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Wednesday, February 18, 2015

State Senate Considers Construction Defects Bill With Its Own Defects

[Published Feb. 19, 2015, in the Jeffco editions of the Denver Post's YourHub section. An abbreviated version also appeared in four Jefferson County weekly newspapers.]

Several times in the past I have written about the serious problem of construction defects litigation, which I firmly believe is responsible for the drying up of condo construction and the resulting reduction in entry level housing stock throughout Colorado.

It is why we see so much construction of rental apartments and so little construction of condos for purchase.  All builders and developers must buy insurance to protect them from claims, but virtually all the insurance companies writing such policies made good on their threats to stop writing such policies because of current laws on construction defects.

Republicans in Colorado’s General Assembly have sponsored legislation in the past to curtail such litigation, with Democrats resisting on the basis that home buyers deserve protection against shoddy construction.  With Republicans now controlling the State Senate, there’s a new bill, SB-177, which is in many ways worse than previous efforts. 

Clearly, there’s a middle ground, but this isn’t it. Under current law, an HOA board can, without a vote of its membership, engage a contingency law firm to sue builders or developers for construction defects. HOA boards are solicited by such firms with a seemingly no-lose proposition: the HOA pays nothing unless and until a settlement is reached, not only for legal expenses but also for invasive and non-invasive testing for defects.

I witnessed this process at the Millstone development on Clear Creek several years ago. The process dragged on for years, during which condo owners could only sell their units for cash because lenders won’t lend on a condo whose HOA is involved in litigation. 

SB-177 goes beyond requiring that an HOA’s membership approve such litigation by a majority vote at a membership meeting to requiring a majority vote of all members of the HOA — without even allowing proxies. Can you imagine getting 51% of any HOA’s members to show up at such a meeting and vote unanimously (since 49% aren’t present) on anything, much less a motion to engage in litigation on construction defects?

Another requirement is that homeowners and not lawyers must go to district court at their own expense (no lawyers allowed) to file their claim and request arbitration.

Basically, SB-177 creates so many obstacles for suing for construction defects that it would be unlikely any except the most outrageous defects would be pursued.

I wasn’t surprised to receive an email from the Colorado Association of Commerce and Industry urging me to write my Senator in support of the bill, but I was disappointed to receive the same request from my Realtor association. 

Yes, we need a construction defects law, but not SB-177 as written.

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