Thursday, January 30, 2003
Copyright © Las Vegas Mercury

Cover story: Broken homes

Legislature will host heated debate over construction defect law

By Larry Wills

While the state budget crisis will occupy much of the Nevada Legislature's time when it convenes on Monday, the long-running battle over construction defects is likely to get plenty of attention.

That's nothing new. It's been a major topic in the last four legislative sessions.

Round five could get even hotter than before, if that's possible. The 2001 Legislature was bombarded with uproarious hearings, with contractors complaining about nitpicking attorneys who, in turn, pointed to shoddy workmanship, while homeowners were mad as hell when their houses weren't fixed.

It all promises endless pleadings and pressure on lawmakers this session--in the halls, over lunches, in parking lots--while senators and assemblymen have other details to attend to, such as heading off a state budget crisis.

Attorney Robert Maddox sees a knockdown, drag-out fight coming. "Every time we get into it with the builders, it becomes a major battle," he says.

This time, both sides appear to be better organized. Developers, trade representatives and contractors have formed the Coalition for Fairness in Construction to present a united front to lawmakers. Tom Bradley of Brown and Partners, a public relations firm and a coalition representative, says the industry wasn't effective in the last session because it wasn't organized.

"It was fairly fragmented," he says. "Now trade groups, contractors and so on can give the industry one voice."

On the other side, in addition to the formidable attorney lobby, a new group called Safe Homes Nevada has emerged. Bradley has dubbed the group "a trial lawyer shell organization."

But Dan Geary, spokesman for the group, says the membership consists of about 300 irate homeowners. "These are key people in homeowners' associations," he says. Members of Safe Homes Nevada held a protest Monday in front of the state building on East Sahara Avenue to vent their frustration.

Frank La Conte, president of the LaPosada Condominium Homeowners Association, says he joined Safe Homes Nevada to give the little guy more clout. "There's a need for a voice for homeowners," he says. "The developers are well protected. The homeowners are at the tail end of the pipe." La Conte expects the group to lobby for better protections for consumers this session.

Builders have devised a new strategy for Carson City. Echoing the medical malpractice insurance crisis of last year, the building industry is contending that construction defect lawsuits are pushing its insurance costs to unaffordable levels, up 1,000 percent in two years. Contractors also contend the avalanche of litigation is escalating housing costs.

There are 86 construction defect cases ongoing in Clark County, and they are complex, often tedious battles that have overwhelmed the District Court. In November, a special 3,000-square-foot courtroom was constructed just to handle the crush of attorneys, homeowners, contractors, subcontractors and insurance representatives involved in defect cases.

One suit alone has been at trial for months. Two hundred homeowners at the Village at Craig Ranch are suing Beazer Homes for cracks that occurred when the houses reportedly shifted on their foundations. The parade of witnesses includes Dale Daffern, a North Las Vegas engineer, who blames the problem on swelling clays in the soil. He calls that condition unique and says there is no comparable soils problem in the adjoining area. The suit has tied up a courtroom since October and is expected to wrap up next month.

Del Webb, the nationally known builder of retirement communities, has been involved in litigation over leaky pipes at Sun City Summerlin for 2 1/2 years. The scale of that suit originally entailed 6,500 homes, but that number has been cut by half. There's no trial date in sight.

The sheer volume of lawsuits is creating a shrill debate. Builders want the right to be notified of defects and to fix the problems before they can be sued. They also want a neutral mediator to resolve all differences and a mechanism to avoid litigation. But in the last legislative session, builders also sought to relax building codes to what they called reasonable levels.

That rankles attorneys and many homeowners who believe their right to redress would be severely curtailed.

La Conte recalls his 338-unit complex experienced problems with leaking ceilings and walls in 1995, when the association notified the developer that the roofs were defective.

"They had the opportunity to repair it, but it was just a Band-Aid," he says. When he complained, the builder took the repair crew off the property. "I had mold in my closet and water poured along the ceiling and through my smoke detector," he says.

