IN A UNIQUE COMPROMISE, LAWMAKERS IN MINNESOTA crafted a bill that included a notice and opportunity to repair (NOR) law that builders sought for two years and also contained assurances for homeowners that they can make a warranty claim even if a building company is dissolved.
At press time, Gov. Tim Pawlenty was expected to sign the legislation in May.
The NOR law is similar to bills passed in roughly 30 other states nationwide: Homeowners are obligated to notify their builder in writing about an alleged defect and give the builder a chance to inspect and make an offer to repair before the homeowner takes the matter to court.
What is unusual about the Minnesota NOR legislation is the link between the basic NOR law and an added provision saying that a homeowner can collect on a warranty claim even if a builder goes out of business.
Under this new provision, a builder is still allowed to dissolve, but as long as the 10-year warranty period remains valid, a homeowner has the right to file a warranty claim against the builder's insurance company.
Assuming that the builder paid its insurance premiums while it was in business, the builder's insurance company will have an obligation to step in and cover a homeowner's claim. State law in Minnesota requires builders to carry liability insurance to obtain a license.
The need for the so-called Camacho Provision, named after homeowners Arturo and Kristi Camacho, stems from a Minnesota Supreme Court decision made last November regarding builder warranties. According to Finance and Commerce, a business newspaper based in Minneapolis, the Camachos sued builder Todd and Leiser Homes after discovering $200,000 worth of mold and water damage in their $305,000 home.
However, the couple found it difficult to sue the builder because the business closed in 1999, about four years before the Camachos filed their lawsuit. Although a lower court ruled that the Camachos had the right to make a claim, a Minnesota appeals court decided in favor of the builder, ruling that the claims by the Camachos were invalid because Todd and Leiser Homes was a dissolved corporation.
The case went to the Minnesota Supreme Court, which sent it to the state's lawmakers, saying that it was up to the legislature to provide a remedy for homeowners.
Faced with the court's order to find a remedy as well as a second push this year by the Builders Association of Minnesota (BAM) for an NOR law, builders started working with homeowners' advocates on compromise legislation. The goal was to provide the NOR law that the builders had been seeking as well as assurances on home warranties for the homeowners' groups.
Learn more about markets featured in this article: Minneapolis-St. Paul, MN.