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Wednesday, Mar 27, 2024
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Construction Defect Suits Threaten State’s Prosperity

California’s new home market is thriving, driving the economy, creating millions of jobs and billions of dollars in tax revenue. But it isn’t all good news.

There is a lurking villain that is threatening homeowners, home buyers, contractors and builders alike: the construction defect lawsuit.

Even as technology, the quality of new housing and workmanship continue to improve, California has seen an increasing number of construction defect lawsuits in the past decade. A growing practice of bringing construction defect lawsuits against contractors and homebuilders under the guise of “consumer protection,” even when defects may not exist, has emerged. These lawsuits cost homeowners’ time, money and the value of their homes.

Indeed, the lawsuits have gotten so out of control that California has earned the dubious distinction of being home to less than 10 percent of new houses but the majority of all construction defect lawsuits.

The impact of construction defect lawsuits on homeowners is substantial. Settlement payments rarely cover the cost of needed repairs, much less the time and stress of litigation. In the end, they are stuck with a long list of “defects,” which they are required by law to disclose to potential buyers and to their homeowner’s insurance company. Lawyers rarely tell homeowners that these lawsuits leave their homes “marked” , meaning they may be unable to sell or their homes will be severely devalued and are often subject to higher homeowners’ insurance costs.

Not surprisingly, a handful of plaintiffs’ lawyers have crafted aggressive marketing strategies and scare tactics to woo homeowners into joining their suits. They use the allure of big settlement dollars and the false threat that homeowners will have no other recourse other than a lawsuit to have their problem solved.

In fact, the majority of all construction defect lawsuits are filed before the homeowner has contacted the builder about repairs. Lawsuits should be the last resort, not the first.

But, homeowners are not the only victims of these lawsuits. Construction defect litigation has driven contractors’ insurance premiums to unbelievable levels. A policy costing more than a million dollars for $1 million of coverage is not uncommon.

The result? Countless contractors , many of them small, independent businessmen , are being pushed out of business because they simply can’t afford to pay these outrageous insurance premiums.

Other victims include the contractor’s employees and their families, whose wages and health insurance are cut to pay for growing insurance costs. Many more young families are unable to buy a home because the high cost of insurance, passed on to the consumer, has wiped out affordable housing and condominium construction in California.

So where does all the money go? At the end of a lawsuit, homeowners are stuck with the responsibility of fixing a long list of alleged defects, but rarely receive enough money to make the repairs.

Instead, insurance rates are being driven up by the costly process of litigating these lawsuits. One lawsuit may involve 20 to 40 subcontractors, each with their own defense costs. A lawsuit that cites an electrical problem will inevitably name the plumber, mason and framer in its case as well. And, when the case is finally resolved, the plaintiffs’ lawyer and “expert” witnesses can walk away with more than half the settlement.

Just as people with real construction defects deserve to have problems fixed in a timely manner, building professionals deserve the opportunity to repair any defects before a lawsuit lands in their lap. When problems are fixed before litigation, everyone wins. It is vital that home buyers, homeowners and real estate professionals understand the impacts of these construction defect lawsuits, alternatives to litigation and how to open the lines of communication with building professionals. We must focus on fixing construction problems, rather than filing more lawsuits.


Kevin D. Bland is president of the Consumer Housing Alliance, a California nonprofit organization that has been established to educate the public about the impacts of construction defect lawsuits.

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