Holding a 1,000-page folder of letters and court documents, La Conte says three years later, the homeowners were forced to file suit. That litigation was recently settled in favor of the association and roof repairs are finally under way. Repairs to one of the condominiums alone cost $40,000, about half what the owner originally paid for it.

"We want to make sure homeowners have a voice," says Nancy Quon, a construction defect attorney. She criticized a recent insurance panel's study as a sellout to the industry.

"The task force made a recommendation to the governor and the Legislature asking, let's take away every right a homeowner has," she says.

She accuses the task force of protecting the insurance industry at the expense of the homeowner.

"Why does an insurance company continue to insure a contractor who continues to violate the build code?" she asks. "They're penalizing other contractors who are doing things right.

"What scares me is how much control are we going to allow insurance companies to have in all aspects of our life? They're trying to force us to have lower-quality homes. The insurance task force wants to protect insurance companies, give immunity to builders and write policies and get premiums when they can't get sued."

Quon and other attorneys support Chapter 40, a statute passed in 1995, which requires homeowners to notify builders of defects and provides an opportunity to repair. But the law does not apply to class-action lawsuits. Also, builders claim insurance companies refused to honor pre-lawsuit notices for requiring repairs. Chapter 40 was supported by the industry eight years ago as a way to ensure subcontractors could be held responsible. Now, amid a flurry of lawsuits, builders want the law repealed.

"Chapter 40 was touted as a compromise," Geary recalls. He says homeowners and attorneys would not be opposed to ending the exemption on notifying builders in class-action cases.

Steve Hill, chairman of the Coalition for Fairness in Construction, says that's an issue both sides can agree upon. "I think it's a good thing to do. But it's not a silver bullet. But they don't want to give home builders or subcontractors the opportunity to fix every problem for every homeowner."

But Geary insists the rest of Chapter 40 protects the homeowners. "It's a shame to watch the hyperbole," he says. "There's nothing in Chapter 40 that prevents repairs. It requires repairs."

Attorney Maddox sees the construction defect problem afflicting subcontractors and smaller building companies. He says larger firms seem to be more sensitive to quality construction.

Geary agrees. "KB Homes is very proud of its total quality management program," he notes.

Del Webb also appears to be keenly aware of its reputation as a quality builder of retirement communities, and quickly offered to repair any water line leaks at Sun City Summerlin.

"Developers are starting to take seriously what happens when they get into litigation," Quon says. "If they change the law, there'll be no pressure to get it right. I would be supportive of any type of proactive legislation to force builders to build better projects."

Attorneys and homeowners want to go a step further. They're pushing for professional standards in the building industry to increase the overall quality of construction. "Minimum professional standards would go farther than any other thing to reduce the number of construction defect lawsuits," Geary says. "If homes were built to code, defect lawsuits would be zero. These codes are minimum for safety. It's a crime to build below minimum code."

And Quon says some of the defects are the result of deliberate negligence. "One contractor hired three different soils engineers until they found an engineer with a report they could live with," she says. "And a limited liability corporation can dissolve. If you don't make a claim in two years, there's no one to make a claim against."

She accuses the industry of deliberately hiring less-than-qualified tradesmen, which speaks to the need for professional training. "I did a trial last year when I asked a developer's expert what kind of wages he paid. He said, `I would never use union labor.'"

But Hill insists professional training is a relatively minor problem. "A lack of education hasn't got very much to do with this issue," he says.

He considers litigation and insurance costs the overriding headaches. "There some bad apples out there," he says. "But the major problem is the law in the state of Nevada that requires cases start with lawsuits. If a subcontractor is doing condominium construction, they are going to get sued over and over and over."

The result, he says, is that insurance rates are driving small subcontractors out of business. "The insurance industry is making less money and has less money to write insurance policies. They want to write insurance in the best markets. Nevada has a terrible insurance market. A tremendous amount of people will have to go out of business" if the law isn't changed.

