When construction defect claims arise, however, nothing can be considered routine. Any misstep by the Board in pursuing what could be a one-time multimillion dollar claim could result in major financial loses to every homeowner in the association, and potential liability for the Board. Therefore, if a homeowner reports a potential construction defect, the Board should take several important steps promptly.

Time is of the Essence

Statutes of limitations legally bar recovery of damages from the builder for construction defects once a certain time has passed after completion of construction. In some states and with regard to specific building subsystems, this time period can be as little as two years. If the Board were to drag its feet and miss the statute of limitations deadline by a week, you can be certain that the homeowners stuck paying for expensive repairs out of their own pockets will be rightfully looking for someone on the Board to blame.

Defects in Exclusive-Use Areas

If the problem is in the private area maintained by the homeowner, inquire among other homeowners whether they are experiencing similar problems.  If only one homeowner is affected, that owner will need to pursue the builder on his own.

If other owners are reporting similar problems in their units, the number of units affected together with state laws and association regulations will determine if the HOA has a right or a duty to act on their behalf. If the HOA does not have a duty to act, then the homeowners can pursue legal claims against the builder individually or jointly as they see fit.

Under some circumstances, even if the defect is only in exclusive-use areas, if it involves a certain number of homeowners or has some other bearing on the common interests, the HOA might have the right or the duty to act on their behalf. When this is determined, the HOA should act promptly and reasonably.

Defects in Common Areas

When defects occur in the common areas maintained by the association, then it is the HOA’s duty to pursue the builder for appropriate repairs to protect the association members from paying for those repairs themselves or from experiencing a decrease in property value due to the defective condition.

Contacting the Builder

In what effectively amounts to warranty repairs, the common procedure is to notify the builder concerning the condition requiring repair and establish a time when the repair will be made.  This may be appropriate for minor repairs, but if the problems are numerous or major, it may be better to consult with a construction defects attorney with HOA experience first, because:

• The builder may know when the statute of limitations expires and appear cooperative just long enough for your time to run out.
• The builder may make temporary repairs that only appear to solve the problem and then have you sign documents accepting the repairs as satisfactory, effectively shielding him from any further liability.
• The builder may have the opportunity to conceal other, more serious problems before they are discovered.

Inspection to Determine Scope of Defects

For anything other than isolated minor repairs, the Board is advised to have a professional private building inspector investigate the problem to determine its scope, potential causes, appropriate remediation, and an estimate of repair costs. If it’s determined the problem is serious, then the Board will need to find an experienced attorney to be certain the matter is resolved in the best interests of the membership. 

If the problem is obviously serious even without having it looked at by an inspector, the Board may want to skip the inspection step temporarily and discuss the matter first with a qualified attorney.

Involve an Attorney

It’s extremely important for the Board to be certain that the law firm they choose to represent the HOA has extensive experiencing representing HOAs in construction defect matters. There have been cases where less experienced attorneys have made serious mistakes resulting in their clients not receiving all the damages they were due.

Also, many states have adopted strict pre-litigation laws requiring HOAs to take very specifically defined steps in construction defect cases that must all be completed as defined by statute before the builder can be sued in court. Not knowing these requirements or not performing them correctly could jeopardize the HOAs ability to recover from the builder. An experienced law firm will know all the statutes that apply to your case.

Once an experienced law firm is engaged, the attorneys involved will guide the Board in executing all of its legal responsibilities. Almost all firms will work on a contingency basis, and some are even able to offer financing when the association is legally required to make emergency repairs to prevent property damage or injury.

If you need assistance finding an attorney, please contact us using the form on the right.

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Hardboard siding is a manufactured product designed to resemble traditional wood siding used as an exterior finish in residential construction.  Hardboard is composed of compressed wood fiber or wood chips, wax and resin pressed into the shape of boards or panels. Because it is essentially saw dust or wood chips and glue, cheaper formulations of the product are overly susceptible to water-damage.

The original hardboard developed by Masonite Corporation resisted deterioration from moisture about as well as real wood. But the need to reduce costs resulted in new products that were not as resistant to water-induced damage, and many similar competing products emerged in the 1980s.

By the early 1990s, cheap hardboard siding used in homes around the country began showing signs of premature failure. Unless the paint and caulking is perfectly maintained to keep the hardboard protected from the elements at all times, water exposure quickly takes its toll – causing swelling, buckling, blistering and overall deterioration.

