Problems with your brand new house?

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In booming markets, such as Las Vegas, Los Angeles and Phoenix, there is a backlog of court cases to hear homeowners' complaints of leaky roofs, cracked foundations and warped siding.

New homes accounted for more than one in six of a record six million home sales recorded in 2003, according to the National Association of Realtors.

It stands to reason, of course, that more new houses mean more complaints. But, homeowner advocates argue that they just don't build houses like they used to. "The national homebuilders have gotten bigger and bigger," said Nancy Seats, national president of Homeowners Against Deficient Dwellings (HADD). "They mass produce these houses with little supervision."

Homebuilders, meanwhile, say the only thing being mass-produced is frivolous lawsuits from unreasonable homeowners and overzealous trial lawyers.

Construction defects claims have driven up the cost of builders' liability insurance over the past year, said Jerry Howard, CEO of the National Association of Home Builders, putting many builders out of business.

"Absolutely we have seen an increase in claims of the past few years," he said, but not because of shoddy construction. "We think houses are better built than they used to be."

What you didn't see in the model home

Building a house is a complicated task, say builders, made more complicated by unpredictable weather and new, more complex designs. Problems are bound to show up as a house ages and "settles."

As such, new houses are usually covered by a warranty for one to two years. If anything comes up, whether it's chipped paint or faulty heating, the builder is obligated to fix the problem for free. "Most new home builders, if something happens in the first year, are more than willing to come back and make determinations and see that it's repaired," said Howard.

Still, about 15 percent of all new homes have at least two significant defects, said Alan Mooney, PE, president of Criterium Engineers, an engineering firm with offices in 35 states. Mooney came to this conclusion after surveying his firm's engineers last year. "That's pretty significant," he said.

According to the survey, 23 percent of all new homes have problems with window and door installation, while 21 percent of new homes have roof problems and 18 percent have framing inadequacies. The consequence of these construction defects is, four times out of five, water damage.

Problem is, the symptoms of faulty construction take about one to three years to show up - about the same time a homeowner's warranty runs out.

The house that is never quite done

After the warranty expires, said Thomas Miller of the Miller Law Firm, a firm that specializes in construction defects, homeowners still have four to 10 years to make construction defects claims, depending on the state.

But getting a builder to take notice after a warranty expires isn't always easy. Most of the clients Miller sees contact him out of pure frustration.

"I just finished one case where owners paid anywhere from $200,000 to $500,000 for lofts in downtown L.A. only to move in and hear their neighbors flushing toilets and talking on the phone," he said. "It was a complete soundproofing failure."

Last week the developer agreed to pay $1.32 million to cover the cost of repairs and legal fees.

Builders, for their part, say homeowners file lawsuits before giving them a chance to make good on construction problems, and often times claims are just plain frivolous.

In one case, said Dennis Polk, an attorney with Holley, Albertson & Polk in Denver, a builder's insurance company paid out the cost of re-roofing an entire townhouse complex. "A total of five shingles were lost because of wind over a six-year period," he said. (The case was settled with a confidentiality agreement.)

Court increasingly not an option
To avoid expensive lawsuits, many builders are stipulating in their contracts that buyers agree to binding arbitration if something goes wrong with the house. In other words, buyers are waiving their right to take their cases in front of a jury.

"This started showing up about five years ago and is the industry standard," said Miller. "I'd say 90 to 95 percent of large builders are putting this into their contracts."

Homeowners can still seek legal action, but through arbitration whereby one person (often a retired judge) will settle the dispute. The problem, say owners, is that homeowners don't always get a fair shake in arbitration.

"In seven years we have looked for homeowners who have won in binding arbitration and have found four homeowners- that's for the entire country," said Janet Ahmad, president of Homeowners for Better Building, another advocacy group.

Meanwhile, more than 20 states have adopted so-called "notice and opportunity to repair" bills, which require buyers to try to settle their gripes with their builders before going to court. A dozen more states are considering similar measures.

Homeowner advocates say homeowners don't need to be required to go to the builder first. That's what they've been doing. "Tens of thousands of people have contacted us because they have attempted, for a year or longer, to get their builders to do proper repairs," said HADD's Seats.

"Do you think anyone buys a house with a lawsuit in mind?" she added. "No. They just want a house they can enjoy."

Sarah Max, CNN/Money senior writer
06/10/2004

Source: http://money.cnn.com/2004/06/09/real_estate/buying_selling/homedefects/index.htm

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