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Section 2. Why you may be out of
luck if you buy a defective house
no matter what the contract says.
True stories from all over the
"The upshot of all this is the fact that regardless of the area of the
country, shoddy construction goes on all the time right next to
Robert Irwin, Tips and Traps When Buying a Home,
What happened to us and our house may be one of the worst individual
cases on record, but defective residential construction happens all over the
The problem is not as widely appreciated as it should be. No author
has taken it upon himself or herself to publish the dark side of home
building, the obverse of Tracy Kidder's best selling book House. That
book chronicles, from concept to move-in, the construction of one single-family home in Massachusetts. Everything went well because the
builders were good. That is what everyone hopes for but, unfortunately,
it doesn't always happen. Surprisingly, however, I may be the only
author who has chronicled what happens when the builders are bad.
Although defective construction is a common and widespread problem,
it is generally under reported at the national level. There is no national
clearinghouse for residential construction disasters, even those that go to
trial. Lawyers searching a legal data base for cases involving residential
construction would not find ours, because it was not appealed. Only
appellate cases are published and therefore retrievable by computer
search. (If you know of a specific case you can obtain a copy of the
written opinion where the trial took place.)
The information is out there, but it is widely scattered among:
hundreds of local newspaper articles, thousands of individual civil
lawsuits, the minutes of state legislatures and the U.S. Congress, and the
file cabinets of home warranty companies.
I have only reviewed a small fraction of this material, but it is enough
to discover a constant theme: if the builder won't fix a major construction
problem, the homeowner is out of luck. When the builder reneges the
result is aggravation and despair, and often financial hardship. There is
no "lemon law" to protect buyers of defective homes. In truth, the
American consumer has more protection when buying a refrigerator or
television than a new home.
There are several explanations for this sad situation.
- First, houses are built by people who are unlicensed in many states, and
unregulated in all states. Builders will protest that they are highly regulated,
but in fact regulations that exist are so often breached with impunity that they
provide no meaningful protection for the homebuyer. About licensing for
contractors, William Marchiony wrote in The New House Buyer's Guide:
It is interesting to note that some states, even though they
require the licensing of General Contractors, do so only to
collect additional state revenue! One would think that if
they go to the trouble of setting up the licensing process,
they would go the rest of the way and require examinations
to test the competency and monitor the ethical conduct of
In truth, virtually anyone can call himself a contractor and build a
house for sale; a license, when it is required, is a mere formality. There
are no tests of competency, financial solvency, or even literacy. If the
builder is incompetent in structural matters there is no one to stop him or
make him correct mistakes once they are made.
- Second, many local builders are undercapitalized. They build the next
house with profit from the last one. Although several large firms build
homes nationwide, custom-construction is usually handled by local
contractors, and most of them cannot afford expensive mistakes. When
confronted with a construction disaster the local builder may reason that
his best course is simply to ignore the complaint (unless he is of unusual
integrity). If he is sued and loses in court he can always file bankruptcy,
a common practice among builders when they are legally challenged. For
most builders bankruptcy is nothing more than a temporary inconvenience
until they restructure and come back under a new name. Meanwhile, the
home owner has lost everything and has no chance of collecting any legal
- A third reason buyers of defective homes are often out of luck has to
do with the nature of the defects. Significant construction problems are
seldom functional. Mechanical, electrical, and plumbing systems
invariably work in new houses or, if defective, they are apt to be fixed
before the homeowner takes possession. Most construction horror stories
come from people who, like us, can live in their defective dwelling.
The major disputed problem is usually a structural or design flaw such
as sloping floors, bowing walls, a leaky roof or an inadequate foundation.
In this situation it is all too easy to dispute a homeowner's complaints
("optical illusion" is what we were told about obviously sloping floors),
or blame some other party. It's harder for a builder to argue if something
plainly doesn't work; a functional problem will usually be fixed, even if
the homeowner has to do it himself. (On occasion during our ordeal
someone would comment: "Well, you're living in the house so it can't be
that bad," or "The plumbing's working so what are you worried about?")
But if the floors slope or the walls bow or the basement floods or the
roof leaks, the builder can dawdle or deny the problem or just blame
someone else. Meanwhile the house will be unsalable because of the
defects, and the homeowner will see his equity evaporate. Find a major
defect that the builder won't fix, and you will find yourself out of luck.
"Cancer Wrapped in Ribbons and Lace"
The home horror stories getting told to the judge
An article under this headline in the September 6, 1987, Atlanta
Journal and Constitution, listed several major residential construction
disasters in the Atlanta area, including a
$700,000 house [with] hardwood floors that buckled as
a result of improper drainage, sagging ceilings caused
by roof leaks, unsafe wiring in the attic...
The article went on to note:
Horror stories have not become the norm but they are
increasing in metropolitan Atlanta... Generally, lawsuits
involve more expensive homes and cases involving more
than $10,000 in repair costs.
Attorney Anthony Kirkland, who has handled
construction cases in several metro counties said, "When
[people] buy a $100,000 house and things are not right,
they find out they have to hire experts - an architect,
appraiser, builder, etc. - to testify on what is wrong."
That cost scares them away from litigation, he added.
Jeff Pope, an independent Atlanta house inspector who
specializes in luxury homes and properties involved in
litigation, is zealous in ferreting out defects that he says
can prove to be "cancer wrapped in ribbons and lace."
Even in the most expensive homes, he said, builders
sometimes put in low grade or defective wood where it
will be covered by finishing materials.
...increasingly, brokers and their agents are
encouraging homebuyers to hire private inspectors to
check properties, thus relieving some of their liability...
A related story on the same date told of a metropolitan Atlanta couple
whose $145,000 home was defectively built in such a way that
the weight of the house was not properly distributed on
its foundation and...joists were of inferior quality or had
been damaged during construction.
When their homeowners insurance coverage expired at
the end of the first year in their house, they were unable
to obtain liability insurance on the house and got
structural insurance only through an expensive high-risk
policy from a pool of insurance companies.
Last month they moved out of the house when their
builder...bought the house back from them as part of a
$176,000 settlement of the lawsuit in which they alleged
fraud and a house "unsafe to live in." The settlement was
reached the day before the case was to go to trial.
Most purchasers of a seriously defective new home are not so lucky as
that Atlanta couple. From the Cleveland Plain Dealer, April 3, 1989:
When the [Homeowners] decided in 1986 to build their
dream home, they never thought they would be caught in
a battle with their builder. But the family said that
since...contracting to build their home, they had had so
many problems they couldn't enjoy the house.
Highland Heights, where the [Homeowners] live, last
year revoked the builder's license...because of residents'
complaints about the firm.
"We want our house fixed," [Mr. Homeowner] said.
"We just want our children to be able to enjoy what we
worked so hard for." [Mr. Homeowner] said he filed suit
last month in Cuyahoga County Common Pleas Court as
a last resort. The suit seeks the money to repair the
home and punitive damages.
"They're not willing to negotiate," the builder said.
"They're lying. These people are not reasonable."
Later in this Cleveland article the builder's attorney is quoted:
"People expect perfection in a home, and there is no
builder in the world that can build a perfect home."
Homeowners become emotional and are bound to have
small disputes with a builder, he said.
"On a big-ticket purchase like a home, there's always
going to be some disputes," he said. "To build a home
and have a dispute with the builder is not at all
Anyone Can Become a Victim
"Not at all uncommon." A euphemism for "more common than you
think." A nightmare with defective construction can happen to anyone,
wealthy or middle class, working or retired, married or single. A retired
Methodist minister and his wife bought their dream home in the
mountains of North Carolina for $90,000. According to a newsletter
published in 1991 by the North Carolina Homeowners Association,
When [the minister and his wife] noticed cracks and bulges in
the walls and defects in the flooring, the dream home became
their worst nightmare. They found that the house had no
footings beneath it and was literally falling off the mountain.
They were forced to sell the house for $10,000, the value of
the lot alone. They sued the realty company, the original
homeowner, and the builder. They lost in trial court. The
North Carolina courts did not hold the builder responsible for
failing to put a proper foundation under the house. The
couple lost $30,000 in lawyer fees and court costs in addition
to the $80,000 on the defective house. Those unfortunates
who buy a defective house in North Carolina are stuck with it.