The Lawsuits

With many thousands of homeowners experiencing the same type of damage from substandard hardboard siding, eight class action lawsuits were filed against seven different manufacturers during the 1980s and 1990s. Court approved settlements have been reached in every case, with the latest settlement approved in the Weyerhauser case on December 22, 2000.

Boise-Cascade, Celotex, and Champion have been the only prominent manufacturers to escape class action litigation, though potential class action lawsuits against Boise-Cascade have been rumored in Texas and Oregon.

Expired Claims

The settlements between the class action plaintiffs and the manufacturers were not identical in every case, but most of them provided for a 7 to 10 year window for homeowners to file their claims for damages. Of the eight class action settlements, the claim period has ended in five cases:

• Georgia-Pacific (hardboard siding manufactured at the Jarrett, VA and Catawba, NC plants)
• Jefferson Smurfit (Cladwood Siding)
• Louisiana-Pacific (Innerseal Siding)
• Masonite (Hardboard Siding)
• Masonite (Omniwood Siding)

This means if you have defects in the above-mentioned products from these manufacturers, you are no longer eligible to participate in the class action settlement. By the terms of most class action settlements, all future claims are legally barred after the claims period ends.

Warranty Claims

In virtually every case, the manufacturers are still honoring the original warranties on their products even after the class action claims period expires. In many cases, these products were guaranteed for 25 years.  The warranty terms vary so you will need to check with the manufacturer to determine what they offer. 

It is a certainty, however, that compensation received through a warranty claim will be less than what might have been received under the class action settlement.  In same cases, the payout to individual homeowners participating in the class action averaged around $5,000 to repair the damages. Warranties frequently offer little more than replacement of the defective product or a refund of the purchase price, and almost always exclude labor.

Active Claims

In three cases, the settlement period is still open:

• Abitibi-Price
• Stimson Forestex
• Weyerhauser

Homeowners with defective hardboard siding manufactured by Abitibi-Price can file a claim up to 25 years after installation, but no later than May 15, 2025.  For additional information regarding claims, visit http://www.abtcoclaims.com/.

The claim period for Stimson Forestex products ends November 12, 2011, but is available only to residents of Washington, Oregon, California, Idaho, Utah, Colorado, and Hawaii who installed their siding after January 1, 1985.  For additional information regarding claims, visit http://www.forestexclaims.com/.

In the Weyerhauser case, all claims for siding installed between January 1, 1994 and December 31, 1999 are due on or before December 22, 2009. For additional information regarding claims, visit http://www.weyerclaims.com/.

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Builders started using EIFS in residential construction in the 1980s, and wood-rot problems began appearing not long afterward. Individual lawsuits against builders, subcontractors and suppliers proliferated. By the 1990s multiple class action lawsuits were being filed against the manufacturers of the EIFS materials, most of which were settled by the early 2000s.

Two Types of EIFS: The Good and the Bad

The type of EIFS responsible for wood-rot is called barrier EIFS. It is designed to create a waterproof barrier that prevents water from penetrating. The problem is that if water does manage to get in, EIFS also prevents it from escaping.  The trapped moisture then feeds wood-destroying organisms responsible for wood decay.

To solve the problem, the construction industry designed an alternative system that allows moisture behind the surface to drain, preventing the wood-rot problem from occurring. This alternative is called drainage EIFS. The incidence of water intrusion problems in drainage EIFS is dramatically lower than with barrier EIFS.

The Causes of Water Intrusion

Poor Workmanship

In barrier EIFS, the weakness is at windows, doors, and other openings and penetrations. These areas have to be properly sealed to prevent water from entering and getting behind the insulation. The slightest failure in doing this job correctly can lead to water intrusion and entrapment, and subsequent wood-rot.

Although drainage EIFS experiences fewer problems, it is still possible for poor quality workmanship to lead to a water intrusion problem. However, the problem is usually more likely to reveal itself and be repaired before significant wood-rot can occur.

Maintenance

Caulking around windows, doors and other openings deteriorates over time. It must be periodically inspected and maintained. Failure to keep these areas watertight will lead to water intrusion problems.

Alterations

Any alteration to the home that creates a penetration of the exterior wall creates an opportunity for water intrusion. Whether it’s as simple as hanging a hose reel or as complex as adding a deck, these penetrations must be properly sealed to prevent water intrusion.

What Recourse Do You Have?

If you have any type of construction defect, whether related to EIFS or not, you can pursue a claim against the builder for damages if action is started within the statute of limitations. Laws vary from state to state, but claims involving specific systems such as electrical and plumbing may be barred two to four years after the home was constructed.  For structural defects (and all defects in some states), the statute of limitations may be as long as 10 years after construction.  In virtually every state, if your home was built more than 10 years ago, you very likely have no recourse against the builder. But check with a construction defects attorney to be sure.

