New-home owners face plethora of worries, but builders say exaggerated claims strangling industry
February 2, 2003 - For Tony Ayres, the construction defect trial that's expected to go to
deliberation this week at the Clark County Complex Litigation Center has all
the importance of a murder trial.
He feels like he was shot down by Beazer Homes in 1996 when he purchased a
$125,000 home plus upgrades at Village at Craig Ranch in North Las Vegas.
Ayres testified in court that the expansive soil condition that caused
quarter-inch and half-inch cracks in his walls, ceilings and foundation
never was disclosed at the time of purchase.
He's part of a $25 million class-action construction defect lawsuit pitting
200 Craig Ranch homeowners against Beazer. The trial began in early November
and closing arguments are expected to be heard Tuesday or Wednesday.
"I've almost lost my job because of this," said Ayres, a commission
salesman. "I've missed work for construction repairs. I've missed work for
the trial. I've had to change vacations. I've had to cancel company. I've
been here when nobody showed (for repairs).
"People say, `You're overexaggerating.' Since 1996, I've lost all the
enjoyment in life I should have had. Now what's the price for that?"
Construction defect litigation is being called the ticking time bomb in the
home-building industry, an explosive issue that has caused heartaches for
homeowners, headaches for builders and blackholes for insurance companies
that end up paying million-dollar settlements.
With seven new construction defect lawsuits being filed on average each
month, the number of cases pending in Clark County's 8th Judicial District
Court has grown to more than 200, creating a system overload.
"Construction defect litigation is a cancer growing on the construction
industry, and it is slowly killing all of its victims," said Steve Bottfeld,
owner of Marketing Solutions, a Las Vegas research and marketing firm.
He said those who are most negatively affected are those the litigation was
designed to protect: the home buyers.
"The lawyers may argue that construction defect litigation gives consumers a
great deal of money for pain and suffering over minor cracks from (ground)
settling or similar problems," Bottfeld said.
"But, somehow, consumers are never told that a notice can be attached to the
titles of any home involved in construction defect litigation. So those
homes are harder to sell and generally don't get full value when sold."
It seems no builder is immune to getting sued, regardless of their
reputation, competence or past performance.
Defendants in pending cases include Del Webb, Pardee, Peccole Ranch,
American West Homes, Kimball Homes, Nevada Homes, Stanpark and Richmond
American.
"Over the past two years, Las Vegas has lost about 60 home builders because
profit margins have become thin as a result of rising costs, including costs
from construction defect litigation," said Irene Porter, executive director
of the Southern Nevada Home Builders Association.
Only a handful of companies are building attached housing such as
condominiums and townhomes, a critical product for many entry-level home
buyers, because those projects are a lawsuit waiting to happen. Several
builders have said they must factor the cost of litigation into every
project.
Thomas Miller, a California attorney who has formed a partnership with the
Jimmerson Hansen law firm in Las Vegas to handle construction defect cases
here, said the solution is simple: Build better houses.
"It costs three times more to repair and fix these homes than if they'd done
it right in the first place," Miller said.
With nearly 23,000 new homes sold last year in Las Vegas and about the same
projected for this year, builders are being pressed to meet the strong
demand.
"In that process, quality takes a back seat," he said. "Trying to keep up
with supply and demand, production mistakes come along the way."
Miller, who has recovered $450 million in construction defect settlements,
said the problem starts in the planning stage, with builders giving just
enough details to get their permits approved.
"Once they're in the field, it's really a lack of supervision. Nobody's
doing a good job of coordinating in the field," he said. "Pardee did a
better job in-house to see that internal checklists were being followed in
the field.
"And the quality of the building inspection process in Las Vegas suffers
because inspectors are just so overworked the builders feel like they can
get away with murder. There's no legal liability."
Home builders might have to stick with their projects for 10 years to
prevent construction defect litigation and other problems, said state Sen.
Mike Schneider, D-Las Vegas.
The backlog of lawsuits has led the District Court to come up with a
fast-track approach to resolution, said Michael Sommermeyer, information
officer for the court.
The Clark County Complex Litigation Center, which recently opened at 333 S.
Sixth St., allows judges to hear status checks on lawsuits sometimes
involving hundreds of homeowners, dozens of contractors and a horde of
lawyers.
The center has the county's largest trial courtroom and can seat as many as
40 attorneys at once. It is large enough to allow more participation in the
judicial system.
"The court is working hard in the best interests of homeowners and
contractors to move cases to trial or settlement as quickly as possible,"
Sommermeyer said.
A satchel full of motions is filed before a case reaches trial, and once a
trial begins, it can last for months, as happened with the Beazer trial.