It's "buyer beware" on the most important investment of your
The following is from a January 31, 1992 news release about CBS
sportscaster and Superbowl announcer John Madden's multi-million
Madden Sues As Home Cracks Up
John Madden, former Oakland Raiders Coach and current football
commentator on television, has filed suit claiming his $4.5 million
home is riddled with problems. Madden and his wife...claim their
6-year-old home in the exclusive Blackhawk, Calif. community has
cracks in the foundation, masonry, doorjambs, interior walls,
ceilings and kitchen counters, according to the lawsuit. The suit
names 11 contractors, financial firms and others in addition to the
Blackhawk Corp. and four related companies. The lawsuit seeks
reimbursement of $1.5 million, plus the cost of repairing the house.
Exact cost of those repairs has not been determined.
An unusual group of unhappy homeowners was profiled in a Baltimore
Sun article that appeared March 2, 1992.
Nuns, contractor in legal tussle over construction
Sister ------- M. is accustomed to putting her faith in
But for the next several weeks, she also will be putting
her faith in Henry H. Lewis Contractors, Inc.
The Owings Mills-based firm is racing to complete a
$3.7 million motherhouse for Sister M. and the religious
order she heads, Mission Helpers of the Sacred Heart.
The rush is on because the nuns fired their previous
contractor twice and are counting on Lewis to help
them meet a March 23 deadline for leaving their current
The nuns say construction delays and building defects
by the first contractor prevented them from moving into
the new building. The contractor, --- Builders Inc., says
the nuns wanted perfection and interfered with the
construction causing the delays.
Now, it's up to a three member arbitration panel to
judge who's right.
"They're suing us. We're suing them," said Sister M.
"To be quite honest, we were first-time builders and
women and nuns on top of that. They must have
thought we didn't know what we were doing."
"We trusted," Sister M. said. "We trusted that the
[original] contractors were looking out for us, and they
weren't. We've been living out of boxes for eight months
now because we thought our building would be finished.
We get ready to move and think we're going to move
and then we don't move. It's psychological torture.
...An attorney for [the nuns' original builders] said the
firm "bent over backward to satisfy the sisters but to no
"They're nuns," he said. I believe because of their
lack of construction experience...and the nature of what
they are all about, they are probably impossible to
The Baltimore article goes on to detail the exact nature of the
construction disputes. Two things are abundantly clear from this story.
The nuns' motherhouse was originally designed and/or constructed in a
sloppy and unprofessional manner (pictures show this); and, the nuns are
blamed for the problems.
Now we turn to a young doctor and his wife, who contracted to build
an expensive new home in a Detroit suburb. After they moved in, he
wrote an article about their house-building experience. The article was
published in the January 20, 1992 issue of Medical Economics, under the
headline: Build your own home? I've got three words of
advice. Don't do it.
What prompted this doctor to such a feverish pitch of advice? He starts
the article with words that seem to leave the door ajar for people who
would build their own house.
We know now that building is not for us nor for most
people. But if you're going to do it, take charge. It's
your house and your money, so don't let the "experts" tell
you what you want.
Under headings such as "The fiasco starts with the architect,"
"Construction delays become the norm," and "It takes four months to get
92 new windows," he details unending frustration with an unreliable
architect, incompetent builders, and contracts and promises that
practically everyone breaks. He finally had to dump his original builder
and architect, and hire new ones.
The story is brief but the message is universal: expect lots of mistakes
and much misfortune unless you hire or deal with the right people. The
unhappy author doesn't state the total cost overrun on the house or their
outlay for legal fees, but implies it was a bundle. This sadder but wiser
doctor ends his article with advice even more pessimistic than my own:
If a gorgeous lot or a freshly cleared subdivision beckons
to you to build your own home, remember my three words. "Don't do it."
In January 1992 a housewife from Maryland wrote me a long, sad
letter, detailing the "terror" of a defective new house that both the builder
and the homeowner warranty company refused to fix. Included with the
letter was an April 17, 1989 article about their plight, from The Frederick
[The couple] noticed that draperies and pictures hung
crooked no matter how they turned them after they
moved into their new modular house.
As the couple and their three daughters settled [in
their new home] in October 1987, their list of cosmetic
and structural problems grew surprisingly long...Since
then, the family has been battling the builder of their
home. Meanwhile, Frederick County [Maryland]
officials have halted all building permits for the
company, and, in addition, the state Attorney General's
office is considering legal action.
...[The couple] found serious structural faults which
appeared to be at the root of the cosmetic
problems...Their basement lacks the proper number of
columns; exterior siding was not secured properly, and
one section of the house seems to be leaning toward the
street, they say.
"You might say we goofed a little bit, but then again
those are modular homes," [official] admitted, saying
that his department made a mistake in granting an
occupancy permit for the home.
The consumer protection division of the Maryland
Attorney General's office has been working on the case
for several months, as well...an investigator with the
Attorney General's consumer protection division said,
"My feeling...is that [the building company] should
replace the house."
This was in April 1989. The next three years proved to be an
unrelenting nightmare for the homeowners. Their trial date was
postponed several times, and they suffered a change in attorneys. Their
first attorney sued them for legal fees even though he had taken the case
on a contingency basis. To make matters worse, the husband of the
woman who wrote me, a career military officer, was transferred out of
state. She was unable to join him because they could not sell their house
in its defective condition; like most people, they don't have the money to
own two houses.
In January 1992 she wrote me:
We had a hydraulic jack supporting
the middle of our house for about 2
years. One day the jack failed and
the 6 x 6 post above it fell over onto
the basement floor. I wouldn't let the
kids into the basement for a long time
...The persecution doesn't seem to end
and faceless corporate entities
Greed! What is the best way to
productively deal with something like
this? It isn't just robbing us of our
money, but our time, our dreams, our
happiness, everything. It's hard to
see around it when we're trapped in
Another Maryland couple was profiled in an article titled "Joys And
Perils Of That Unbuilt House," Changing Times Magazine, June 1990.
Buying a not-yet-built home isn't like buying an
existing one. It's harder.
[Homeowners] learned that lesson almost four years
ago, when they entered into a contract to build a four-bedroom colonial in Gambrills, Md. The house took 18
months to complete, almost three times longer than
average. Two years after [they] moved in, they are still
trying to get the house finished to their liking. At one
point, the list of items they thought their builder should
fix was a full page long. Some items were minor...but
many, like a persistent water-line leak, were major.
Cedar siding damaged during construction was replaced
with unstained boards. They had to completely resod the
And [these people] are smart buyers. She's a real
estate agent; he works for a large developer. But the
couple say today that they bought because of the location
of the development and without investigation. The
builder, they have learned, has a reputation for slighting
follow-up repairs. And being in a booming market,
[they] knew the builder could easily resell the house if
they broke their contract. So they hung on, but not
without permanently altering their view of the process.
Says [Mrs. Homeowner]: "I would never buy another
A doctor, a media star, a retired minister, a housewife, a real estate
agent, a group of nuns -- all with the same problem. Are they all so stupid
that they don't know how to buy or contract for a properly-constructed
house? Of course not. They are a microcosm of all the innocent victims
of defective residential construction in this country. Anyone can be
become a victim. From Maine to California, from Alaska to Hawaii,
everyone is at risk when building or buying a new house. Including you.
Where Are The Inspectors?
Every buyer of a defective new home asks the same question: how did
my house pass inspection? Most inspectors are local government
employees, hired by the city or town to assure that new construction is fit
for occupancy. When the house passes inspection the homebuyer is given
an official 'occupancy permit'. Yet defective houses houses not built in
accordance with local building codes commonly pass inspection.
How does this happen? There are several reasons, and they vary from
place to place, indeed from house to house. Proceeding from the most
benign to the criminal, reasons defective houses pass inspection include
- The defects are hidden so that no typical house inspector could
expect to find them on a routine inspection. The defects only
become apparent over time, after the homeowners have moved in.
- The inspector is overworked. Because of a large number of new
houses, and an inadequate number of inspectors, each inspector
only has time to check basic systems, e.g., electrical, heating,
and plumbing. The inspector does the best job he can in a
limited amount of time.
- The inspector is not competent for the task. He has no special
knowledge about house construction and doesn't know what to
look for, so he misses obvious defects.
- The inspector is lazy; he signs off on the house without actually
- The inspector moonlights for the builder when not working for
the community. Depending on local laws, this `extra work' may
or may not be illegal. Regardless, the inspector is not about to
bite the hand that feeds him.
- The inspector is under pressure from his superiors to either
approve a house or risk losing his job. The inspection
department functions as a "rubber stamp" for the local builders.
- The inspector knows the house is defective, but is paid by the
builder or developer to lie and issue a permit.