If you are within the statute of limitations for your state, you can possibly bring action for EIFS-related defects against the builder, the exterior finish subcontractor, and the building supply outlet that furnished the materials.

In recent years, many builders have been trying to limit their liability exposure by hiring independent inspectors to verify that the EIFS is installed correctly. If a private EIFS inspector was involved in your home’s construction, he or she might also be accountable.

As for the manufacturers of EIFS materials, most of these deep-pocket companies have already been sued in class action cases that have been settled. Once a class action is settled, future claims of the same type are typically barred. There have been loopholes, however.  Your attorney can help you decide if you have an avenue to pursue against the manufacturer.

Recovery of Damages

Because barrier EIFS is still effective when it is properly applied, many experts will recommend against completely removing all EIFS from a home’s exterior and resurfacing it with less problem-prone material. Their opinion is that this is expensive and unnecessary.  Where a failure has resulted in underlying damage, that damage should be repaired and the EIFS restored and properly sealed.

Others maintain that because caulk is subject to deterioration, the potential for future problems to recur is too great. They will insist on replacing all the EIFS with traditional stucco, wood siding or another type of exterior cladding.

Depending on how you want to proceed, you may be facing tens of thousands to hundreds of thousands of dollars in repairs.

Insurance Company Liability

Most of the time, contractors or suppliers being sued are counting on their insurance companies to pay any damages awarded. If their insurance company is able to evade financial responsibility, however, a large award could possibly bankrupt a small contractor or supplier. If that’s the case, you could win and lose at the same time.

Insurance companies have several ways to escape liability for EIFS claims. In recent years, many insurance companies stung by EIFS lawsuits against their contractor clients have specifically exempted EIFS liability from their coverage.

Even if EIFS is not specifically exempted, liability policies are uniformly worded such that the cost of repairing the damage caused by EIFS failure is covered, but the cost of repairing or replacing the EIFS is not. 

One little bit of good news arising out of a Texas case, however, is that insurance companies can still be liable for damage even if it is not discovered until after the policy expires.  The Texas Supreme Court ruled that insurance coverage was triggered “when injury happens, not when someone happens upon it.”

Whether this applies to your state or your case requires the advice of a qualified attorney in your area.

If you need assistance finding an attorney, please contact us using the form on the right.

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EIFS Components

EIFS components are applied in several layers.

• The first layer is a foam board applied to the building’s exterior to provide insulation.
• Next, a stucco-like base coat is troweled onto the foam, and a fiberglass mesh fabric is embedded in the base coat to create mechanical strength.
• A thin stucco-like finish coat in a choice of colors is then applied for appearance.

EIFS History

EIFS was introduced in Germany following World War II where it was widely used as an inexpensive system for repairing masonry buildings.

In the late 1960’s EIFS started being used in commercial buildings in the Untied States. In addition to its low-cost, the attraction to EIFS was the ability to apply intricate foam shapes to create ornate exterior trims that resembled carved stone.

By the 1980’s, EIFS began to be used in residential construction. Its use for homes was also driven by its versatility and favorable cost.

EIFS Problems

Not long after EIFS started being used in residential buildings, problems began to surface. Homeowners began discovering major wood-rot issues were occurring behind the foam insulation. EIFS claims became so common that they led to several class action lawsuits being filed in the 1990s.

The cause of the wood-rot problem is two-fold. 

First, because EIFS is a waterproof barrier, it is excellent at keeping water out of a building.  But if any water does happen to get through, EIFS then becomes excellent at keeping the water in. When the trapped moisture is absorbed by the wood framing inside the walls and reaches 20% saturation, wood destroying algae begin to thrive.

Second, windows, doors, and other wall openings or penetrations are the weak points in the waterproof barrier. If not properly sealed, water is able to get behind the foam and become trapped. A single mistake in applying flashing or caulk, or failure to properly maintain the sealant over time can result in water intrusion. Also, making new penetrations (such as in hanging a hose reel) without properly sealing them can also create the problem.

The Solution

Because the fundamental problem with barrier EIFS is that water cannot escape from behind the foam, the industry developed an alternative system that provides the same type of drainage that real stucco uses. The alternative system is referred to as drainage EIFS.

When applying drainage EIFS, the building is first wrapped with a waterproof building paper and the foam is applied so there is a minute space between the foam and building paper for moisture to drain.  This system is a little more expensive than barrier EIFS, but is much easier to install properly, thus reducing the potential for water intrusion problems.