Judges Nancy Saitta, Allan Earl and Michael Cherry presided over a week of
status checks in November to determine which cases are ready for trial,
close to settlement or need more preparation.
"These cases are new and unique litigation for Clark County," Saitta said.
"As a result, we have had to think outside the box, effectively inventing a
process to handle them."
Also, by requiring all of the attorneys to be present at these hearings,
everyone involved quickly can learn where they stand in the process and
determine if a particular case is ready for trial or close to a settlement,
the judge said.
Steve Hackney, president of the Southern Nevada Home Builders Association,
said the Legislature needs to reform laws in this year's session to curb
runaway defect litigation.
To that end, the home builders joined forces with the Nevada Subcontractors
Association, the Associated Builders and Contractors and the Associated
General Contractors to form the Coalition for Fairness in Construction.
Representatives from the coalition will be lobbying politicians in Carson
City to give home builders and subcontractors the "right to repair"
construction problems before being slapped with lawsuits, said Steve Hill,
chairman of the group.
Ayres said he gave Beazer many chances to fix his home.
"We went to Beazer multiple times and they fixed it multiple times. That's
the problem," he said. "The cracks are still recurring. I think it's
important for people to know what's going on in our community. They should
be aware of potential problems with expansive soils in North Las Vegas."
Kent Lay, senior division president of Beazer, said he couldn't comment in
detail about the nature of the Craig Ranch situation because of its active
legal status.
"However, what I can say is that Beazer Homes remains dedicated to our
mission of providing quality homes at reasonable prices," Lay said in a
prepared statement.
"We recognize the concerns of the impacted homeowners in the Village at
Craig Ranch. To that end, we have engaged leading engineers, architects and
design professionals to evaluate the reported problems.
"Based on their analysis, we are convinced that the plaintiffs' claims
grossly exaggerate both the number of homes that require significant work
and the type of remedy needed. This case is not about whether Beazer is
prepared to address legitimate issues, but about determining the appropriate
nature and scope of the corrective measures for each of the affected homes."
Miller said it's not just Las Vegas and Clark County that have these
problems, and it's not just trial lawyers creating a new revenue pool for
themselves, as some builders claim, after legal reform dried up litigation
in California.
"These insurance companies, they have their own lawyers and experts," he
said. "They go out and see these problems firsthand. When they go out and
see these are not trumped-up charges, they start laying out millions because
they know if they go to trial, they're going to lose nine times out of 10.
"Insurance companies are not in the business of handing out millions of
dollars. If these (charges) were trumped up, they would take a stand. These
juries are coming in with large settlements. This is not just the lawyers."
Defect litigation has left many insurance companies skittish about covering
Southern Nevada home builders and trade subcontractors, making it difficult
for them to find insurers. When they do, it's at premiums that have tripled
and quadrupled in the past couple of years.
"The skyrocketing cost of liability insurance and the availability of
insurance for builders, subcontractors and suppliers may be the single
largest threat to the future of home ownership in our community," Hackney
said.
A California lawyer who represents builders and their subcontractors for a
major insurance company said she's concerned about large payouts in
construction defect cases driving up the cost of insurance and causing
insurers to cancel or stop writing liability policies.
"I am skeptical of the insurers' position that they have to stop writing
policies due to the high cost of these claims," said the attorney, who
requested anonymity. "But I am told this is a legitimate problem, although I
note most carriers continue to turn a healthy profit.
"As for railing on the construction industry, most of the problems occur in
housing tracts, not surprisingly. There are some developers who routinely
build them as quickly and as cheaply as possible, don't coordinate the
subcontractors, and have no interest in customer service or warranty repairs
after the ink has dried on the notice of completion.
"But this is the minority. Most builders try to do a good job. They just
can't watch everything all the time. When problems do occur, they usually
try to solve them, and few result in litigation."
She said the situation has gotten out of control in California because
swarms of attorneys from Los Angeles and San Diego have blanketed entire
subdivisions and, in some cases, entire towns, persuading homeowners who
otherwise aren't looking for trouble to join a lawsuit with promises they
will get money and not have to pay anything out of their pockets.
Once they have 300 to 400 homes in the case, the attorneys -- who use the
same experts for every case, some of whom work on commission -- file a
lawsuit alleging defects in every possible category, from roof and window
leaks to frivolous claims such as "lack of paint on top edge of closet door"
or "hot water takes too long to come out of faucet."
"They then make a sky-high demand and settle it for something less. There
are no caps on settlements here," the attorney said.
"I routinely see repair estimates that exceed the cost of construction,
sometimes by two or three times. My experience, however, is these cases
usually settle for 30 (percent) to 40 percent of the homeowners' initial
number.
"This may not sound like a lot, but when there are a hundred cases with
demands that start at $20 million, that's a lot of money."
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