One would like to think that the only reason defective houses pass
inspection is number 1. Unfortunately, that is not so. In fact, considering
all the cases that have come to my attention, hidden defects those that
cannot be uncovered on a final, thorough inspection is probably the
least common reason. A far more prevalent reason, it seems, is that
inspectors just don't have the expertise, or are not given enough time, to
do an adequate job.
A review of the problem in North Carolina appeared in the Charlotte
Observer on March 17, 1990. After detailing cases of defective
construction that had passed inspection, the article noted:
In each of the examples given in this story, local
inspectors approved the new houses for occupancy...[The
chief building inspector for Charlotte said] his building
inspectors must check about three houses an hour a
house every 20 minutes, not including travel time
between houses. "We feel we're doing adequate
inspections," he said. "We'd prefer to have more time,
When inspectors find code violations in a house
they've already approved, there's usually little they can
do. A few local governments deny builders new permits
until they correct code violations.
But most local governments will issue permits to a
builder even if he or she has code violations on other
houses. It takes an ordinance passed by the local council
or commissioners to allow inspectors to withhold permits
until other code problems are fixed.
It is not clear why the inspector quoted in this article feels his
men can do an adequate job in only 20 minutes. In any case, according to
James R. Parker, President of the North Carolina Homeowners Association, the
law in his state actually requires an inspector to "make as many
inspections as necessary to ensure compliance with the state building
code." Mr. Parker notes that "Inspectors might feel as if they must
inspect a home in a certain time frame (because of political pressure), but
State law dictates that they take as much time as required to adequately
perform that inspection."
A realistic appraisal of the consequences of short inspection times was
provided in an Atlanta Journal and Constitution article from September
County building officials don't claim to be doing an
adequate job. Given the large number of inspections,
[the] chief residential inspector in Cobb County said his
five full-time and one part-time inspectors "are allowed
about 10 minutes per call." For instance on one day late
in August the inspectors averaged 27 inspections each.
The Southern Building Code Congress, whose uniform
codes are followed in Cobb and other metro counties,
recommends a maximum workload of 12 to 14
inspections per day.
[The chief inspector] of Fulton county is trying to hire
10 inspectors that are needed to get the department to
the bare minimum of performance. With inspectors
averaging almost 11 inspections per day, he noted,
"there is not enough time to do the best we can do."
Inadequate inspections is a nationwide problem with new construction.
And the results are devastating everywhere. The following excerpts are
from a 1989 story in the Ft. Lauderdale News (italics added):
[Homeowner] said that when his home was completed
in June 1987, he was obligated under his contract to
close on the property because the building department
had issued a certificate of occupancy...The certificate
was issued despite a list he compiled of 17 noticeable
flaws... [Homeowner] blames [Builder] for a poor
construction job and the city's building department...for
issuing a certificate of occupancy without checking to
see if the house was fit to live in. [The building
inspector] did not return repeated calls from the Fort
Lauderdale News and Sun Sentinel.
Among the problems: an uneven tile roof, a kitchen
floor that had flooded, a garage that floods every time it
rains, a crack along one side of the outside wall, a
crooked inside wall and a ruined $5,000 black awning
streaked with white paint.
An independent company hired by [Homeowner] last
year inspected the property and issued a report detailing
38 flaws that would take $56,370 to repair.
Another article in the Ft. Lauderdale Sun-Sentinel, from August 9,
1989, discussed the structural problems in some houses that are sinking
because they were built over a canal filled with rubbish (italics added).
No one can explain why the canal was allowed to be
filled with rubbish or how a developer was able to build
homes there. [Homeowner] said the problems at his
home greatly increased in 1976, when an 11-acre lake
about 50 yards away was dredged... Now the same
developer...wants to dredge the lake
again...Residents...said that if the town grants another
dredging permit, their homes will be destroyed.
[Homeowner] said he spent $25,000 to repair the home.
He raised the back end by a foot and poured 46
truckloads of fill into the back yard to even it out.
After discovering that the homes were built on a
landfill he sued the town for issuing the building
permits, but the suit was thrown out of court. It was
determined that the town followed procedures in effect
at the time.
Can inspectors who pass on defective construction be held legally
responsible? No. Homeowners are unprotected because local
governments, and their representatives, are immune from lawsuits over
defective construction. Housing inspectors who let pass defective
construction may be criticized or embarrassed, or on occasion even fired,
but that's as far as it goes; they and the local government are
legally protected by the doctrine of "sovereign immunity." Lawsuits like
the one quoted above are routinely "thrown out of court."
From an article in the Richmond Times-Dispatch, February 22, 1992,
reporting on defective construction in that area of Virginia.
Owners Demanding Better Inspections
...And in Chesterfield County, several homeowners with
cracked foundations are baffled because, they say, the
same county inspection system that didn't protect them
is now protecting the builders who put up their homes.
Their houses were give a certificate of occupancy, the
county's seal of approval.
Builders can use that "CO" as proof that everything
was done right, even in cases where independent
engineers have found code violations that were missed
by the county inspectors. The homeowners say they've
been left holding the bag.
Are there conflicts of interest among inspectors? You have to wonder.
The following excerpts are from an editorial in the Frederick Post
(Maryland), May 14, 1991:
...Some county employees inspectors may
have been moonlighting. That doesn't sound too
bad, because a lot of county employees, trying to
make ends meet, get part-time jobs. But according
to one Frederick County commissioner, the
inspectors who are moonlighting are working in the
very industry in which they are inspecting.
Now this is kind of hard to believe. Can we
assume that someone goes out to inspect a
construction site, for example, says it's wonderful,
and then we discover that the same person is also
working on that site? It would be like the inspector
is inspecting his own work. Bet it passes
...County inspectors should not also be working for
the very people they are inspecting. Period.
Do some inspectors sign off on houses without actually inspecting
them? Apparently so. An example of that practice came to light in a
large lawsuit filed by a group of 34 California homeowners.
One might think that builders and developers are more responsive to a
large condominium project, where dozens of homeowners can generate
more clout than just one. That is not necessarily so. There seem to be
just as many horror stories from condominium owners as from owners of
single family dwellings. The following is from the Miami Herald,
February 18, 1990.
Condominium owners want builder to pay for repairs
Tired of an unsettled dispute with a developer over
what they claim are construction defects in their
condominium near Hallandale, a group of owners took
their protest to the streets.
They put up a sign on the grounds of the 88-unit
condominium, telling the world about their woes.
"I want to go further," said [one unit owner]. "I think
we should picket."
...other condo owners detailed numerous problems:
leaks in ceilings, rotting garage doors, cracks in
doorways, sloping bathtubs, peeling pain and beige
facades that turned dark because they weren't treated for
"It's been a financial hardship," said [homeowner], who
has been living at the condo since it opened in 1986.
"We're a young couple and we bought new so we
wouldn't have all these things."
Condo board president...said, "We've had to assess our
people twice already because we could not live with the
problems. Buildings that were a year and a half old
looked like they were 50 years old."
The Miami Herald article goes on to mention how there have been
"two years of negotiations" and "the attorneys are dealing with it."
The July 15, 1990 Ft. Lauderdale Sun-Sentinel published a page one
Condo industry crumbling
The door is slamming shut on the carefree lifestyle at
many South Florida condos.
Mismanagement, shoddy construction and lax
regulation threaten to cost condominium boards
thousands of dollars and are prompting a spate of
lawsuits and foreclosures.
The article goes on to document the thousands of condominium
complaints filed each year in South Florida, most based on shoddy
construction. Many condominium owners in that part of the country are
experiencing the same aggravations and nightmarish expenses we had
with our single-family home.
South Florida has been riddled with complaints about condominium
construction. In the last few years hardly a month goes by without some
article in a South Florida newspaper pointing out the nightmares of
defective construction. The following article appeared in the Ft.
Lauderdale Sun-Sentinel, May 24, 1991.
Homeowners file suit
Eighty homeowners in the [Development] community
in south Dade County filed suit against [----] Homes on
Thursday, charging that the company used untreated
wood and non-galvinized steel in the construction of
their homes during the late 1980s.
The suit, which alleges breach of contract, breach of
warranty and negligence was filed in Dade Circuit
Court. Ervin Gonzalez, lawyer for the plaintiffs,
estimated that damages could reach as much as $25,000
He said [the company], recently ranked 16th in a
survey of the nation's largest builders, offered to repair
porches in a few of the affected homes but left other
repairs related to rust and wood rot to the responsibility
Construction problems with condominiums are not confined to South
Florida, of course. From the Denver Post, October 9, 1989 (reporting a
problem in Aurora, Colorado):
A builder who built a cluster of condos a decade ago
that still produces complaints of shoddy workmanship
from unit owners is facing those angry owners in a
zoning dispute over whether he should be allowed to
build again before settling those grievances. Since 1979,
residents of the [----- Condos] have struggled with
flooded basements, peeling paint and crumbling
retaining walls in the 33-unit project by [Builder].
