Frequently Asked Questions on Handling Construction Defects

Frequently Asked Questions on Handling Construction Defects

May 1st, 2010

Author:  Ryan Harris
There is no such thing as a perfectly constructed home. In fact, sometimes the developer and builder (i.e., contractor) responsible for ensuring construction quality fail to meet even the minimum standards for construction, such that the resulting building is not worthy of the title “home.” Problems with construction quality have become especially common in the last few years, when, during the construction boom, demand for new homes was high. Because the demand for qualified construction workers outstripped the supply, many inexperienced workers undertook construction work for which they were not qualified. Frequently, these inexperienced laborers failed to complete their work in compliance with industry standards and the building codes, resulting in defective construction and considerable damage to the buildings.

While the developer and builder are ultimately responsible for ensuring quality construction, frequently they will refuse the association’s request to make the necessary construction repairs. When these parties fail to take responsibility for their mistakes, the association’s sole recourse may be a construction defect claim. The lawyers at Vial Fotheringham spend a considerable amount of their time and have incredible experience helping association clients [and also a number of non-association clients] pursue construction defect claims against the contractors and developers.

Pursuing a construction defect claim is a daunting task. Clients that have filed or are contemplating filing a construction defect claim inevitably have questions. Below, I try to answer some of the most frequently asked questions.

1. How do I know if my Association Suffers from Construction Defects?

Frequently, when a builder has constructed something defectively, the builder has made that same mistake throughout the association. A pattern of problems may indicate that the builder has built your buildings negligently.

While no two projects are the same, a sizable number of the construction defects claims our firm files are for defect and damage resulting from water intrusion. For this reason, we recommend that, shortly after turnover, associations have a building envelope inspector evaluate the condition of the building's envelope.

Even without a consultant, you may have seen some signs of the water intrusion. Do your buildings have a lot of nail pops (nails that once were flush, now sticking out from the buildings)? Do they have metal flashings above door and window trims? Do your windows leak? Do you have discoloration or staining on the inside or outside of your buildings? Are your decks sloped away from the building? Does water pool on your decks? These are just some of the warning signs of defective construction.

2. Is the Association or the Homeowner Responsible for Pursuing Construction Defect Claims?

The association is the party responsible for pursuing a construction defect claim when the association is responsible for the maintenance of the defective building component. For example, if your association is responsible for maintaining and replacing the roof, and your building’s roof leaks because of defective construction, then the association is the party with standing to bring a construction defect claim.

Sometimes board member and homeowners are confused when the individual homeowners own the exterior of the buildings. The fact that the individuals own the building exteriors is, under Oregon law, irrelevant to whether or not the association is the party with standing to bring the claim. The sole question is whether the association is the entity responsible for fixing the construction defects.

When the association is not responsible for maintaining and repairing the buildings, then the association cannot pursue a construction defect claim in its own name, and the claim falls to the individual owners. Or course, that does not mean that the association has no play a role in potential litigation. The association can still play a valuable organizational role.

3. How Long do Construction Defect Cases Take to Resolve?

It’s impossible to know exactly how long a construction defect lawsuit will take. Generally, courts in the Portland Metro area will schedule trial for about a year to a year and a half out from the time the lawsuit has been filed. That date, however, is subject to change by the court. Furthermore, if the association has to appeal a decision, an appeal can add an additional year to the process. While one to two years is a good estimate, some cases may take as long as three or four.

4. How Expensive is it to Prosecute a Construction Defect Claim?

Again, the answer to this question is: it depends. Vial Fotheringham handles construction defect cases on an hourly basis, and also on a contingency fee basis. The fees will change depending on how large and how complicated the case is. Associations that are concerned about up-front cost can usually elect to pursue the case under a contingency fee arrangement.

5. Will my Association Recover Enough Money to Repair all of the Defects?

Depends. Some associations recover enough to fix all their defects, while others have to pick the most serious problem and fix only those; those associations can also levy a special assessment to supplement their recovery to have enough funds to fix all defects.

Frequently, board members conclude that they would rather not pursue a construction defect claim if the association cannot recover the full amount needed to fix the defects, because they do not want to have to levy a special assessment to cover any shortfall. This is the wrong way to think about the problem.

Instead, a board member should start with this truth: the association is responsible for fixing construction defects. How the board chooses to fund the necessary repairs is up to the board in its business judgment. A construction defect lawsuit is simply one way to fund necessary repairs and its recovery may reduce any future special assessment.

6. Our Board is Busy with Other Issues. Can We Wait a Few Years Before Pursuing our Construction Defect Claim?

You should not wait to pursue a claim. On the one hand, the law provides some protection for associations that suffer form latent defects, and, on the other hand, once the board is aware of a defects, it needs to act quickly.

Most relevant statutes of limitations do not begin until the association “knew or should have known” of the defects. However, once the association (through its director) knows [or should know of defects], the statute of limitations begins to run. Different claims have different statutes of limitations. The shortest relevant statutes are one year. While it seems like a long time, it really is not. Associations need to act quickly to ensure their rights are protected, because once the statute has run, the claim will be time-barred.

7. The Developer and/or Builder (Construction Company) Who Constructed my Association’s Building is/are Bankrupt or no Longer in Business. Is There any Point to Pursing a Construction Defect Case Against Those Entities?

Yes. Usually it is the developer’s or builder’s insurance carrier who will defend and pay the settlement in a construction defect case. Thus, just because your builder or developer is out of business, it does not mean you do not have a viable construction defect claim.

8. Should I Pursue a Remedy Through the Construction Contractors Board Before Getting a Lawyer Involved?

The construction contractors board (or CCB) may be a helpful resource, and the association may be able to resolve some smaller, simpler construction defect disputes through the board. However, if the case is of any substantial size, the best course of action is to file a lawsuit. A lawyer can help the board decide which path is the right one for an association’s particular claim. The association needs to make a conscientious choice about which path to take at the outset of the case, because, typically when a case is resolved through the CCB, the association must release the contractor from any and all other claims it has or will have in the future. In other words, choosing the CCB route will likely preclude the association from filing a lawsuit if they are unhappy with the result.

9. My Developer and/or Builder has Offered to Fix the Defects if our Board Signs a Waiver. What Should We Do?

Sometimes developers and builders do step up and try to fix their construction defects. If this is a viable option in your case, then you can save some time and money by pursuing it. However, the board should make sure that it knows the extent of the construction defects, so that the proposed work will, in fact, remedy what is ailing the association’s buildings. The association should also have an experienced construction defect lawyer carefully review any settlement or release agreement. An ounce of prevention in the drafting of the agreement may well be worth a pound of cure in subsequent years.