December 12, 2016
Construction Defect Warranty Claims
Construction defect warranty claims are a frequent source of conflict between contractors and new home buyers. Builders feel pressure to get the purchasers through closing so they can pay their employees, subcontractors and suppliers. For the past few years there has been a severe shortage of experienced tradespeople and supervisors. This makes the contractor’s quality control efforts more challenging. Inexperienced buyers can get frustrated with delays. They may wonder what would happen if they try to back out of the deal. When consumer complaints about construction defects are not resolved amicably, the parties often find themselves pursuing or defending lawsuits or arbitration proceedings.
New home buyers feel pressure from the contractor and the circumstances of their lives to go to closing. Later, they may discover decreased responsiveness to their customer service inquiries to the builder. What should parties do to prevent construction defect litigation from becoming necessary? How are these cases won and lost? I took up these issues in an October 14, 2015 blog post entitled, “Common Misconceptions about Home Builder Warranties” On November 21, 2016, the Circuit Court of Norfolk, Virginia decided a case that provides some valuable insights for contractors and purchasers.
In April, 2007, Benjamin Bessant and Dorothy Horne contracted with Dey Street Properties, LLC for the construction of a new home in Norfolk, Virginia. The buyers got the standard new home warranty pursuant to Va. Code § 55-70.1. Dey Street impliedly warranted that the home was constructed in a workmanlike manner and free from structural defects for one year from settlement or possession. The implied new home warranty includes a strict requirement that the buyer give the seller written notice of the alleged defects. This notice must be properly submitted to the seller within the one-year warranty period.
During construction of the home, Mr. Bessant purchased $650 in floor tile out of his own pocket and delivered it to the jobsite for an upgrade. Unfortunately, someone stole this tile while Dey Street maintained control over the premises. Because Dey Street failed to complete the project by the agreed upon delivery date, Bessant and Horne had to stay in a hotel for three weeks. On August 15, 2007, the purchasers moved in.
Shortly after move-in, the purchasers discovered several construction defects. Bessant mailed Keith Freeman (principal of Dey Street) a notice letter on September 5, 2007. Not getting much of a response, on December 20, 2007, the purchaser’s attorney sent another letter, this one addressed to “Freeman Homes, Inc.” Enclosed with the attorney letter was the purchaser’s September 5, 2007 letter with the list of defects. Dey Street proceeded to do some warranty repairs.
Note the confusion regarding who the purchasers were dealing with. In the facts of the case, the purchasers signed a contract with Dey Street. However, many contractors provide consumers with different pieces of correspondence that have different business names. Judge David Lannetti found that the buyers only had privity of contract with Dey Street Properties, LLC. However, because Mr. Freeman also sent correspondence to Bessant on Freeman Homes, Inc. letterhead, the court found that notices actually received by Mr. Freeman put the Dey Street company on actual notice of the warranty claim.
These parties were not able to amicably resolve these construction defect damages issues. Bessant and Horne sued Dey Street. This family experienced some struggles preparing for trial. The homeowners had certain damages excluded from the jury because they failed to submit a timely expert witness designation. Also, the owners failed to disclose the details of certain defects in response to the builder’s pretrial discovery requests.
Judge Lannetti’s opinion only talks about certain items at issue post-trial: $1,500 for flooring defects, $200 for subfloor repairs, $2,000 for the drainage and concrete problems on the porch and $200 for a porch column. The owners also wanted reimbursement for the stolen tile and the hotel stays. I suspect that there were additional defects claimed in the lawsuit but because pretrial disclosure deadlines weren’t met, the owners were prejudiced to assert them at trial. For purchasers, properly documenting the defects and the estimates to repair is not always easy. In most cases this requires finding another contractor to assess and estimate it.