EIFS Today

Barrier EIFS is still popular in commercial construction. The incidence of problems in commercial buildings is lower because the quality of the work is generally much higher.  Barrier EIFS still works and can be problem free when properly applied and maintained.

Barrier EIFS also still exists in residential construction, although its use has diminished significantly because of the bad press it’s gotten. Drainage EIFS is often preferred where a low cost, ornate exterior trim is desired.  Some builders employ hybrid systems using traditional stucco for most of the building and EIFS for trim.

Where barrier EIFS is still used, it’s most often used in conjunction with a qualified inspection service  to insure that it has been installed properly.

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Why Changes Occur in Construction Contracts

The two primary reasons why changes to a construction contract become necessary are:

• Unforeseen conditions arise that were not included in the original contract.
• The owner wants to modify the specifications or add/remove items of work.

Unforeseen Conditions

Although owner-driven changes are more frequent, unforeseen conditions still often arise necessitating a change in plans that affect construction costs and schedule.

• During excavation for a new home’s foundation, soil conditions are discovered that require the foundation to be redesigned.
• During demolition for a remodeling job, termite damage is discovered requiring extra work to repair.

If the contractor did his job correctly in writing the original contract, it will be clear that unforeseen conditions such as these were not included in the original price.  When these types of conditions are discovered, the options are to either fix the problem or cancel the job. In most cases, canceling the job is not practical and so the problem has to be fixed. And fixing it has a price.

Owner-Driven Changes

As the new home or the new addition starts taking shape, owners begin visualizing the finished space more clearly than ever before. They begin paying more attention to details the closer the job gets to being completed. And it almost always happens that the owners will see something that they really want to add or change, or possibly even leave out. 

When these ideas arise, the owners ask the contractor, “Would it be possible to…” They’re hoping, of course, that the contractor says, “Sure. No problem.” More often however, the contractor says, “Sure. Let me see how much it’s going to cost and get back to you.”

Negotiating Change Orders

Many contractors will apply a higher markup to change orders than they did in the original contract. In a lot of cases, this can be justified because of the added cost of delays caused by unforeseen conditions or the extra work involved in negotiating and documenting owner-driven changes.

But a contractor who is already working on the project is in a better negotiating position, and can take advantage of that to obtain better margins on change orders.

In the case of unforeseen conditions, if the proposed extra cost is significant, about all you can do is to get estimates from other professionals as to whether the proposed cost is reasonable. If the contractor seems to be taking advantage of the situation, perhaps your best strategy is to appeal to his sense of fairness.

If you’re driving the need for a change order, however, you have the choice of accepting or rejecting the contractor’s quoted price for the change, or negotiating the specifics of the change to arrive at a mutually acceptable price.

Be aware, however, that the contractor assigns value to the time he has to spend estimating the price for different options you might be considering.  The more times you put him through this kind of fire-drill without accepting any of the changes, the more strain you will be putting on your relationship, and the less likely he will be to give you a decent price on any future change you may really, really want.

Get It in Writing

The truly professional contractor will have a written form to document any changes you’ve agreed to.  This form specifies exactly what is being changed, what the difference in cost is (plus or minus), and when the payment (or credit) is due to be settled. 

In the case of a change in specifications that has no cost associated with it, the contractor will want to document the change as inexpensively as possible. Therefore, he may simply note the change on the plans or blueprints and have you initial it as a record of your agreement.
 

Discuss Change Orders Before the Job Starts

One of the things you should discuss before signing a construction contract is how the contractor handles change orders. A contractor who describes a formal process of written change orders is very likely to be more organized and professional than one who considers change orders an unimportant afterthought.

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• Lump sum
• Unit cost
• Cost plus

In a lump sum contract, the contractor gives a set price for the work described. If the actual cost of the work is not what the contractor expected, the contractor enjoys the savings or pays the overages. The owner is protected from changes in price that are not due to changes in the work.

In a unit cost contract, the contractor specifies the cost for a unit of work. A carpet contractor may quote $22 per square yard for a particular carpet and pad installed. In this case, the contractor is protected from any variations in estimating the size of the job.  If the owner decides to carpet or not carpet the closets, the owner saves or pays the difference at the rate of $22 per square yard.

In a cost plus contract, the contractor keeps accurate records of labor and materials costs on the job, and adds a fee for his time and effort. The fee may be a set amount or it may be a percentage of the actual costs. In this type of contract, the owner pays the costs and the fee.  The contractor takes no risk and has little incentive to keep costs under control. Anyone not experienced in managing cost plus contracts should avoid them.

