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Following are Frequently Asked Questions
about Construction Defects along with their answers:
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What is defective construction? |
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Defective construction includes defects
in design, in construction, in the choice of materials or
defects in the materials themselves. A defect exists if a
particular building component differs from the developer’s
intended result or differs from apparently identical construction.
The buyer’s reasonable expectations upon purchase are important
in this regard, along with any representations as to the condition
or quality of the property that were made by the builder.
Obvious defects are known as patent defects and those which
are not reasonably observable, but are later discovered, are
known as latent defects.
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Is a builder liable for damages
even if the project was inspected and approved by the City or
County building inspector? |
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Yes. If the project
is defective, the builder may be liable even if the project
meets all applicable local codes, has been approved by the building
inspectors and has been built according to the standards of
the local community. In addition to liability for negligent
construction, or construction not meeting the standards of the
community, builders and sellers of mass-produced housing are
held to an implied warranty of fitness and are held strictly
liable for construction defects without a showing of negligence
or fault. Recent court cases have made it absolutely clear that
strict liability applies to builders of multi-unit condominium
projects. All that must be proven in court is that defects exist
and what appropriate correction is required. The measure of
the damage is the cost of repairing the defects, together with
the value of the loss of use of the property during the period
of injury.
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How do I prove that a defect exists? |
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In most cases, it will
be necessary to hire the services of experts. Experts are professionals
who have the necessary training, education and experience to
give testimony in court as to the cause of a defect as well
as the cost to properly cure the defect. For example, if your
roof leaks, an expert who has designed roofs, evaluated other
leaky roofs and knows how roofs should be constructed is in
an excellent position to testify as to the reasons your roof
leaks. Your lawyer cannot, in most cases, prove his case against
the builder unless he has qualified experts. Experts are available
for every aspect of residential construction. Expert’s services
usually run from $200.00 to $300.00 or more per hour.
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What monetary damages can I recover
in a lawsuit and can I recover attorney’s fees? |
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California courts are
clear in awarding homeowners and community associations the cost of repairing the defects.
You can also recover whatever reasonable fees you
have had to pay for your experts to investigate the cause of
your defects and their costs in supervising the repairs. The
costs of doing temporary repairs during and before the lawsuit
to mitigate the damages are also recoverable. If repairs require
owners to vacate their homes, reasonable relocation costs are
included. Punitive damages, or damages awarded to punish the
builder and to deter similar conduct in the future, may be awarded
where the builder defendant has shown a "conscious disregard"
for the rights of the buyer, such as where there has been a
fraudulent concealment by the builder. In some cases, attorney's
fees are recoverable but not always. In appropriate cases, it
may be possible to obtain compensation for loss in market value.
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Is the association required to
make repairs during the litigation? |
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Every party to the lawsuit
has the duty to lessen or mitigate their damages where reasonably
possible. In this regard, the home owner or association should make reasonable
repairs, assuming that sufficient reserves or funds exist to
do so, at least on a temporary basis so as to prevent the property
from being damaged to a greater extent.
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What should I do if the builder
has agreed to make the necessary repairs? |
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It is prudent to consult
a lawyer who can assist in locating an independent expert to
evaluate the builder’s investigation of the problem and his
proposed repairs. The same expert should oversee actual repairs.
Once repairs are agreed upon, the lawyer can draft a proper
settlement agreement that does not absolve the builder of liability
except for the limited and defined repairs being made, and then
only after the repairs have proved effective. The builder will
typically demand a broad form general release of all future
liability in exchange for making repairs. Such a release may
result in board of director liability should other defects appear
during the time remaining before the expiration of the various
statutes of limitation. For that reason, such a release is rarely,
if ever, recommended. In short, insist on a specific limited
release.
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How do we recover if the builder
is out of business, cannot be located, or is bankrupt? |
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The most important asset
is the builder’s insurance policy as well as the policies of
the various subcontractors. Even if the builder cannot be located
or is bankrupt, the various insurance companies must defend
and pay claims that are covered under the policies. Builders
almost always have insurance coverage because it is almost impossible
to obtain construction financing without it. Likewise subcontractors
are rarely hired unless they have insurance.