After a two-day trial, the jury returned a verdict of $15,000.00 in favor of the owners. After the jury returned its verdict, the contractor moved to invalidate or set it aside the jury verdict. First, Dey Street argued that the owners waived their implied warranty claim because the first notice letter was never received and the second one was sent to Freeman Homes, Inc. and not Dey Street Properties, LLC. Virginia law requires the purchaser to send the written notice letter to the seller by hand delivery with retention of a receipt or by certified mail. The court found the certified letter to Freeman Homes, Inc. to be sufficient. The court observed that the owner of Dey Street used Freeman Homes, Inc.’s name and address in correspondence to the buyer. At trial Mr. Freeman admitted on the witness stand that he actually received the second notice letter and its enclosures. The owners are lucky that Mr. Freeman did not simply deny receiving anything. Because they have the burden of proof, the owners should take care to follow all formalities required in the contract or statute so that they don’t have to rely upon their opponent’s moment of candor in court.
Dey Street also argued that the evidence was insufficient to support a verdict of $15,000.00. Judge Lannetti found this argument more persuasive. Since the implied new home warranty statute doesn’t say anything about negligent security for the tile or consequential damages like hotel room bills, those items were thrown out. The court could not figure out how the jury could possibly have added the remaining evidence of defect damages could total $15,000.00. The judge recognized in his opinion that he was not permitted to substitute his own independent assessment of damages for the jury award, and could only look to what the maximum verdict that the evidence would support. Judge Lannetti reduced the $15,000 verdict and entered a judgment against Dey Street for $3,900. A tough result for owners when their jury was convinced that they were owed much more. If larger dollar amounts were at stake I would not be surprised if the owners petitioned to appeal the case.
Lessons from Bessant v. Dey Street include the following:
- Who Are the Parties? Purchasers should be clear about what party they are in contract with so that they can correspond with and sue the proper entity. Contractors must take care to ensure that everything is done in the name of the contractor identified in the written agreement to avoid personal liability.
- Formalities of Notice. When lots of money are at stake, parties shouldn’t rely upon their opponents to follow through on oral demands or representations. Notice requirements in statutes should be carefully followed. Assume that at trial the judge will expect proof of notice and one’s opponent will deny receipt of the written notice.
- Use Professionals. Engage with a construction litigator and independent expert witnesses early so that legal formalities can be observed and deadlines met to maximize results.
- Be Prepared to Deal with Delays & Headaches. Purchasing a home that hasn’t been built yet can be an exciting, and even cost-saving means of acquiring one’s dream home. It also carries with it significant risks of delays, defects and added expenses which may be difficult to get reimbursed for.
When legal disputes appear on the horizon, contractors and purchasers should seek the assistance of qualified counsel to preserve and protect their rights.
Va. Code § 55-70.1 (Implied warranties on new homes)
Bessant v. Dey Street Properties, LLC (Norfolk Cir. Ct. Nov. 21 2016)(link available to VLW subscribers only)
Jason OX4 B-R Corridor at Sunset via photopin (license)(disclaimer: does not depict anything discussed in blog article)
October 14, 2015
Common Misconceptions about Home Builder Warranties
Home buyers want assurances that someone will correct defects in construction to make it conform to what they bargained for. In the sale of new homes, these assurances usually come in the form of the builder’s warranties. Homeowners must make serious decisions about whether to go under contract, go through with closing and allow a year or so to go by without making a warranty claim. The purpose of this blog post is to identify some of the top misconceptions buyers have about home builder warranties that interfere with good decision-making.
- “My Warranty Coverage is Only Shown in the Packet of Contract Documents.” In fact, warranties can also arise out of legislation or court decision precedents. Warranty law is a solution to the problem that a buyer can inspect something, pay for it and later discover that the construction was materially defective. In Virginia, the courts traditionally ruled that in every contract with a builder there is an implied warranty of good workmanship unless the terms of the contract provided specific disclaimers or modifications. This rule helped consumers by requiring that the contractor would have to stand behind their work unless there was some fine print otherwise. Builders responded by having their attorneys write-up those warranty documents that can range from a paragraph to over 50 pages. The Virginia General Assembly observed that contractors were finding ways to get buyers through real estate closings on properties that did not conform to contracts in spite of the efforts of local building code enforcement officials and the buyer’s inspections. They passed legislation that creates implied warranties of quality workmanship that arise in the sale of each new home construction. Unfortunately, both contractors and homeowners are often unaware of these statutory warranties and their relationship with the written contract documents including the written limited warranties. Homeowners find it much easier to negotiate with their builder if they know the full extent of their warranty rights from review of the agreements and statutes.