Already, Hill has noticed a drop in customers at his company, Silver State Materials. "We've had six or eight customers go out of business in the past three or four months."

And he warns that, without reform, a decline in the construction industry would be felt statewide. "It's huge. We are 10 percent of the work force with a huge chunk of sales tax."

Builders are pointing to California legislation that took effect this month as a better way to go. SB800 is a complex law that narrowly defines what is a defect and what is not. The 21-page law deals with water leaks, structural defects and minimum standards for heating and cooling. It offers builders the right to repair before a lawsuit is filed and homeowners won't have to wait for the outcome of litigation to have their homes fixed. A similar law is being considered in Colorado, while Arizona has passed legislation similar to Nevada's Chapter 40.

The California law defines defects and liability standards for defects. It also establishes statutes of limitations of up to 10 years for defects, similar to Nevada. But some defects have a shorter time period. One-year warranties are mandated. Before lawsuits can be filed, mediation is required. It also protects contractors from liability if homeowners fail to maintain the property.

But that approach also has come under criticism. "We don't like the way they're trying to define defects," Maddox says. If a defect fails to meet the standards in the statute, he says the homeowner is essentially stuck with it.

Sandy Skipper-Lopez, national director of Homeowners Against Defective Dwellings, calls the law discriminatory against the poor. A resident of Madera, Calif., Skipper-Lopez lobbied against the bill, which she says was pushed by the insurance companies.

"I think it's very elitist. It keeps a lot of low-income people from pursuing litigation. They can't choose their own arbitrator and they're not going to have money for mediation. And they're not going to have money to hire inspectors."

The California law was lobbied for by insurance companies and builders, who claimed defect litigation has increased the average cost of a home by $20,000.

But Skipper-Lopez says the law benefits builders and insurance companies and fails to protect homeowners. "Nobody buys a home looking for a lawsuit. We are not builders or attorneys. We need enforcement of existing laws. The insurance companies should be going after the builders, not the homeowners. The only legislation that is going to work is based on accountability and enforcement."

Skipper-Lopez's organization receives up to 15 calls a day from irate homeowners around the nation, and she sees the problem as epidemic. "This is a real crisis. We have uninsurable homes. I have sympathy for the subcontractors. When are they going to wake up and join us?"

Nancy Seats, HADD's national president, says more consumer protection is critical. "In states like Nevada, California, Colorado, Arizona, our licensing is too often mistaken for a stamp of approval. In California, the contractors' board, thanks to HADD, now discloses that a good-standing license with the board does not reflect any past and or pending civil and or criminal litigation.

"Next we would require in this homebuyer/owner protection legislation stiffer penalties to those who blatantly and continually violate `existing' building laws, risking the safety of families. We recommend this now and builders simply won't allow homeowners to bring in private inspectors. "

She also supports mandated home buyer education forms, telling how to investigate a builder's record, the importance of hiring a real estate agent and having private inspectors.

Seats and Skipper-Lopez say construction defects are occurring nationwide and have plagued the industry for generations. They point to a 1979 speech in Las Vegas by then-Federal Trade Commission Chairman Elizabeth Dole, who urged home builders to police their industry and combat the perception that construction quality was declining.

"A consumer revolt is brewing," Dole told the group, "and unless all builders zero in on the problems and pull out all the stops to cure them, consumers are going to rise up in wrath and deliver a mighty blow to your industry. "

This year's battle in Carson City will pit consumers' concerns against keeping the construction industry healthy.

"They can either change the way they do business," Geary says of the home builders, "or maintain their total commitment to politics. They can tap dance all they want about tweaking the rules."

But Hill contends the fight is far from over. "We do have a strong organization and have made our message heard. We have bipartisan support. We're seeking better ways to do this."

As for common ground, don't count on it.

"We've been working on that," Hill says. "I think we'll find a solution in there somewhere."

Maddox is less sanguine: "It would be difficult."