Estimates, Proposals, and Bids

A contractor may give an estimate for the work being discussed, but an estimate is not binding unless it is in the form of a contract, proposal, or binding bid.

Sometimes price and terms may be presented as a proposal.  A proposal is essentially a contract that the contractor has already signed indicating his willingness to be bound by the terms given.  The owner can choose to sign or not sign the proposed contract. A proposal usually has a time limit for acceptance and expires when the time limit passes. If the owner signs and returns the proposal to the contractor before the time limit is up, then the contract becomes valid.

A contractor will often leave a proposal for the owner to look over at his or her convenience and usually give the owner between 3 and 30 days to decide. If the contractor is not willing to leave the proposal for you to look over and tells you it’s a take-it-or-leave-it deal, don’t sign it. You may be dealing with someone unscrupulous. (See Shady Contractors: Warning Signs to Watch For.)

A bid is an offer of price and terms for the proposed work, and it may be in the form of a proposal or a binding bid.  Whereas a proposal is a contract already signed by the contractor, a binding bid is not the actual contract, but an agreement to enter into a construction contract if the bid price and terms are accepted. 

Description of Work

The most critical part of a construction contract is the description of work. A poorly written, incomplete, or misunderstood description of work is the source of many construction disputes.

The description of work should specify in as much detail as possible what is being furnished as part of the contract and what is not being furnished. It should also specify the quality of the materials being proposed.  If appliances are part of the contract, make and model should be specified.

One way to find out if there are any differences in expectations between you and your contractor is for you to write down everything you think is being included and anything you’re not expecting to be included. If your list doesn’t match what’s in you contractor’s mind, the best time to discuss it is before signing the contract.

Allowances

In many instances, the contractor will give the owner the opportunity after construction has started to select lighting or other fixtures, choose carpeting, or pick out appliances. Since the contractor can’t predict in advance what the owner is going to select and how much it will cost, the contractor includes these items in the contract as allowances.

For example, a contractor might include a $4,000 allowance to carpet all the rooms of a house except the kitchen and bathrooms. If the owner picks a carpet that ends up costing $4,300, then the owner has to pay the extra $300. If the owner picks a carpet that only costs $3,600, then the contractor reduces his contract price by $400.

If your contractor is proposing any allowances, be sure they are adequate. A contractor may intentionally include very low allowances to bring the project into your budget. Or the contractor may not have realized you have really upscale tastes.  If $1,000 is listed as an allowance for stove, dishwasher and microwave, you can probably anticipate having to select lower-end appliances or pay the extra cost for higher-end appliances on top of the contract price.

Payment Terms

The construction contract must clearly specify the payment terms. This usually consists of a down payment to start work, often several progress payments, and then a final payment on completion.

Some states place limits on start-of-work payments to reduce the likelihood of owners falling victim to scam artists who take a large up-front payment and then skip out without performing any work. For example, the limit for a remodeling contract in California is 10% of the contract price or $1,000, whichever is less.

Progress payments should be commensurate with the cost of the work completed. Ideally, the amount of money remaining to be paid should always be enough for you to hire someone else to complete the rest of the job if your contractor becomes unable to.

The final payment is often around 10% of the contract price or an amount roughly equal to the contractor’s profit on the job. Never make this payment until the job is 100% complete, you’re completely satisfied with the work, and you’ve received final building department approval.

The Fine Print

Most boilerplate construction contracts contain a substantial number of detailed terms in the fine print. Most are fair on the surface, although if they lean one way or the other, it will be toward the contractor. In a large percentage of cases, the contract is completed without anyone ever having to make reference to these terms. Nonetheless, they are part of the contract and both you and your contractor are bound by them. “Not reading the fine print” is not a legal defense.

If you have any questions about the meaning of any of these additional clauses, ask your contractor.  If you still have concerns, ask a construction attorney.

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Mechanics liens exist because of the inequality of the relationship between a property owner and a tradesman. If the tradesman makes an improvement to the property and the owner decides not to pay for it, the tradesman can’t repossess the improvement. (As an example, consider a house painter.)

To compensate for this inequality, the law gives contractors and suppliers the right to file a claim against the property and force the sale of the property to pay the claim, if necessary.

Though it’s a simple concept, it can become extremely complicated because each state writes its own rules and regulations governing the creation, filing, and enforcement of mechanics liens. The specific laws vary from state to state, but the considerations are similar.

