By Boyce Thompson. Imagine a world where you couldn't even consider building attached housing because of the legal risk. That's the reality that's shaping up for builders in some Western markets right now. They can't get insurance on condo and townhome projects because enterprising attorneys are bringing construction defect claims against every project they can find.
The trend started in Southern California and quickly spread to Washington, Nevada, and Arizona. Considering the impact these lawsuits have had on nationwide insurance companies, this trend clearly has the potential to spread throughout the entire country, dramatically affecting housing affordability.
Catching a break
Before you go rewrite your business plan, though, it looks like there's finally some movement toward a partial remedy. A new law in Washington state, which took effect in June, gives builders 45 days to correct defects before lawsuits are filed. The NAHB would like to see alternative dispute resolutions like this enacted in all states.
For that to happen, some attorneys will lose out on what for them is a great source of revenue. Check out www.constructiondefects.com for The Miller Law Firm's "proud" list of recoveries. Between 1995 and 2002, the firm recovered well in excess of $100 million. The settlements range from $15.2 million for Century Park Place, in Los Angeles County, to $1.6 million for 139 single-family homes in High Country West, a community in San Diego.
www.cahoalaw.com) that it has "recovered more than $80 million with an average case life of 16 months!" As this settlement history makes clear, the vast majority of cases were settled through mediation. Cases rarely get to court.Another firm, Feldsott and Lee, boasts on its Web site (
To drum up business, attorneys allegedly pressure the top officers of homeowner associations to sue. They reportedly tell these officers that if they don't take action, and defects are found later on, they may be culpable.
The problem is that sometimes builders don't even get a chance to remedy the defect situation, or if they do, their repairs are judged unworthy.
A good model
The Washington state law, which passed both houses unanimously, and quickly, requires a buffer period before homeowners can file suit. Homeowners would have a 45-day period in which to inform the builder of alleged defects before going to court.
Then within 21 days, you could propose to inspect the property and give a timeline for the inspection; dispute the claim; or propose to settle by payment. If you elected to inspect the property, you would have 14 days to make an offer. You could offer to make repairs within a timetable, settle by payment, or refuse to proceed.
If homeowners reject your offer to pay or repair, they could file a lawsuit. You can find a copy of SSB 6409 at www.leg.wa.gov/wsladm/bills.cfm. You also need to put a notice of this "cure" procedure in your original contract. The language can be found at www.biaw.com/legislative.asp.
The Washington law and others like it won't solve the problem. Lawsuits will still proliferate, but you can protect yourself by building defect-free in the first place. One of the trade secrets used by builders who still do attached in the West is to videotape key phases of construction to show that you built the housing properly.
When you think about how unaffordable housing has become in some areas of the country, and put this together with the need to house a generation of echo-boomers, the problem cries out for creative solutions.
Editor in Chief