State legislators want to prevent multi-million dollar HOA, condo construction defect verdicts

By Deborah Goonan, Independent American Communities


I love it when I get the opportunity to present two different HOA reports side by side. It illustrates the level of controversy in the industry, and provides the reader with perspective.

One hot issue is how to deal with shoddy construction of homes, particularly in condominium and townhouse communities with mandatory owners associations.

Construction defects pose serious problems for any HOA or condo community where members share financial responsibility and liability for shared walls, roofs, driveways, private roads and parking areas. Other common areas for defects include plumbing, fire sprinkler systems, leaky windows and doors, balconies, exterior stairways and catwalks, and elevators.

Multifamily construction, in general, requires proper engineering and design, and careful attention during construction.

When defects arise in common areas and infrastructure, it becomes the responsibility and liability of the association to seek restitution for damages from the developer, home builder contractors, and sometimes even the design professionals (such as architects and engineers).

Failure of the association to address construction defects within the statute of limitations condemns members of the association to a future of special assessments and often high interest loans to fund necessary repairs.

And those repairs can be substantial, as is illustrated by a recent verdict in South Carolina.


Mount Pleasant townhomes win $7.2M verdict over ‘faulty construction’

By Warren L. Wise Feb 2, 2017 Updated Feb 3, 2017
A Mount Pleasant townhome community won a $7.2 million verdict this week against an Atlanta-based home builder for what it claimed was inferior craftsmanship.

Waverly Townhomes
The 105-unit Waverly at Hamlin Plantation Townhome community in Mount Pleasant won a $7.2 million verdict this week in a lawsuit over poor construction.

A Charleston County jury announced the award this week for the 105-unit Waverly at Hamlin Plantation Townhome Association after a six-day trial over “faulty construction.”

Read more:


About Hamilton Plantation:


It is fairly likely that Weiland Homes, now owned by Pulte, will appeal the amount of the verdict. But without a six-day jury trial, it is highly unlikely that the home builder would have offered a fair settlement, leaving homeowners on the hook for millions of dollars in reconstruction costs.


Pushback against homeowner rights

Of course, developers and home builders are not in favor of giving homeowners – either as individuals or as members of an association – the right to a jury trial in construction defect cases. They know such litigation often results in large financial verdicts for the Plaintiffs.

Developers and their contractors do carry insurance policies to cover those losses. But, as with any insurance policy, the more claims you make, the higher your premiums. And, at some point, it becomes difficult to impossible to obtain any insurance policy at all.

Across the country in Colorado, where there was an epidemic of shoddy construction during the housing boom, Legislators moved to enact consumer friendly laws that would allow homeowners and mandatory associations to sue developers, home builders, and their contractors. The law was later amended to prevent Plaintiffs from initiating frivolous lawsuits.

However, City Mayors blame the lack of condo construction on the high cost of construction insurance on what they claim are the state’s lax construction defect laws. City leaders insist that drives up the cost of construction for condos and has caused developers to build apartments instead of condominiums.

Of course, there is no evidence to back up their claim, because condominium construction is down all over the country, for a number of reasons associated with waning market demand and a lack of federal financing for both construction and unit owner mortgages.

But for the past three years, Mayors and builder industry lobbyists have been pushing hard for construction defect “reform,” as recently discussed on Aspen Public Radio.


What’s in the bill?

The latest bill 17-SB 156, remains essentially the same as the bill defeated last year. It would require all construction defect disputes to be handled by Mediation or Arbitration, removing the right of homeowners and HOAs to file a lawsuit and demand a jury trial.

Furthermore, the bill would require a vote of unit owners to approve moving forward with any construction defect claim. On the surface, that may sound like a benign policy aimed at transparency. But, in reality, it is an anti-consumer friendly.

Remember that, in a condominium (or homeowners) association, votes are tied to property, not to the people who own property or reside in the community. What that means is that, if the developer, affiliates of the developer, or an outside group of investors owns a substantial number of condo units, they can control the vote and block any attempt at recovering loss and damage from the developer. At some point, it becomes mathematically impossible for the “real” owners to assert or defend their rights.


Proponents of SB 156 insist that such “reform” is necessary in order to provide “affordable” housing in Colorado’s cities.

But how can they call a condo at risk for shoddy construction, with no recourse for owners, “affordable?” Perhaps the initial purchase price and assessments will be affordable, but what happens in 5 or 10 years when maintenance and repair costs skyrocket due to substandard construction and design?

The entire thought process is skewed in favor of a real estate industry where a handful of mega homebuilding corporations are swallowing up small and medium sized regional tract home builders.

Perhaps a change in perspective is in order?

Why not concentrate public policy on demanding better quality construction of multifamily housing? Shouldn’t we be building housing that will stand the test of time, rather than cheap construction that begins to self destruct in less than a decade?

Have City Mayors in Colorado (and other states considering similar construction defect legislation) stopped to consider the long-term cost of poor construction to individual homeowners and to taxpayers in general?

And why aren’t local governments taking a hard look at their zoning requirements and unnecessary regulations that drive up the cost of land and new home construction?

For example, why not make it affordable to build and own modestly sized detached homes on private lots? That means, don’t require large lot sizes that can only be used for upscale estate homes.

Or why not encourage developers to build townhouses with separate fee simple ownership — just like row homes and townhouses used to be built for centuries prior to the 1990s.

Stop requiring a certain number of trees per lot. Stop requiring open spaces that no one can use, and that serve no legitimate purpose. And stop mandating (or de facto mandating) common interest development, which only increases the cost of homeownership, by double taxing homeowners and creating all sorts of liabilities for maintaining common assets.

Now that’s the kind of reform that’s really needed.


2 thoughts on “State legislators want to prevent multi-million dollar HOA, condo construction defect verdicts

  1. H.B. 157 in Utah is being pushed by developers and has similar verbiage. By the rules it puts in place that must be met prior to a suit being filed it effectively makes it impossible for HOA’s to file suit. My understanding is that 8 states currently have this legislation in process.

  2. Norman McCullough February 10, 2017 — 12:08 pm

    This “State by State ” madness will continue as long as The Federal Government refuses to protect home and property owners from abuses by developers and thier own HOA Board of Directors who are “Sympathetic” with the Developers.

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