- “My Neighbor Couldn’t Make Use out of Her Warranty, So I’m Also Out of Luck.” Tragically, many homeowners allow their warranty rights to expire without preserving their right to exercise them. Builders, neighbors, building code officials and inspectors can give useless or misleading legal advice. Because the contract documents vary builder-to-builder and the implied warranty laws vary by state, it is impossible to give a general summary that can be applied in every case. Understanding warranty coverage requires compiling the contract and warranty paperwork and state statutes. Usually, the basic warranty lasts for only one year.
- “My Builder is the Best Person to Ask about what they are Required to Fix.” Builders know that the courts will not expect them to continue making warranty repairs to one house for as long as they continue to be in business. To the extent a builder is still working on a house they have already sold, they aren’t making any new money. Contractors sometimes use written warranty paperwork to confuse or limit the buyer’s warranty rights at the time of sale. The builder’s warranty too often is used as a sales tactic to assuage nervous buyers concerned about construction defects. If the homeowner complains to the builder about construction defects after move-in, some contractors try to keep them occupied with inspections and ineffectual repairs. If the builder’s employees are frequently at the house, the owner probably won’t invite independent inspectors, experts or other contractors who might diagnose serious warranty claims and help the owner protect their rights. Once the owner starts to lose confidence in the builder or the warranty period is approaching, the owner needs the help of independent experts.
- “The Only Construction Defects Worth Focusing on are the Ones I Look at Everyday.” Homeowners frequently focus on the types of construction defects that they notice everyday. Defects in drywall, painting, grout, trim and other finish work can add up to thousands of dollars in repair costs, but they may not be the most substantial defects made by the builder. Water may be leaking into the house. Major systems such as roofing, plumbing, electrical, HVAC, etc. may require extensive repairs or replacement if not properly addressed during a warranty period. In order to properly diagnose these problems, the owner must coordinate investigation with inspectors, experts or other contractors who are independent from their builder. Every homeowner owes it to themselves to know the truth about the condition of their house.
- My Realtor, Mortgage Broker, Settlement Agent or Builder Recommended This Home Inspector, so they must be fine.” In hiring a third party inspector to help with a home purchase, the independence of the home inspector is just as important as their competence. Most professionals in a real estate transaction are only paid when the deal goes to closing. If a home inspector or other participant does find a defect that would cause a deal to not go through or be substantially delayed, the other professionals won’t want them to be involved in the next sale. Most home inspectors know enough about houses to provide a report that is a great help to the buyer. What’s important to the buyer is having an inspector who isn’t allied with the people being paid out of settlement. That way, the buyer knows he is working for her.
A homeowner should not rely solely on the contractor to clarify what their warranty rights are. It’s better to find out from qualified inspectors, engineers or other contractors what, if anything is wrong with your house. A qualified attorney can help determine whether those defects are legally covered before time runs out. If the closing on the new home was less than 12 months ago, there is a strong chance the owner may be entitled to repairs or financial compensation from the builder for failure to make the house conform to the warranty.
Va. Code § 55-70.1. Implied Warranties on New Homes.