Preliminary Notice

If you sign a contract with a building contractor to add a room to your home, you’re quite aware the contractor is going to be making an improvement to your property and that you must pay him. If you don’t, he has the right to file a lien.

If your contractor buys the lumber for your room addition from the local lumberyard and charges it to his account, however, you are not aware that the lumberyard is owed for materials used to improve your home.

In theory, if the lumberyard doesn’t get paid, they can file a lien against your home, too. But that’s not fair if you were never aware.  If you were aware, then you could make the contractor prove to you that he paid his lumber bill, or you could withhold part of the payment to him and pay the lumberyard yourself.

Therefore, most states require anyone who is not dealing directly with you and who may have a right to file a lien against your property to give you a preliminary notice.  States typically require they give you notice within a certain time frame after they’ve begun supplying labor or materials (20 days in California, for example). In some cases, they may also be required to furnish you with an estimate of the amount they would be owed.  A subcontractor or material supplier loses his lien rights if he fails to comply with any notice requirements.

When You Receive a Preliminary Notice

You can understand why some people would panic after receiving their first preliminary lien notice. Not understanding what it is, they think someone they’ve never heard of has filed a lien against their home.

Knowing that the notice is simply to inform you that someone is supplying labor or materials for your project, all you need to do is save it with other contract-related papers.  When it comes time to make payment to your contractor, ask your contractor to provide you with signed lien releases from the suppliers who sent you preliminary notices. A lien release is a standard form stating that the supplier gives up his rights to file a lien against your home in connection with specific work or materials provided. Contractors, subcontractors and supply houses are very familiar with signing lien releases in connection with being paid.

If your contractor can’t provide you with signed releases, call the suppliers to find out how much they’re owed and hold back at least that much from your contractor. If necessary, pay the suppliers and get their lien releases yourself.

When a Lien is Threatened

To have a valid mechanics lien, the supplier of labor or materials must comply with any preliminary notice requirements, and record the lien within a specific time frame after completing the work or delivering materials (in California, 90 days).

In almost every case, an unpaid supplier is going to contact you requesting payment before going to the effort of filing a lien.  If the supplier did not comply with any preliminary notice requirements or if the time limit for recording a lien has passed, then they are unable to file a legal mechanics lien. They can record one anyway, however, forcing you to go to court to prove the lien is invalid and to compel them to release it.

When a Lien is Filed

If a valid mechanics lien is filed against your home, the filer often has a limited amount of time to begin a lawsuit for foreclosure (90 days in California). If the time limit passes without foreclosure being started, the lien becomes invalid.

Even an invalid lien can cause you trouble when you want to refinance or sell your property. Most title companies will not give clear title to property having a recorded lien, whether valid or not. To clear the title, the filer must file an additional document called a Release of Lien.

How to Get a Lien Released

You have four ways to get a lien released:

• If the lien is valid, pay the claimant in exchange for releasing the lean.
• If the lien is invalid, threaten to sue the claimant if the invalid lien is not released.
• Actually sue the claimant in court to force them to release the invalid lien.
• If the claimant can’t be found, go to court to obtain a court decree releasing the invalid lien.

Note: This article is for information purposes and is not intended to be legal advice.  Because laws vary from state to state, consult with a local attorney if you need legal help. If you need assistance finding an attorney, please contact us using the form on the right.

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Mediation and arbitration are often referred to as forms of alternative dispute resolution (ADR). Some people may consider the two terms synonymous, but they are not. Each is a very different and distinct way of settling an argument.

Mediation

Mediation is an attempt to get two parties to come to a mutual agreement for resolving their dispute. The process is aided by a trained mediator whose role is to help the parties come to an understanding. A professional mediator is usually paid an hourly fee split by the parties.

The essential element of mediation is that the parties must come to an agreement of their own free will. Although the judge in a court case can sometimes order parties into mediation, a mediator has no power to decree a solution to their disagreement.  Either party in a mediation can decide to withdraw at any time.

Because it is a voluntary process aimed at helping each side recognize their common interests and empathize with the other party’s viewpoint, it is often used when the parties have a relationship they don’t want to see damaged by a protracted fight. This often applies in employment disputes, custody battles, union negotiations, or conflicts between organizations within communities.

When mediation is successful, the parties reach an agreement they feel they can each live with. The signed agreement then becomes a contract enforceable in court.

Should You Use Mediation?

In a dispute over construction defects, both sides have something to gain by choosing mediation.