"We've been fighting with the builder since the day we
moved in," said the president of the homeowner's
association. "I feel like he owes us something. He
should either buy the units back from us or get them so
they're impervious to water."
The Aurora, Colorado article goes on to detail the dispute with the
builder. As in most disputes we've heard or read about, the builder denies
responsibility. But so does the community. The article quotes the Aurora
"I can verify that that roof is put on the way the city-approved drawing says. But the uniform building code
does not cover workmanship. The builders come in and
they build strictly minimum standards."
The Seville Place Fiasco
Perhaps no situation has been more frustrating for condominium
owners, or received more media attention, than Seville Place in North
Dade, Florida, just northwest of Miami. Seville Place has been the
subject of several TV documentaries, countless newspaper and magazine
articles, and at least one Congressional Hearing. What exactly happened
at Seville Place?
Seville Place is a condominium project of "tropical, fruit-colored
townhomes" constructed between 1986 and 1989. The homes cost
between $70,000 and $90,000, and many of the mortgages were backed
by the Federal Housing Authority. Seventy of the units were built by
Hoffman Homes of Itasca, Illinois, and most of these were guaranteed by
the Homeowners Warranty Corporation, a builder-sponsored company
that issues structural insurance on new houses and condominiums.
HOW issued a "10-year warranty on the units."
Shortly after the owners took possession, many defects began
appearing: leaky roofs, walls disconnected to the slab floors, water
pouring out of electrical outlets, etc. Several detailed inspections were
made of the entire structure, including one by the Dade County
Commissioners. Their finding: "The walls are not sufficiently strong to
support the upper stories in a stiff wind." In other words, the units were
not built to withstand south Florida hurricanes and therefore, by local
building standards, were considered unsafe to inhabit! The homeowners
were ordered to fix the problem or face eviction. The story has played
heavily in the South Florida newspapers. The following is from a Ft.
Lauderdale newspaper, May 24, 1992.
GONE WITH THE WIND
...As hurricane season approaches, residents find
themselves in housing that falls well below local
hurricane standards. And the county [Dade] has ordered
the homes demolished.
Now, young professional couples find themselves in
the middle of a legal quagmire, living in homes that are
both unsafe and impossible to sell.
Instead of building on their equity, they find
themselves spending their life savings trying to salvage
something from a real estate nightmare.
How did this happen? Again, quoting local newspapers:
The design flaw, the result of mathematical
miscalculations, left the walls unsafe in winds stronger
than 80 mph...Building and zoning official Ron Szep
said the county relies largely on a self-inspection system
by engineers selected by a developer. But in this case,
that system wasn't enough.
...The Dade Board of Rules and Appeals recently
rewrote the portion of the South Florida Building Code
covering special inspectors like the one hired to oversee
construction of Seville Place. But Florida legislators say
more needs to be done on the federal level to ensure that
FHA-backed projects like Seville Place are properly
inspected during construction.
"This project should never have been signed off on,"
said U.S. Rep Larry Smith, D-Hollywood.
Meanwhile, according to articles in the Miami Herald, the cost to
properly reinforce the units was $1.7 million. Obviously the homeowners
were in no position to pay this amount. What about their HOW policy,
which had warranted to repair structural defects? HOW refused to make
the repairs, arguing that "the defect was not covered because no actual
damage had occurred."
A lawsuit was filed against HOW, and the homeowners began
incurring thousands of dollars in legal fees, $200,000 by the time of
settlement according to one newspaper article. The case garnered media
attention because of the number of families involved, the Dade County
eviction order, the apparent refusal of the insurer to make good on its
policy and, not least, because several prominent politicians became
involved. In 1991 Congress held a hearing on the government's
responsibility insofar as the structurally-defective property was backed
by FHA-guaranteed mortgages. Several Seville Place home owners
Faced with intense media pressure, and direct intervention by Senators
Connie Mack and Robert Graham of Florida, an out-of-court settlement
was finally reached in late 1991. Although terms of the agreement were
not publicly disclosed, an attorney for the Seville Place homeowners was
quoted as saying "the money will be sufficient to repair all 70
That this experience was a nightmare for the condo owners is apparent
just from their public statements. Before and after the settlement, some
homeowners were quoted in news stories.
"The systems of controls failed. It was a full melt-down."
"To many of us, this was our life savings. Now we
cannot legally transfer title. Some people have had to
turn down job offers to move."
One of the Seville Place homeowners active in the case wrote the
following letter to the Miami Herald (published over his name on
December 7, 1991).
I am one of the homeowners who took a very active
role in getting the message across of the enormous
tragedy that was being played out with 70 innocent
homeowners. I was invited to testify in Washington,
D.C. before a congressional subcommittee on Banking,
Housing and Urban Affairs.
Throughout this nightmare I learned a lot about
politicians and what they can do to help a cause. After
writing dozens of letters to county, state, and federal
politicians, I soon realized the meaning of lip service.
Most politicians turned the other way and ran as fast as
However, there were some exceptions. The two most
vocal and active were Metro Commissioner Mary Collins
and U.S. Senator Connie Mack.
...Senator Mack, who made two visits to inspect the
homes, was also fully dedicated to solving the Seville
Place nightmare. He has introduced legislation to
prevent such a tragedy from happening to other homeowners.
These two very dedicated individuals did the job that
they were elected to do: help taxpayers in their times of
need. Other political figures who helped us are U.S.
Senator Robert Graham, U.S. Rep. Larry Smith, and
State Rep. Rudy Garcia. All others, including those in
the Metro Commission, did absolutely nothing to help
Seville Place's innocent victims.
Quite a letter. You can sense the frustration, the rage this man and his
fellow condo owners felt during their long ordeal. But consider the facts
in this case. Dozens of homeowners. A major lawsuit. Intense publicity.
A hearing before the U.S. Congress. Active intervention by several high
ranking politicians. Only then was there a settlement.
What chance does the average condominium owner have of making
builders and insurers correct structural defects, if the defects don't draw
much attention of the press and politicians? I can tell you. Very little.
What About Homeowner Warranties?
Many builders offer third party warranties for new construction. The
oldest of these policies is issued by the Home Owner's Warranty Corp.
(HOW), of Arlington, VA. HOW was one of the defendants in the
Seville Place litigation.
In the early 1970s Congress was considering regulating home builders
because of numerous complaints about construction defects. In response,
HOW was set up by the National Association of Home Builders in 1974
to "insure American home- buyers against defects in their new homes and
also against any negative consequences form the bankruptcy of the
builder who put it up" (Mayer 1978).
HOW is one of three nationwide companies offering builder-sponsored
new-home warranties. The two others are Residential Warranty Corp. of
Harrisburg, PA and Home Buyers Warranty of Denver, the nation's
largest such company.
Builder-offered warranties supposedly insure against structural defects
discovered within the new house's first 10 years. The policies can only
be purchased through the builder, and the cost is passed on to the
homeowner (either directly or built into the cost of the home). We had
never heard of such policies when we built our house, as none of the local
builders in our area seemed to offer them. When we did learn of their
existence, it was long after our case had gone to court. Why, we
wondered, didn't our builder offer us this policy? At first we thought
such a policy would have protected us from the nightmare of litigation
that ensued. Now, we're not so sure.
It turns out that HOW and similar policies often do not recognize or
pay for major structural mistakes. In the last few years it has become
apparent that these insurance policies are very limited, and that the
companies behind them might refuse to honor what, to the homeowner,
looks like a legitimate claim. As a result, there have been numerous
lawsuits against the companies that issue the warranties.
The cases of the Maryland family and of Florida's Seville
Place Condominiums are but two of several involving home
warranty companies that have recently received publicity. A few other
well-publicized cases deserve mention, from Texas, Virginia, and
Washington. In 1990 a jury in San Antonio ordered Homeowners
Warranty Corp. to pay a homeowner $483,000 for a home that was
falling apart because of a crack in the foundation. Of this amount,
$325,000 was for punitive damages, something almost unheard of in the
annals of construction litigation.
In September 1991 a Virginia federal appeals court handed down a
ruling ordering Home Buyers Warranty to abide by an earlier arbitrator's
award of $206,605 for a McLean, VA couple whose new house was
structurally defective. According to a story in the Washington Post (H.
