Win the lottery: Sue your home builder

Guest perspective: Get facts straight on construction-defect lawsuits

Monday, June 20, 2005

By Dan Auld
Everyone knows a "get rich quick" Joe. My "quick Joe" got into gold at $800 an ounce. Then Joe bought into the dot-com craze in 1992, three weeks before it popped.

One smart thing Joe did was buy a house in 1995 – though truth be told, his wife forced him to do it. Joe thought renting was better.

I wrote the loan for their new condo in Orange County for $190,000.

Today, it is worth more than $700,000.

You'd think Joe would be happy with his house. He's not.

Joe recently told me about his latest sure thing: He wants to sue his home builder for construction defects. The same builder who almost made him a millionaire. The same home that until just a few months ago, Joe thought was perfect.

I asked Joe what was wrong with his condo. "Mine?" he said. "Nothing. Well, at least nothing I can see. The lawyers tell us a lot of it is hidden behind the walls."

"So how do you know it is defective?" I asked.

"The lawyers say it is," Joe said.

He was sure his neighbors' condos had defects, though in almost 10 years, he had never seen one.

I asked: "I thought you liked your home?"

"I do, I mean I did," Joe said. "But the lawyers say the lawsuit is a sure thing, and besides, the home builder is not really paying, the insurance company will."

Joe believes he just won the lottery. Not so fast, Joe.

"Did the lawyers tell you that builders now videotape every stage of the building process to document the quality of their construction just for an event like this?"

Joe didn't know that. Neither did Joe know that judges and juries today are much quicker to blame construction problems on defective maintenance rather than construction. And whatever settlement the HOA gets – if any – the lawyers and experts would take as much as half before the first defect is fixed. If it is ever fixed.

Joe was right about one thing: For a long time, lawyers took advantage of a legal loophole that pretty much guaranteed that every multifamily housing project in California would get sued. That's why insurance companies stopped insuring them, and builders stopped building them.
But that law changed two years ago, and construction defect suits almost disappeared as a result. So did the easy money.

I asked Joe whether his lawyers told him how difficult it is to sell or refinance his home while it is subject to a lawsuit, which can take as long as 10 years.

"No," he said, "but I'm not moving anyway."

"Did they tell you that once they list all these defects – many of which are exaggerated to pressure the insurance company to make a quick cash settlement – you have to disclose them when you sell your home? And, that listing these defects – even if they don't really exist – can drive down the price of your house and make it harder to sell?"
Joe hesitated. I then asked Joe about the four words guaranteed to make even the toughest construction defect attorney shiver with anxiety.

"Well how about Casey versus Overhead Door?" I asked. "That is the lawsuit where the people who sued the builder were hit with attorney's fees after a judge found their case was frivolous. I suppose he told you that you could be liable for the builder's legal fees."

Joe was silent. Finally he said, "Well, I'm not a lawyer."

Joe's wife did not know about the lawsuit. And besides, he said, we didn't have to sign anything. The board of directors of his HOA has a new president, and he wants to do it. So all he had to do was convince a few members of the board, and that was it. Most of his neighbors did not even know they were in a lawsuit.

We said goodbye, and I wished him luck. Knowing he would need it when his wife and neighbors found out about this bogus lawsuit.

Give Joe credit for this: He finally found the secret to using construction-defect lawsuits to make a small fortune. And here it is: Start with a large fortune.

Dan Auld has been writing loans in San Diego and Orange County, Calif., for 25 years. He is a former San Diego Chamber of Commerce Businessman of the year.
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