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Who normally files suit against
the builder? |
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An association has the
legal capacity or standing to bring a lawsuit for damages to
the common areas, damages to the separate interests which the
association is required to maintain or repair, and damages to
the separate interests arising out of or related to damage to
the common areas that the association is required to maintain
or repair. As such, the association is the proper party to bring
an action for construction defects. Individual homeowners may also file suit
if required and appropriate.
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How much will a lawsuit cost? |
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The total cost of prosecuting
a lawsuit will depend on a number of factors, including the
nature and amount of damages, the number of parties, and the
attitude of the parties. If the builder is willing to resolve
the matter reasonably and without the need to file a lawsuit,
the expense will be much less than if the builder or its insurance
company does not act responsively, forces the filing of a lawsuit
or requires the case to proceed through the court system and
potentially to trial. Some lawsuits are settled within a relatively
short period of time, while others are not resolved until just
before trial. Lawsuits can be expensive, and close cooperation
between the association, property management company and attorney
is necessary to reduce the costs as much as possible. One of
the major costs is the cost of expert consultants. These costs
will be included in the claim against the builder and are usually
recoverable.
Legal fees depend upon the nature and extent
of the defects and the size of the project. Attorneys generally
either bill by the hour or perform their services for a percentage
of any recovery. If the attorney charges by the hour, expect
to pay between $250 and $350 per hour. If the attorney works
on a contingency basis, expect the fee to be between 28% and
40% of the gross recovery depending on the size and complexity
of the matter. Fees are always negotiable.
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Will the association’s insurance
company cover damages caused by construction defects? |
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Probably not. Association
insurance companies almost always exclude the types of coverage
which provide benefits for construction defects. The policy
will, however, be reviewed by your lawyer for possible coverage.
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Where do we get the money to pay
for a lawsuit? |
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Several ways exist to
raise money for pursuing your legal rights. First, your association’s
reserves are a good source. California law allows associations
to borrow from reserves as long as it is repaid within specified
time limits. Another source is to increase your monthly assessments
by the percentage allowed in your CC&Rs or to pass a special
assessment. Also, certain banks provide financing for these
types of matters. Lastly, a small number of law firms (which
includes Michael T. Chulak & Associates) are able to advance all
or some of the costs.
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Can I sell or refinance my home
during the litigation? |
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Yes. The board of directors of a homeowner association
has a fiduciary duty to investigate construction defects and
timely pursue a claim against the builder to recover damages
and to repair the problems. During this time, California law
requires a homeowner to disclose to a potential buyer construction
defects and litigation. Any such disclosure may have an impact
on marketability. While in litigation, lenders are usually cautious
about refinancing. However, there are mortgage companies that
specialize in refinancing homes involved in litigation.
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Can our association
be compensated for the extra costs we will be required to pay
our management company due to construction defect litigation? |
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Possibly. This cost is usually part
of the claim made against the builder. In addition,
some law firms will reimburse the management company for certain
extra costs incurred so that the association never gets billed
for these costs.
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How often does mold
result from water intrusion into roof and wall areas? |
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It is very common. It can cause physical
damage to the building as well as personal health problems.
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In addition to having construction defects,
the developer of our community association turned the association over to the
home owners in a nearly bankrupt condition. Can you help us determine what
happened to cause this situation? |
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Absolutely. Quite often when we file suit against a developer
for construction defects, we seek an accounting to determine if the builder
paid all assessments due, during the marketing phase. Sometimes the builder
has not paid all assessments leaving the association short thousands of dollars.
In addition, we may find that the initial budget provided to the buyers was
inadequate because the projected expenses were understated. In these situations,
we seek damages from the developer as part of the lawsuit.
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For additional information on
construction defects,
see our
Construction Defects Glossary. |