Jane Lehman, "Home Warranty Policies Coming Under Attack,"
November 5, 1991), "the foundation was designed for a one-story house,
not the three stories actually built atop it." The couple living in the house
had achieved some notoriety because of a huge hole they had dug in their
front yard. The hole was necessary in order to
fix the foundation when neither the builder nor their
homeowner's warranty company responded to an
engineer's report that found that the front of the house
was in danger of collapsing because of the inadequately
...Ultimately [the couple] prevailed, winning a
$206,605 federal appeals court judgment this month
against Denver-based National Home Insurance Co., the
insurer behind their Home Buyers warranty (HBW)
coverage. The award covered the [couple's] hefty bill for
the 1989 foundation repairs, which they paid themselves
pending the outcome of their fight with HBW.
[This couple's] case is one of a growing number of
lawsuits that have filed across the country against
companies offering 10-year warranties against faulty
home construction. The suits have accused the
insurance firms of deceptive trade practices, fraud and
racketeering in refusing to honor what the homeowners
contend are legitimate claims.
A year ago, the American Trial Lawyers Association
formed a litigation group to compare notes on the
homeowner warranty cases. While plaintiffs' attorneys
see a pattern of failure within the warranty industry to
honor its legal obligations, officials for the companies
contend that the suits are indicative of widespread
misunderstanding as to what the warranties actually
Perhaps the most incredible home warranty case I've come across
involves a couple in Bellevue, Washington. Their $250,000 HOW-insured
new home developed a crack in the garage floor shortly after they
moved in. According to an article on homeowners warranties in
Kiplinger's Personal Finance Magazine ("Homeowners warranties:
Cracks in the coverage," April 1992), the builder patched the crack, but
it reappeared. The builder patched it again. When the crack appeared
once more, the builder told the couple to turn to their HOW policy for
further repairs. Even though two teams of engineers pronounced the
crack a major structural defect, HOW said the crack didn't qualify as a
major defect under the policy. When that crack widened and others
appeared, the couple sued HOW. Ultimately the city of Bellevue
condemned the house and the couple had to move out. What
exactly was the problem? According to the article,
[The house] had been built on uncompacted fill dirt,
and there were no footings or steel reinforcements in the
poured-concrete foundation. Some of the pilings for the
garage were either sitting on dirt or, as [homeowner]
describes it, "just hanging in midair."
...Three days before the start of the trial in state
superior court, HOW signed an agreement to pay for
fixing the house and to cover all out-of-pocket expenses.
HOW signed a construction contract and a HOW-approved contractor was in the process of tearing down
part of the house when HOW decided it didn't like the
size of the price tag and reneged on its agreement to pay.
Now the couple are suing HOW in federal court with a
tab for legal fees and repairs running close to $1.2
The Kiplinger article goes on to discuss problems with homeowner
warranties in general.
Homeowners who have taken warranty companies to
court have also discovered that there's little screening of
builders and few controls on construction quality: HOW
had only 12 people nationwide to review more than one
million homes last year. Adding to homeowners misery
are what the Department of Housing and Urban
Development has called the unreasonable delays and
hardball tactics of the warranty companies in responding
...The bottom line, says Ernie F. Roberts, a Cornell
University law professor, is that the warranties are not
intended to protect consumers. They're designed to
protect builders from open-ended liability.
Another review of the situation appeared in the Wall Street Journal
September 19, 1991, in an article by Milo Geyelin:
"Home Buyer-Warranty Firm Cases Rise."
With buyers of new homes turning increasingly to
insurers to protect them against shoddy construction,
plaintiffs lawyers are raising concern about whether
policyholders have been getting their money's worth.
..."The problem with a lot of these warranties is that
everyone who buys a house thinks they're covered, and
a lot of times they're not," said Marina Corodemus, a
plaintiffs' lawyer in Perth Amboy, N.J., who has begun
an information exchange network for similar complaints
through the Association of Trial Lawyers of America,
the national plaintiffs' lawyers group. "Homebuyers end
up holding the bag at the point where the builders have
bailed out," she said.
Obviously, the worst cases make the newspapers and magazines. But
the 'worst case' is what all these homeowners thought they were insured
against. Cases like these prompted a 1991 Congressional hearing on the
subject, before the House subcommittee on housing and community
development. Only a few of the victims gave testimony, and to date no
definite legislation has been proposed to remedy the problem. At the
hearing Juan Acosta, a deputy assistant secretary of the Housing and
Urban Development Department, testified that "warranty companies
[often] unreasonably delay claim payments, or claims adjusters use high-pressure tactics."
Regarding one of the victims who attended the hearing, the Washington
Post wrote (November 5, 1991):
...a Fredericksburg [VA] homeowner who observed the
hearing, said he, too, has had his share of warranty
problems. The roof of his new home of nearly a year has
spouted six leaks, the crumbling basement floor floods
regularly and the floors are uneven, he said.
[Homeowner] said he rejected HBW's $800 settlement
offer because estimates he has received put the repair
costs at more than $15,000. "Somebody needs to
regulate [the industry] or else we have got to put a stop
to it," he said.
After hearing the litany of homeowners' complaints,
subcommittee Chairman Henry B. Gonzalez (D-Tex.)
said, "I cannot begin to tell you how worrisome and
demoralizing all this is."
One attorney experienced in home warranty litigation is Bernard
DiMuro, of Alexandria, VA, chairman of a special committee on
homeowners warranty litigation of the American Trial Lawyers
Association. Mr. DiMuro, who won the $206,605 appeals case, is
frequently quoted about home warranty cases. According to a December
29, 1991 column in the Washington Post by Jane Bryant Quinn
("Homeowners Build Case Against Warranty Firms"),
DiMuro has inspected 16 home-warranty complaints
filed with the Office of Consumer Affairs in Rockville
(MD). He found many homeowners settling for less or
just giving up, after months of frustrating
correspondence with the insurer.
Just what do these new-home warranties cover?
Ms. Quinn's column offers some insight:
Even the 10-year coverage is far more limited than it
sounds. You're protected only against defects in load-bearing
structures that render the house "unsafe,
unsanitary or otherwise unlivable." Translation: To
collect, your house practically has to be falling down
Obviously, the warranty companies do not see things the same way as
homeowner plaintiffs and their lawyers. From Mr. Geyelin's WSJ article
of September 19, 1991:
Terrence Cooke, corporate counsel for Homeowners
Warranty, denied that his company or others in the
industry attempt in any way to evade their responsibility
to pay valid claims. As in any area of insurance,
policyholders must read their policies carefully before
maintaining that they have a claim, he said...
And a few paragraphs from an article by H. Jane Lehman that
appeared in New York Newsday, December 14, 1991:
* * *
Terrence S. Cooke, HOW counsel, denied that his
company attempts to refuse large claims on flimsy
grounds or draw out the process to wear down
homeowners. He said the company has paid more than
$300 million in claims in 17 years.
The warranty companies acknowledge they take a
narrow view of their contractual responsibilities,
particularly regarding structural defects. [An attorney]
for National Home Insurance, which backs another
national program, Home Buyers Warranty, said
structural-defects coverage is "designed as catastrophic
coverage to cover the worst possibilities" as determined
by a company-paid structural engineer.
"As much as HOW might like to write coverage as
broadly as some have suggested to cover absolutely
anything that goes wrong in a house, the cost of the
policy would be thousand of dollars rather than
hundreds," Cooke said.
So there it is. Despite the fact that builder-sponsored policies
supposedly cover structural defects, their interpretation (by the company)
is very narrow. If you can live in your house, and it is not falling down,
the warranty company may not admit a claim. More to the point,
structural defects that make your house unsalable may not be covered by
these policies. If you buy builder-sponsored structural insurance, you
need to be aware of its limitations.
The Law Is Stacked Against You
In the preface to the 1984 edition of his book
How to Avoid the Ten Biggest Home-Buying Traps,
A.M. Watkins wrote:
A few years ago the United States Senate subcommittee on
housing held hearings in Washington, D.C., on the subject of
defective housing and what could be done to protect
homebuyers from bad houses. [I] was asked to testify. To any
experienced observer of the housing industry it seemed as if
history were repeating itself, for most of the problems aired at
the hearings poor heating, wet basements, shoddy design,
and so on were the very same problems that had caused
trouble for homebuyers in the past and have continued to cause
trouble in the years since. Such problems form a pattern, and
the realization of this fact prompted this book.
In a chapter of the book titled "The Vanishing Builder,"
Mr. Watkins commented:
The vanishing builder usually has little or no fear of the law.
