For Most Of Us, Our Home's Equity Is Our Greatest Asset. It Needs Protection.As builders of the American dream, homebuilders take great pride in their work. California homes are built to some of the most rigorous standards in the nation. Homebuilders believe in the quality of their products and stand behind them with customer service staff dedicated to helping homebuyers with problems that may arise after they move in.
For many California homeowners, lawsuits alleging construction defects have led to the loss of their homes' equity, or the inability to access that equity. In this brochure, we will share with you studies that show how construction litigation might jeopardize your home investment and oftentimes does not even lead to repairs. And, we will show you positive alternatives to litigation, such as working with your builder to resolve any problems you may have.
This brochure is provided to you by Citizens Against Lawsuit Abuse, which is dedicated to stopping irresponsible lawsuits that assert unfounded claims or seek unsubstantiated damages, and by members of the Building Industry Association (BIA), who are dedicated to building quality homes and providing quality customer service both to original and future home purchasers.
Litigation Reduces Home ValuesThe average litigated construction dispute in California generally takes two to five years to resolve. As the dispute drags on, it runs up costs and drives down housing values.
An article in the Santa Clarita Valley Signal entitled "A Tale of Two Tract Home Owners" illustrates why. It tells the story of a family that wanted to sell their small home and buy a larger one in order to accommodate the growth of their family. However, because they had joined a construction defect lawsuit months earlier, they were told by their realtor that they would have to disclose the approximate $30,000 in defects their attorney was claiming on their behalf and provide a buyer with a credit in that amount! The homeowners reluctantly decided to put their purchase plans on hold.
Two years later, the lawsuit finally settled for one-third of what the attorneys had claimed was needed to repair their home. And, after attorney and expert fees were deducted, the homeowners were left with only $5,000 to repair $30,000 in alleged defects. This meant that the homeowners still would be required to disclose the defects they could not afford to repair and give a credit to any prospective purchaser for those defects. By comparison, the article stated that homes that had not joined the lawsuit appreciated in value and were selling much more easily.1
BUT THE PLAINTIFFS WOULD NEVER SEE THIS CASH. MORE THAN $200,000 IN COSTS HAD BEEN INCURRED BY THE PLAINTIFFS' ATTORNEYS IN DISCOVERY AND EXPERT WITNESS EXPENSES. ADDITIONALLY, THE ATTORNEYS WOULD TAKE A FEE OF 33 PERCENT FOR SETTLING THE CASE, THIS AMOUNT BEING COMPUTED ON THE GROSS SETTLEMENT AMOUNT. THIS WOULD LEAVE EACH PLAINTIFF WITH APPROXIMATELY $5,000 WITH WHICH TO REPAIR $30,000 IN ALLEGED DEFECTS."
Similarly, a study of litigated and non-litigated properties by ConAm Research of San Diego showed that the value of condominium units in litigated projects dropped more than 10 percent, when compared to units in non-litigated projects. The study also found that homes in non-litigated projects were able to resell more quickly.2 Why? California law requires disclosure in real estate transactions. When you put your home up for sale, your realtor will be required to disclose that your home is, or was, involved in a construction defect lawsuit and identify any items that you claimed are defective in your home. Lenders often are reluctant to make home loans on projects that are, or have been, involved in litigation. And what prospective buyer would choose a home involved in a defect lawsuit over one free from litigation? Worst of all, what if the prospective buyer asks to see your repairs and you have to tell them that few, if any, of the supposedly-necessary repairs were ever made?
Litigation Can Hurt Your Ability To RefinanceWhat if you need to refinance while your lawsuit is slowly creeping through the judicial system? According to ConAm Research, most lenders simply will not refinance loans on properties involved in defect litigation.3
The reason is simple. Homeowners involved in such litigation must notify lenders of their defect allegations and the costs being claimed to repair them. In some cases, attorneys have even claimed that repair costs exceed a home's purchase price. In others, homeowners must state that their home is worth less than its potential market value - maybe even less than the amount still owed on the house.
Litigation Increases The Cost Of HousingWhy is California's housing market so expensive? While there are many factors, California's housing prices can be attributed, in part, to the onslaught of construction defect litigation over the last decade.
Litigation is costly. It increases the costs of construction. It causes insurance premiums to go up. It forces builders to raise their prices. It burdens the judicial system and expends judicial resources. It reduces competition in the marketplace as smaller builders are forced out of business. Ultimately, these costs are passed onto the consumer in the form of higher home prices. Homeowners should therefore ask themselves: "Is construction defect litigation really the answer?"
When The Construction Defect Lawyers CallYou received this brochure because, at some point, a construction defect lawyer may approach you about joining a lawsuit - even if there is no real problem with your home, or tract.