For the homeowner, the greatest benefit compared to going to court is the reduced expense. For the builder, in addition to it being less expensive, mediation is also a private, confidential matter that can keep the builder’s name out of the news.

Therefore, mediation is a valid means to resolve claims over construction defects. In fact, some construction defect attorneys specialize in mediating construction defect claims. Plus, some professional organizations, such as the National Conflict Resolution Center, have mediators experienced in resolving construction defect matters.

Arbitration

During arbitration, the arbitrator serves in the role of judge. Each side presents its evidence and witnesses and then the arbitrator makes a decision. Arbitration is often referred to as “binding arbitration” to emphasize that whatever an arbitrator decides is final and binding on both parties.  It is sometimes equated to an informal and less expensive court proceeding without any right to appeal.

Should You Use Arbitration?

In general, parties that have a dispute don’t decide to take it to an arbitrator – arbitration is usually required by the terms of a contract they’ve signed.

Because the costs involved in arbitration are much less than a formal court proceeding, a builder’s construction contract often includes an arbitration clause to protect the builder. Though an arbitrator is not bound by many of the courtroom technicalities in determining a just and fair resolution to a dispute, arbitrators are also not able to assess punitive damages or other types of non-economic damages (i.e pain and suffering, emotional distress, etc.) This can significantly lower damage awards in some cases.

If you attempt to sue a builder with whom you’ve signed any papers, you may discover you agreed to arbitration without realizing it. In some states, a contractor can’t just slip an arbitration clause into your agreement’s fine print unnoticed, however. In California, for example, a separate notice must be signed by the buyer specifically stating that an arbitration clause is included and describing the effect that clause has on the buyer’s rights and obligations.

You can, of course, refuse to agree to an arbitration clause. The builder, of course, can refuse to undertake your job. Because of a history of expensive lawsuits – some perhaps due to overzealous construction defect attorneys – even the reputable builder will likely insist on an arbitration clause. His insurer may even require it.

In the end, if you don’t trust your contractor enough to agree to an arbitration clause, you should probably be looking for a different contractor.

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• You’ve discovered a problem in your home that you think may be a construction defect, or
• You’re having trouble getting your contractor to correct a problem in your home, and
• You’re wondering if it’s time to talk to an attorney.

Here’s a checklist to help you determine when you need a construction defects lawyer.

• You’ve notified the contractor about your problem, but the contractor is unwilling or unable to correct it.
• A home inspection professional has verified that your problem is of a type that should be corrected by the builder.
• You’ve submitted your evidence to the contractor and he is still unwilling to cooperate with you in finding a satisfactory solution to your problem, and this is going to result in significant cost to you.

You’ve Notified the Contractor

Before getting an attorney involved, give your contractor a fair opportunity to correct the problem. Any attorney knows you have no case unless you’ve taken this step.

If the problem is a serious one, be sure you’ve taken the steps necessary to prevent injury to people or additional damage to your home. If you end up in court, the court will not cover any damages that you could have foreseen and that you failed to prevent. Regardless of when you get an attorney involved, you must take action to mitigate additional damages. 

For example, if a leaking water pipe in your attic is dripping on the ceiling, you must have the water leak repaired before the ceiling becomes so waterlogged that it falls in. Later you can recover the costs of the pipe repair from the contractor.  If you don’t have the leak fixed, a court would not award you damages for repairing the ceiling that you could have prevented from falling.

If you have repairs made to mitigate damages, be sure to take photos before the repairs or have a professional inspect and report on the problem, and keep any other evidence that might be needed in a court case.

You Verified There Is a Valid Problem

There may be times when someone is not happy with the outcome of a construction project for reasons that are not directly related to construction quality or workmanship. For example, the new wood floors you had installed recently may be buckling not because of substandard work or materials, but because an aging water pipe under the floor has started leaking. This may be what your flooring contractor is telling you, but is it true?

For less than a few hundred dollars, an impartial home inspection professional can tell you whether or not your problem is actually due to defective workmanship or materials. Continuing our example, imagine the home inspector confirms it is indeed moisture from a leaking pipe that is buckling your wood floors. But he also informs you every flooring contractor knows to test the subfloor for moisture before installation. If the home inspector sees signs that the leak was present long before the new wood floor was applied, then the contractor is on the hook for failing to test the subfloor beforehand.

The Contractor’s Intransigence Will Cost You Big Bucks

What if the contractor is offering you something, but just not offering you everything you’re asking for?  For example, in the first few months after moving into your brand new home, you’ve started seeing hairline cracks in the exterior stucco. The one right next to your front door is especially irksome.  The contractor is saying hairline cracks are not unusual, they are entirely cosmetic, and that you can’t even see them when standing ten feet away from the wall.