The law, in fact, has by and large proved ineffectual with such
builders. That means most district attorneys, other public
officials or agencies, the FHA, the VA, and anybody else you
might think could help. All of these people are by law
concerned only with criminal violations. To nail a recalcitrant
builder, they need clear evidence of fraud. This is often tough
to get, or so they say. As a result, the typical district attorney
may listen to your woes sympathetically but in the end give you
the rush-off. He's dreadfully sorry, he will say, but it's so
darned hard to proved fraud. Patting you on the back in
consolation he leads you to the door, he'll say that you'll have
to hire a lawyer and take the case to civil court. However, help
for home buyers should come soon, since consumer advocates
(like Ralph Nader) will almost certainly turn their attention to
Watkins's assessment was true in the early 1980s and is true in the
1990s. And it will be true in the 21st century. Unfortunately, buyers
of defective construction are as unprotected by the legal system as
they have ever been. While several strong advocates for the rights
of homeowners have emerged, the law remains stacked heavily against
buyers of defective construction. Why so?
Before answering this question let me digress a bit. This book is
mainly about building or buying a new house or condo, but the problems
are pretty much the same when repairing or remodeling an existing house.
In researching material for this book I repeatedly came across horror
stories about people who hired remodelers, plumbers, electricians,
roofers, etc., and ended up victimized, swindled, or defrauded of
thousands of dollars.
In fact, complaints about home repair and remodeling consistently
ranks number one among categories of consumer complaint, as compiled
by the government. Year after year many more people repair or remodel
their existing homes than buy a new one, and thus more people are
exposed to potentially shoddy remodeling than to defective new
construction. The problems have reached such endemic proportion that
some states are setting up funds to reimburse ripped off homeowners.
From the New York Times, March 24, 1991, in a story titled "Recourse
for Shoddy Work":
At least five states Arizona, Connecticut, Hawaii,
Maryland and Virginia have set up funds that
reimburse a consumer who can prove he was victimized
by a contractor's ineptitude or bad faith.
...Such plans are needed, several consumer protection
officials said, because a homeowner who wins a court
battle against a contractor often cannot collect.
Although many of the complaints about home repair and remodeling
stem from outright fraud, the vast majority have the same root cause as
complaints about defective new construction: bad people doing a bad job.
For victims of defective home repair/remodeling and defective new-house
construction, the law works or doesn't work the same way. The
homeowner victim has no meaningful legal redress.
There are two principal reasons why the law is heavily stacked against
consumers of defective new construction or repair: First, business
contracts are unenforceable without the expenditure of a large amount of
money for lawyers and litigation. Second, in any legal action regarding
dispute over a contract, either written or implied, the amount awarded or
otherwise recouped by the plaintiff will almost never equal the cost of
repairs plus the victim's legal expenses. Again, this is true whether you
are a victim of defective construction of a new house or defective repair
of an existing home.
The July 15, 1990 Ft. Lauderdale Sun-Sentinel article on
condominiums, excerpted earlier, points out that:
Even if a condo board sues a developer and wins, it
usually cannot force the other side to pay its legal fees,
a major cost.
So even if homeowners subject themselves to the tremendous
aggravation and expense of filing suit and getting to trial, it is almost
impossible to recoup losses or come out financially whole. From the
Medical Economics article by the Detroit doctor:
By July we were 11 months into our nine-month
construction plan. The contractor ignored our penalty
clause, saying it was null because the delays were caused
by ourselves and the architect...
Later, after the original contractor, Ace Construction, bowed out, Ace
put a lien on the doctor's house for
tens of thousands of dollars in unpaid compensation.
We countersued for breach of contract and damages for
the additional cost of finishing the house, and the
monthly interest payments on the construction loan.
...Two days before the trial, we settled with Ace rather
than go to court. We got none of the damages we asked
for and had to pay Ace's attorney's fees, as well as our
own. But we didn't pay any of Ace's bills.
In this case the building contractor reneged on the contract,
then sued for more money. The doctor ended up paying the legal fees
for both sides!
The moment you have to resort to the legal system for redress on a
contract case, you've lost. Your new house requires another $30,000 to
properly finish and Builder X refuses to help? Expect to spend $10,000
before you have any chance of getting Builder X to make any offer
whatsoever (if then).
Suppose you learn of your house's defects only after you take
possession, that is, after title transfers. Homes in good neighborhoods go
up in value. Since it takes years to litigate a major dispute, the value of
the home (properly built) would invariably be higher at the time of trial
than when it was purchased, yet the law doesn't recognize this fact. It
costs a fortune to bring a builder into court; the law doesn't recognize
your expenses. It costs money to "prove" defects; the law doesn't care
about this either.
And suppose you win a judgment? A legal judgment against a builder
or developer is not worth much if the defendant cannot or will not pay.
He can declare bankruptcy, in which case the homeowner is out of luck.
Or the builder can simply ignore the judgment, which will then require the
victimized homeowner to incur more legal expenses in an attempt to find
and attach assets. Builders who don't pay a legal judgment aren't stupid.
Debtors don't go to jail. And chances are you, the luckless plaintiff, won't
find many assets to attach.
Certainly if the builder is truly bankrupt we can't fault the law. But in
many situations the builder's corporation that constructed the house is
bankrupt, and the "bankrupt" builder goes right on building under a
different name. The following excerpt is from a November 10, 1991
article in the Los Angeles Times, about shoddy construction around the
...shoddy builders often disband their company and form
another one to avoid paying claims on defects which
range from dangerous lapses such as undersized
electrical wiring and weak foundations to annoying and
potentially costly problems such as leaky roofs, cracked
tile and uneven framing.
From a December 14, 1991 New York Newsday article, about
defective construction in the New York region (italics added):
Unlike home improvement contractors, home builders
are not licensed in New York, as they are in New Jersey
and Connecticut. There have been unsuccessful attempts
in the state Legislature and in the Suffolk County
Legislature to require licensing. "Our membership has
been opposed to it," said [a NY Builders Association
official]. "We prefer the point of sale protection rather
than the bureaucracy."
That protection is a state-mandated home warranty law
that went into effect in 1989. Under the law, buyers
have protection against structural defects for six
years...The warranty law has been criticized by consumer
advocates who say that a homeowner has little recourse
if a builder goes bankrupt or closes the business and
incorporates under another name.
From an article in the Raleigh News and Observer, December 15,
In North Carolina, its a simple matter for a contractor
who knows he's about to be sued to drain assets from one
company and put them in another, according to Bob
Garner, a producer/reporter for North Carolina Public
Television in Chapel Hill. Garner, who recently
produced a documentary on defective residential
construction in this state, says that one thing prospective
homeowners can do to protect themselves is check
whether their builder has done business under another
"Otherwise, you could ask your contractor whether he's
had any complaints," Garner said, "and he might
respond that ABC Construction Co. has a clean record
we've never had a complaint. He may not tell you that
three other companies he had were virtually driven out
of business. He just goes and gets a contractors's license
under another name."
The bottom line: don't be surprised about builders going bankrupt
and starting anew to avoid responsibility. In too many jurisdictions the
legal system allows such practice to occur with total impunity.
Between a Rock and a Hard Place
If all this sounds dismal, it is. No homeowner in his right mind
wants to go through the nightmare of litigation against a builder: experts
invading your home; mountains of paper work; dozens of meetings;
enormous legal fees; and time taken away from living and working.
There is only one reason any sane homeowner sues his builder: he or she
has NO OTHER CHOICE. Anyone who thinks otherwise should suffer
a defective home built by an uncaring builder.
In the first six months after our nightmare became public, and long
before my first book was published, we personally heard from ten local
people with construction horror stories of their own. Seven of the ten had
already hired lawyers, and had either sued their builder or were about to
do so. The other three asked for the name of our attorney. The people
who contacted us are just the tip of a large group of oppressed, angry,
Probably most construction complaints settle without litigation. The
builder fixes the problem, or the homeowners accept a substandard repair,
or they just give up and make the repairs themselves. None of these
options was feasible in our situation. When the builder and architect
refused to properly investigate our complaints, we had no rational choice
but to call in experts to find out what was wrong. When the experts'
reports showed major structural defects we were caught in a legal bind.
We could not legally sell the house without disclosure of the reports.
With disclosure the house was for all practical purposes unsalable.
Yet at no time was there any offer by the defendants to fix our house
Over one million new homes are built each year in the United States
(two million in boom times). Why don't we hear more about defective
construction? Why is this book just about the only one on the subject in
print? Defective construction is certainly more common than would
appear from a handful of isolated news articles.
