northeast Surprise. It alleges Lennar misrepresented its soil reports with the Arizona Department of Real Estate on six Phoenix area subdivisions, including Stonebrook, during a three-year span in the early 1990s.
Before building, a contractor must supply a report on the condition of the land.
"We believe the way in which Lennar described the communities were accurate based on what Lennar knew," Balitis said.
Charles Downs, a Department of Real Estate spokesman, said if the state finds a misleading report, the department could stop the building.
"But if the subdivision is built out, then it (enforcement) is toothless," Downs said. "As far as a recourse for homeowners, they can file suit."
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