Why are you being targeted? Defect litigation is big business, and law firms market aggressively in neighborhoods throughout the state looking for that business. Lawyers will tell you that it is less expensive to settle a lawsuit than it is to defend one. Some may flash big dollar signs at you in an effort to put a lawsuit together. And, if you are a homeowners association board member, they may even scare you into believing 3 ConAm Economic Research Study, November 11, 1996. you will be sued by your fellow homeowners if the association does not file a lawsuit.
But the big dollars they promise aren't always a reality once a lawsuit is settled, or tried.
When money is awarded after a trial or settlement, much if not most of it goes to pay for lawyers' fees, expert witnesses and the "destructive testing" they do on your home. Often, only a small portion of the funds recovered remains to be spent on home repairs, and, generally, those funds are much less than the real cost of any repairs that actually need to be made.
If this matter can be resolved easily and quickly by contacting your builder - which is often the case -isn't that in your best interests and the best interests of your homeowners association?
Outrageous Estimates & Destructive TestingThe Orange County Business Journal reported that many construction defect attorneys and their expert witnesses run up legal bills and grossly inflate repair estimates to attempt to force settlements.4
In the jury trial of a recent multi-home construction defect case, the attorneys and experts for the homeowners alleged defects throughout the homes, including the roofs, stucco, framing, concrete, windows and doors. These attorneys asked the jury to award the homeowners over $45,000 for each home. The jury unanimously found that the builder did not violate any construction standards and awarded nothing to the homeowners.
Trial attorneys often attempt to "prove" "defects" through destructive testing. This may include cutting holes in walls, pulling off roof tiles or ripping up flooring, just to look for "defects" that you did not know previously existed and that have not caused any damage to your home. They may even shoot high-pressure water directly against a window for a prolonged period to see if it leaks. That hardly duplicates any natural conditions your home is likely to be exposed to! Worse, destructive testing is a dusty, invasive and noisy process that can leave your walls, custom paint colors and faux finishes not looking the same again.
You May Lose And Have To Pay For The LawsuitWhat happens if you don't win the case? You don't recover any money, of course, but that doesn't mean you are off the hook.
You and your homeowners' association may be left responsible for paying all the lawyer and expert witness fees and the costs of their testing, as well as court costs. For example, a group of 19 homeowners in Orange County was ordered by the court to pay $508,000 to a defendant after losing at trial. The homeowners' attorney, however, was not ordered to pay anything.5
You also may meet with resistance if you change your mind and want to be dismissed from the lawsuit after it is filed. For many attorneys, the profit they make from construction defect lawsuits often depends on the number of homeowners they are able to sign up. Too few homeowners may mean that the cost to prosecute the lawsuit exceeds the amount of profit the attorneys stand to make. Not surprisingly, trial attorneys, therefore, often resist dismissing homeowners from a lawsuit. Some homeowners have even reported being charged litigation costs by their lawyers before being allowed to get out of the case. And even then, they had to wait months to be dismissed.
You may also lose control of your right to have repairs made to your own home. Homeowners have reported that some attorneys require that any settlement be approved by at least a majority of the homeowners in the case. If this happens, you may not be able to accept an advantageous settlement because some of your neighbors object. Other attorneys may not allow you to settle because, if repairs are made, the attorneys will have trouble getting paid.
Repairs: Too Little and Too LateIn the unfortunate event of a legitimate construction issue, are you willing to live in your home for the years it can take to conclude a lawsuit before repairs are made?
You have an alternative! You can work with your builder and have the problem corrected quickly - perhaps even years before repairs could be made if you chose to litigate.
Most builders will gladly make legitimately needed repairs to your home. By avoiding litigation, you get what you want: to have the problem repaired quickly, completely, and with the least amount of inconvenience.
California's New Construction Law: Facilitated RepairsIn 2003, California enacted a new law (Civil Code sections 895 et seq.), which applies to certain types of new residential construction purchased on or after January 1, 2003. This law is designed to informally resolve construction defect claims. It better defines what constitutes a defect, and allows a builder to provide you with detailed maintenance expectations up front, so you know how to maintain the quality of your home.
Under the new law, if a homeowner is unable to resolve a construction defect claim informally through such things as customer service, or the warranty process, the homeowner must follow a series of mandatory pre-litigation procedures before filing a lawsuit against a builder. These procedures are referred to in the homeowner's purchase documents and CC&R's and are designed to ensure that legitimate repairs are made without requiring a lawsuit. In addition, if these procedures fail to solve the problem, the new law allows for the use of alternative dispute resolution such as arbitration, or judicial reference, which generally is less costly and faster than a court trial.