You hire a home inspector who reports that hairline cracks in stucco are indeed common and cosmetic. However, your home seems to have an excessive number of cracks, which may indicate some deficiency in the stucco mix or not allowing the stucco to dry completely between coats. But it’s not something that can be proven.

The contractor offers to patch the cracks and re-color the stucco around your door and the front ground floor walls of your home for appearance’s sake. But you want him to patch every wall all the way around your two-story house. You check with a stucco subcontractor, and it would cost you several thousand dollars to have the other sides of your house patched and re-colored.  Are you going to hire an attorney?

In this case, there is probably not enough money at stake to make the case worthwhile to an attorney unless you agree to pay his or her hourly rate. Even if an attorney did take this case on a contingency basis, think about this. If the attorney succeeds in getting the contractor to stucco four sides of your house, and the value of that work is $3,000, you owe the attorney’s typical one-third fee – or about $1,000.

On the other hand, let’s say the stucco cracks are not hairline but a quarter inch wide. And they are getting longer. And more are appearing. And cracks are starting to appear in the plaster inside your home. And they begin running across your tile floors.

Not only is your contractor not returning your calls, the home inspector you hired has confirmed your worst fears – the soil beneath your home is moving. He estimates the cost to install pilings in the ground to stop the soil movement is equal to about half the value of your home. Worse, after stabilizing the soil, the cost to repair the damages could be equal to more than half your home’s value.  Your home is essentially worthless.

In this case, all the reasons for hiring an attorney are met.

• You definitely have a verified construction defect.
• After being notified and given the opportunity, the contractor is completely unable or unwilling to satisfactorily correct the defect.
• This is going to result in a significant cost to you.

Now it is definitely time to hire a construction defects attorney.

If you need assistance finding an attorney, please contact us usng the form on the right.

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A more accurate definition of construction defect is:

Any deficiency in the design or construction of a building, or in the materials used in construction, or in locating or preparing the construction site that results in the building not performing in a manner that is reasonably expected by the buyer.

Under this definition, a construction defect is the result of an improper act or failure to act of an architect, engineer, developer, contractor, subcontractor, material supplier or manufacturer or other party involved in furnishing the labor and materials for constructing your home.

How to Determine if a Defect Exists

Questions that are often asked when determining if a condition in the home is a construction defect are:

• Were any building codes violated?
• Were there any deviations from the plans and specifications?
• Was the design and engineering done properly and to industry standards?
• Was the construction performed in a reasonable and workmanlike manner according to the prevailing standards in the construction industry?
• Does the condition cause the home to not meet the buyer’s reasonable expectations?

Except for violating building codes or deviating from plans and specs, many of the issues involved in determining if a construction defect exists are not black and white.  Terms such as “reasonable expectations,” “reasonable and workmanlike manner,” and “prevailing standards” are all subject to interpretation. This may in large part explain why so many construction defect claims end up being decided by a judge or arbitrator.

Patent and Latent Defects

A patent defect is one that is or should be immediately obvious. A broken window or a ceiling light not working are examples.

A latent defect is one that is not immediately apparent.  Latent defects are often revealed after some type of problem begins appearing in the home.  When water stains, toxic mold, or cracks in walls, floors or ceilings are discovered, they usually lead to identifying previously hidden leaks, or problems in the building structure, foundation, or soil.

Minor Defects

Some defects can be minor and/or cosmetic. Peeling paint on wood trim that was not cleaned before being painted obviously does not meet prevailing standards in the construction industry and does not meet the reasonable expectations of the buyer. It is also easy and inexpensive to correct.

Most reputable builders readily take care of these kinds of minor problems without much argument. Sometimes, though, they may take a while getting around to your minor problem because their warranty staff may be giving priority to other customers with more serious issues.  In such a case, you just have to keep being the squeaky wheel.

Major Defects

Major defects can render your home practically worthless. A serious problem in the foundation or soil could cost nearly as much to correct as your home is worth. If you encounter such a problem, you’ll most likely find that even reputable builders are going to have a difficult time stepping up to the plate because of the expense involved.

Depending on the specific defect, the builder may be able to rely on insurance to cover your damages. But as you can imagine, no one is going to be rushing to write you a six-figure check.  You’re probably going to have to hire a lawyer to be sure you’re treated fairly.

If you need assistance finding a lawyer, please contact us using the form on the right.

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