Following are Frequently Asked Questions about Construction Defects along with their answers:

 

 

What is defective construction?

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.

 

Is a builder liable for damages even if the project was inspected and approved by the City or County building inspector?
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.

How do I prove that a defect exists?
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.

What monetary damages can I recover in a lawsuit and can I recover attorney’s fees?
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 the 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.

Is the association required to make repairs during the litigation?
Every party to the lawsuit (including the developer) 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.

What should I do if the builder has agreed to make the necessary repairs?
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.

How do we recover if the builder is out of business, cannot be located, or is bankrupt?
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.

Who normally files suit against the builder?
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.

How much will a lawsuit cost?
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 fully 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.

Will the association’s insurance company cover damages caused by construction defects?
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.

Where do we get the money to pay for a lawsuit?
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.

What happens if after settling our construction defect claim, or obtaining a judgment, our HOA is short of funds to complete 100% of the repairs needed?
While your association has many options, one option available to your HOA is to obtain a loan to cover any shortfall. Our firm is unique in being in a position to guarantee the availability of funds should the need arise. The terms of such a guarantee must be in writing. We would be pleased to discuss the details with you at any time.

Can I sell or refinance my home during the litigation?
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.
Can our association be compensated for the extra costs we will be required to pay our management company due to construction defect litigation?

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.

 

How often does mold result from water intrusion into roof and wall areas?

It is very common.  It can cause physical damage to the building as well as personal health problems.  

 

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?

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.  

 

For additional information on construction defects,
see our Construction Defects Glossary.
 
 
 
 





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