Probably many homeowners don't have the resources to sue their
builder all the way through trial. Or a lawsuit is not economically
feasible. At the very first meeting our litigator remarked that if the
defects cost "only $20,000" to fix, a lawsuit might not be worthwhile. As
it turned out, our experts said the defects would cost almost $100,000 to
properly fix and a lawsuit was still not worthwhile.
But many homeowners do fight back, and the media are just beginning
to pay attention. One article on the subject appeared in the Business
Section of the November 10, 1991 Los Angeles Times, a paper with a
national audience, by reporter Jube Shiver.
Homeowners Are Going After Shoddy Builders
Complaints about defective construction are
on the rise. And more consumers are suing the
contractor or even filing fraud charges.
Complaints about housing defects, once mostly
confined to builders of low-cost homes in fast-growing
suburbs, have spread across the nation in recent months
as owners of mid-priced and even luxury houses and
condominiums complain of shoddy construction.
Jordan Clark, president of the United Homeowners
Assn. in Washington, calls construction defects a "major
problem" that has drawn Congress' attention and has
sparked homeowner groups from California to Florida to
sue inept builders.
In California, until recently the nation's hottest
housing market, the state Contractors' License Board
says complaints against builders and home repair
contractors jumped from 27,500 for the year ended June
30, 1989 to 31,000 in 1991...
...Industry officials say a very small fraction of the 1.1
million homes built each year have significant problems.
Critics say that is because the cost of litigation and the
shame of discovering costly defects after living in a
house for years prevents most single-family homeowners
from suing builders. What's more, shoddy builders often
disband their company and form another one to avoid
paying claims on defects which range from dangerous
lapses such as undersized electrical wiring and weak
foundations to annoying an potentially costly problems
such as leaky roofs, cracked tile and uneven framing.
...Increasingly, homeowners are pooling financial
resources to fight shoddy builders. In hearings in
September before the House housing subcommittee,
more than 300 homeowners in five states came to
Washington to complain about serious construction
defects in their new homes...
...Among the largest and most active groups is the
1000 member North Carolina Homeowners Assn.,
formed 2-1/2 years ago because of all the trouble
homeowners in the state have had with builders, said Jim
Parker, the group's co-founder and president.
Shiver recounts the plight of individual homeowners in North Carolina
("What I went through with that builder was worse than the hell I went
through in Vietnam"), Florida ("I was horrified at the condition of the
house") and Virginia. A Virginia woman bought a house with a leaky
roof, uneven floors, irregular wall studs and an undersized ceiling support
beam. Then her builder went out of business.
She found four other homeowners allegedly victimized
by the same builder. They joined together and persuaded
authorities to arrest the builder on suspicion of criminal
fraud. In exchange for dropping the charges, the Fairfax
County prosecutor's office got the man to pay [her]
$10,000 of the more than $70,000 she and her husband
had spent building their house.
The Situation in North Carolina
Several of the news articles quoted so far have been from North
Carolina. In recent years there have been more problems there than
perhaps in any other state except Florida. In both states the problems are
accentuated by much new construction, the result of an influx of retirees
and other newcomers.
The situation in North Carolina reflects the nation as a whole, not only
the fact of defective construction, but how the victims are affected and
how the builders, regulatory agencies and politicians tend to respond. As
already pointed out, there are no statistics on defective construction
nationwide, or even in any one state. According to a story in the
Charlotte Observer from March 17, 1990:
Nobody knows how many people buy new homes with
code violations and then can't get their builder to fix
them; there is no central system for counting complaints.
The Home Builders Association points out that last year
50,000 homes were built in North Carolina, and the state
attorney general's office and the contractors' licensing
board received about 250 complaints.
But critics of the state's regulatory system say many
complaints go unreported because homeowners don't
know who to call or they fear they won't be able to sell
their house if they complain publicly.
The consumer section of the Attorney General's office
estimates that, in general, only 10% of unhappy
consumers report complaints. If that were applied to the
home building industry, that would amount to 2,500
complaints in 1989 one complaint for every 20 houses
That's five percent of new construction in one state. In the
Introduction I estimated the problem at three percent of new construction
nationwide, clearly a conservative estimate.
But statistics are faceless. Three percent, five percent one might
think it's a small problem. Until you hear from the victims. From the
same Charlotte Observer article (italics added):
Homeowners who sue builders may win in court but
because of state law, usually can't collect attorney fees.
Sometimes homeowners win, but they can't collect
money from builders shielded by bankruptcy laws.
"There are adequate protections through the courts and
the regulatory board," said...a member of the NC
Licensing Board for General Contractors.
That's of little comfort to Mrs. P. of Cary, just outside
Raleigh, who bought her two-story, three-bedroom house
six years ago for $110,000.
State officials eventually found 10 "plainly visible"
code violations, including structural problems. A jury
awarded her $16,500, which she hasn't been able to
collect from her now-defunct building company.
The contractor is not listed in the telephone book and
couldn't be reached for comment.
"To buy a house is everybody's dreams," said Mrs. P.,
a salesperson for a carpet company. "We had worked all
our lives for this house. Then it turned into the biggest
nightmare anybody could imagine."
North Carolina deserves special attention because many homeowners
are beginning to fight for their rights in organized fashion, through the
North Carolina Homeowners Association (NCHA). The NCHA is a
grass roots organization that was created because of the large amount of
defective construction in that state, and of the perverse way North
Carolina's laws have worked against the homeowner victims. NCHA is
dedicated to both preventing defective construction and to helping victims.
Because of many cases like Mrs. P.'s, the NCHA was instrumental in
getting a bill passed in the state legislature to reimburse buyers of
defective construction. House Bill 37 provides for reimbursement of
repair costs if the buyers win a legal judgment and the builder goes
One of the problems in North Carolina (and perhaps elsewhere) is that,
despite the requirement of a license to be a general contractor, the law is
frequently skirted or ignored. Contractors can build houses without a
license and get away with it. In part, this is due to a loophole in the law
that allows contractors to build without a license if the house not
counting land and profit come to less than $45,000. From the Charlotte
Observer, March 17, 1990:
[Homeowner] thought he was dealing with a licensed
builder when he signed a contract in 1987 for a
$120,000 house on 2.5 acres outside Chapel Hill.
He was wrong.
State investigators later found the house to have
structural problems that [homeowner] has spent $7,000
and hundreds of hours to fix.
His builder skirted the law, according to the NC
Licensing board for General contractors, by telling local
inspectors that construction would cost $25,000.
...the builder argued that he had not entered into any
contracts and did not consider himself a "general
Earlier I explained why an occupancy permit means nothing about the
structural integrity of a new home. In North Carolina the problem has
been taken one step further: builders sometimes sell houses without a
permit. Here are portions of a letter written by a homeowner to the North
Carolina Homeowners Association.
In March of 1990 my husband and I
came to Wilmington, NC to build our
retirement home...In April of 1990
construction was started. On Nov 1,
1990 [the builder] told us we could
move in because all inspections had
passed. According to our contract we
were to pay the builder as the house
progressed and he in turn would pay all
After we moved in there were
several items to be completed and after
completion we would pay the last 3%
balance. We waited until April of 1991
for him to complete the house, but he
refused. It was about that time that
we discovered we did not have a
certificate of occupancy. After
talking to the county inspectors we
discovered that the builder did not
comply to certain building codes. The
building inspector said the [the
builder] was aware of this and that the
certificate of occupancy could not be
issued until the violations were
corrected. The inspector again
notified [the builder] but he again
ignored the request.
We then hired another contractor to
correct the violations at our expense
in order to receive the certificate of
occupancy. We could not understand how
a building contractor could refuse to
comply to building codes and not even
receive a fine. Nothing was done to
We still have not had our house
completed and we are finding more and
more code violations that the county
inspector apparently chose to ignore.
To top all of this off [the builder] is
now suing us for the 3% balance and has
put a lien on our house.
After detailing further legal and construction horrors about her house,
the homeowner writes:
We have found that North Carolina
does not have laws to protect the
homeowner or they choose not to enforce
How bad can things get in a new home? Two more examples, from
different areas of North Carolina, will show you. In the summer of 1991
Mr. and Mrs. F. contracted to build a new home on five wooded acres in
Polk County (western North Carolina, near Spartanburg, SC). According
to an April 9, 1992 story in The Tryon Daily Bulletin, within a few
months the experience turned into a "a full-fledged nightmare."