The Alternative: Cooperative, Mutually Beneficial, Private ResolutionThe Building Industry Association wants to help you enjoy the American dream of homeownership and encourages you to use alternatives other than litigation to preserve that dream.
The best immediate solution to avoiding the hassles and cost of litigation is to work directly with your builder. If you find yourself, or your association, being approached by defect attorneys, we advise you to consider the alternatives. Go to your homeowners' association board meeting and ask that they pursue alternatives before signing on with attorneys. Contact your builder. In the unlikely event that your homebuilder is unresponsive, or if you have difficulty tracking down your homebuilder, call the BIA/OC at 949-553-9500 and they will help you locate the correct customer service representative. If this fails to solve the problem, consider utilizing the claim and dispute resolution procedures specified in your purchase documents, such as mediation, arbitration, or judicial reference.
Together, we can find resolution and preventative measures to avoid, or reduce, construction disputes.
Avoiding Costly Litigation There are alternatives to lawsuits and benefits to pursuing those alternatives. Here are some steps you should follow when dealing with allegations of defective construction:
1.) If construction defect attorneys are approaching homeowners in your tract, urge your neighbors and your association to investigate alternatives before hiring attorneys.
2.) Contact your homebuilder to seek a solution. Often, the builder will work with you to resolve a problem. If you need help locating your builder, or if your builder is not responsive, call the BIA/ OC at 949-553-9500.
3.) Understand what constitutes a defect. Opinions may differ on this, but hear out your builder before authorizing an attorney to file court papers on your behalf.
4.) Follow the procedures in your homeowner's warranty and submit a customer service/warranty request to your homebuilder. Homeowner warranties often provide homeowners an effective process by which to resolve concerns informally and promptly.
5.) If resolution remains difficult, review your purchase and homeowners association documents and follow their claim and dispute resolution procedures. These procedures often include mediation, arbitration, or judicial reference, which can be less time consuming and less costly than litigation.
Questions to Ask Defect Attorneys If you meet with an attorney who wants to bring a construction defect lawsuit against your homebuilder, here are a few key questions to ask:
1.) Can you show me the specific problems I have in my home?
2.) How much money is likely to be awarded and where will it all go?
3.) Explain the "destructive testing" process, including how much time it will take and how many homes you will destructively test. What if my issues are not the same as my neighbor's? Will you need to conduct destructive testing at my home to establish your case?
4.) How do you make your money?
5.) What percent of any money you recover will you use to pay for expert witnesses and destructive testing? Is the experts' compensation affected by the outcome of the case?
6.) Who pays for the experts, destructive testing and court costs if we lose the lawsuit?
7.) What happens if we lose the case? Can I be liable for anything?
8.) What happens if we receive less than the cost of the repairs you claim are needed? Will my house still get fixed?
9.) When I sell my house, do I have to disclose this lawsuit? Do I have to disclose whether enough money was collected to fund the repair of the alleged defects?
10.) When I refinance, do I have to disclose this lawsuit and will it impact a lender's willingness to give me a loan?
11.) Will you represent me in the event I get sued for failing to disclose a defect you claimed on my behalf?
12.) Are the documents you file on my behalf public record?
13.) How long do construction defect lawsuits typically take to resolve and won't the lawsuit tie up my property during that time?
14.) What happens if the builder offers to make repairs during the course of the lawsuit? Will you prevent those repairs from being made?
15.) After the lawsuit starts, if I change my mind, can I withdraw from the lawsuit? Will it cost me anything to withdraw?
16.) After the lawsuit starts, can I decide to settle just my claims, or does everyone have to agree to settle?
About Our SponsorsCitizens Against Lawsuit Abuse (CALA) is a nonprofit legal watchdog group whose mission is to educate consumers on the costs of lawsuit abuse and serve as a watchdog group over those special interests who seek to abuse the system for financial gain at the expense of consumers.
The Associated General Contractors of California (AGC) is committed to improving the profitability of its members through excellent services in: Safety and Health; Education and Training; Employee and Labor Relations; Government Relations/Legislation; and the commitment to skill, integrity, and responsibility.
The Building Industry Association of Southern California (BIA/SC) is a non-profit trade association representing nearly 1,000 companies employing over 100,000 people affiliated with the building industry. As the regional advocate of the building industry, BIA/SC works closely with its chapters, councils and members to make sure housing supply keeps pace with the rapidly growing job market and population.
The Construction Quality Committee (CQC) advocates for solutions to construction disputes through education on and advocacy of quality construction practices and customer service.
Source: Building Industry Association of Southern California (BIA)