Mann v. Clowser, 190 Va. 887, 59 S.E.2d 78 (1950)
Northwest Modernism via photopin (license)(provided to illustrate home construction – not known whether depicted property has any construction defects)
December 9, 2014
Resolutions for Homeowners Dealing with Construction Defects
A good home provides a safe, comfortable and enjoyable place to live. When a contractor makes mistakes in construction, renovation or repair, the owner or tenant has to live with those defects every day until the problem is resolved. The coming New Year is a good time for homeowners to prioritize addressing contractor defects. In 2015, devise a strategy for relief from construction defects and feel love for your home again.
The key to efficiently realizing a goal is outlining the steps needed to realize it. This gives the owner a “to-do” list that can be tackled step-by-step over time. This may include a warranty claim against the contractor. Many contractors stand by their work and will honor well-founded warranty claims. It’s difficult to build a business from a base of disgruntled former customers. With some contractors, legal assistance may be necessary to obtain relief under a warranty. No two construction defect cases are the same. In each case, the contracts, warranties, physical conditions and defects are different. However, there are strategies that can make the process easier for the homeowner. The following are 7 New Year’s resolutions for homeowners dealing with construction defects:
- Investigate Defects Fully: Examine and photograph the physical appearance of the defects. Obtain copies of the manufacturer’s installation instructions. Research online reviews or other information about the materials used. Wise homeowners focus first on any safety or health concerns. In some cases, taking temporary action to limit future damage may be necessary. Discovering the truth about the defect is a solid foundation for dealing with it.
- Organize Warranty Information. The contractor likely provided contracts, correspondence, warranties and invoices. Usually installers do not warranty the materials used. The warranties for materials may have been provided in the packaging or available from the manufacturer. These items must be reviewed together and can become easily misplaced if not organized.
- Consult Regarding Implied Warranties. Many homeowners are not aware that a written set of terms is not the only way that products and installation may be covered by a warranty. In Virginia, there are certain contractor warranties that arise under operation of law. Consult with a qualified attorney about how coverage may arise under implied or written warranties. Unfortunately, warranties are easily waived if claims are not timely pursued.
- Consult Regarding Obtaining Expert Reports About Defects. In order to fix the defect, ultimately a qualified person will need to do further work on the house. To prove a warranty claim in court, the owner may need an expert witness to testify regarding the breach of duties or the proper figure of damages. Depending on the needs of the case, that expert may be a home inspector, licensed contractor, engineer, tradesperson or professional estimator. Hiring an expert to provide assistance in a lawsuit, reports or court testimony is not like hiring a professional to work on the house. If an expert is being engaged to provide legal support or trial testimony, the owner’s lawyer is the proper representative to work directly with the expert. One of the most important characteristics in retaining an expert in these types of cases is independence. A homeowner is not well served by an inspector or other contractor who will not be able to testify against the interests of the contractor who committed the defects. It’s best to go completely outside of the referral network of the builder.
- Consider Goals for the Property. When a dispute with a contractor erupts, sometimes even smart homeowners may struggle to maintain focus on how the project fits in to their goals for maintaining and developing the property. The homeowner may need to adjust their goals to fit new circumstances.
- Preserve Copies of Contractor’s Representations: If the contractor used intentional concealment, fraud or misrepresentation in the course of selling his services, the owner may have a claim for enhanced damages. Fraud cases are very difficult to prove, and the facts of most cases don’t support them. However, sometimes misrepresentations can be found in e-mail, text message or social media communications. Savvy owners take care to preserve any electronic communications with the contractor’s representatives.
- Consult with Counsel About Pursuing Claims. Once the case has been properly investigated with the assistance of legal counsel, the homeowner is in the best position to go back to the contractor about the warranty claim and, if necessary, pursue a legal remedy.
Whether a homeowner’s best interests lie in simply fixing the problem on their own or pursuing a legal claim against the contractor depends upon the unique circumstances of the case. Homeowners have the benefit of control over the property where key evidence may be preserved. The New Year is a good time for families to take necessary action to protect their physical, financial and legal aspects of home ownership.
photo credit: ungard via photopin cc (I am not aware of any defects with the house depicted in this photo, which was chosen for its seasonal characteristics)