While the house was under construction the couple discovered evidence
of sloppy construction, and discussed the problems with both their builder
and the local building inspector. Some of the problems had to do with the
structural integrity of the dwelling, like the placement of foundation piles.
At this point the house was about 35% complete. Despite all that the
homebuyers saw and documented, the building inspector passed on the
with flying colors. They were shocked and puzzled.
How could a trained inspector have overlooked such
obvious flaws? they wondered.
...[They] were not daunted. With the guidance of the
North Carolina Homeowners Association, they took
steps to resolve their situation. The couple immediately
began to document in photos and on video tape
everything they felt might be a building code violation
in their house.
In addition, the couple asked George Birmingham, a
private building consultant with almost 50 years
experience as a builder, to evaluate their situation.
Birmingham spent hours inspecting the house and his
verdict was not good. He enumerated close to 50
problems in his final report including missing or faulty
foundation piers and footings, improperly installed
shingles, improper truss installation, sloppy masonry
and mismatched flue liners.
He concluded his eight page report with the comment:
"I am amazed they got the house built this far without a
major collapse or failure with this building." In a
telephone interview with The Bulletin, he characterized
the [couple's] house as "a glaring example of poor
In the aggregate, three independent engineering reports showed that the
construction failed to meet the plans and specifications of this
custom-designed home [and] failed to even meet
minimum N.C. building codes. [The couple] say that the
builder refused to take responsibility for problems the
studies detailed, claiming instead that there was only one
corner of the house out of alignment.
The result? The couple felt they had no choice but to halt construction
and sue the builder. At that point they were already out $130,000 the
cost of the land, part of their construction loan, and legal fees. They sued
for breach of contract, fraud and deceptive trade practices. The builder
then sued them for work done on the house but not yet paid for.
Not a happy result when building one's dream home. And exactly who
is right and who is wrong? How much damage has been done and who
is to pay? Those questions, unfortunately, were left for the courts to
decide. I say unfortunate, because anyone reading this article and talking
to the couple can only conclude they are innocent victims of incredibly
sloppy work. They would not risk losing $130,000 unless absolutely
convinced their house was constructed improperly, and that the builder's
proposed remedy is inadequate.
Then there is the case of Mr. O., of Cary, NC (a suburb of Raleigh),
who bought a new house constructed with 28 building code violations!
Eventually his complaints led to suspension of the builder's license for a
full year but not to repair of his house. His case generated many
articles in the local newspapers. From the Cary News, November 9,
[One] member of the Wake [county] home-builders
association who has built homes for 24 years, said the
board's decision [to revoke the builder's license] was fair,
but far too late for Mr. O.'s sake. I went through his
house. "It's probably one of the worst construction jobs
I've ever seen. It really is."
Did lifting the builder's license help this homeowner? An editorial on
the suspension also appeared in the Cary newspaper.
This week's decision by the N.C. Licensing Board of
General Contractors to suspend the license of Cary
Builder...was unfortunate because it does nothing to
implement changes that appear to be needed in the
That there were problems with the house in question
has been acknowledged by the builder - that no
resolution has occurred also is a fact - and, that the
licensing board has too much work and too little time
also is evident because the bulk of the case was handled
by an administrative law judge at the request of the
volunteer board members and their staff.
...As it is, Mr. O.'s house has not been repaired and he
says he cannot afford to have it done; [the builder] now
has chosen to spend even more money on legal fees to
have the case decided by a jury; and, nothing has been
After reading my first book, Mr. O. wrote me a long letter about his
Dear Dr. Martin,
I would like to say that I enjoyed
reading your book And They Built A
Crooked House, but in fact the further
along I read the angrier I became.
Your book was extremely well written
but what angered me was the fact that I
could have inserted my name at many
places describing the treatment you
received upon building your "dream
I'm sure you receive many letters
from people describing their dream home
turned nightmare, so I wouldn't go into
great detail about my experiences. I
purchased a new 2,800 sq. ft. home in
June of 1989 in one of the best
developments in North Carolina for
$212,000. The builder was held out to
be one of the area's finest...
Six months after moving in cracks
started developing in the walls of my
home. The builder stated "I think
there is a pier missing from under this
wall." I asked the builder to have a
complete structural engineering report
done on the home, to which he refused.
I then retained my own structural
engineer and found (among other things)
1. The foundation footings did not
comply with the building code.
2. 932 bricks in the foundation were
void of mortar in their vertical
joints. (The engineer stated that
due to the omission of mortar in
the joints that the home most
probably would collapse in
hurricane force winds.)
3. Two load bearing walls were not
4. The chimney is not properly
supported and is pulling away from
The estimate to repair the
foundation alone on this home is
$127,000.. The tax assessor did reduce
the value [of the home] to $49,000, the
cost of the land. I have been denied
After detailing his initial brush with an indifferent legal system in
North Carolina, he continues his letter:
I put $67,000 down on this house and
my entire life has become ruined by
what has happened with this home. I
can only hope that other people will
read your book before buying a
home...The only way that I could have
been aware that this home was
defective, prior to purchasing it, was
to have dug up the foundation which I
I joined a group called the N.C.
Homeowners Association. This is a
group of homeowners whose lives have
been devastated by purchasing defective
homes. One member...let his defective
home in N.C. go into foreclosure and
moved to New York.
What was the builder's response to suspension by the North Carolina
licensing board? It is outlined in the following article that also appeared
in the Cary, N.C. News (italics added).
A state licensing board has suspended the license of a
Cary building contractor after finding 28 code violations
in a $212,000 house in Cary.
"I think it is the least they could have done,
considering the shape that my house is in," said Mr. O.,
noting that [the builder] can continue to build during the
appeal. Mr. O. said a defect found in his home was also
in other homes that [the builder] built.
[The builder] said that three engineers inspected the
home and, although there are code violations in the
house, the building code is not in line with current
building practices...He said that the current 119-page
code is ambiguous and that the state will replace it next
year with a comprehensive 400-page code.
The board's final decision said that the foundation of
the house lacked mortar in vertical joints, a code
violation. Mr. O. said [the builder] testified in a
deposition that "he has built other homes this way and
continues to build this way."
Mr. O. said insurance companies refused to issue a
policy on the house and real estate agents won't list it for
"Who wants to buy it?" he said. "It can't be sold."
Viewed from the standpoint of what's right, fair, rational, and proper,
this case, like ours and many others, makes no sense to the citizen
uninvolved in such matters. Mr. O.'s house is defective. Its construction
violated state building codes. The builder disputed these same codes. He
was reprimanded by the Licensing Board. The house was unsalable. The
builder would not fix it, leaving the homeowner no choice but to fight an
expensive and enervating legal battle. Yet the legal system is woefully
unable to effect any equitable solution (as Mr. O. makes abundantly clear
in other correspondence).
In the world of defective construction what's right, fair and rational is
usually of no consequence. In the real world of defective construction,
homeowners are caught in a Kafkaesque situation; the bad builders are
often rewarded (with profits), and the homeowners are invariably
victimized (with legal expenses and loss of property value). This is the
real world in North Carolina and everywhere else.
We chose to fight our case all the way to trial instead of give up and,
like Mr. O., met up against people who make their own rules, rewrite
history, delay, deny, distort. Mr. O. went further, and met even more
resistance than we did. Mr. O. generated so much heat about his case
that the town of Cary, NC actually referred to him at one point as a
"loose cannon" because, he says, "I decided to fight back rather than go
into a corner and die." (Mr. O.'s case against the builder eventually
settled out of court for an undisclosed sum.)
The North Carolina Homeowners Association publishes a newsletter
(see Appendix for address). An edition from the early 1990's quoted me
in the lead paragraph.
- - - - - -
North Carolina Homeowners Association
Words can't express what we have been going through. The total frustration
coupled with a sense of moral outrage. The sense of loss. The feelings of
helplessness. It is the material equivalent of rape. This is how wars start. In
a less civilized world...there would be physical violence over this. These
irresponsible men have disfigured our home, our lives, our sensibilities.
Dr. Ruth S. Martin
And They Built A Crooked House (1991)
Outrage and Frustration
These powerful words express the despair of a homeowner victimized by
fraud, deception, and irresponsibility in the construction of her "dream" home.
I need your help to expose and correct serious problems in the residential
construction industry in North Carolina. Hundreds of innocent families have
been financially and emotionally devastated by the purchase of defective new
houses. Without changes, thousands more will suffer a similar fate.
North Carolina's elected representatives passed laws requiring licensing of
contractors and establishing minimum safety standards for home construction.
THESE LAWS ARE NOT ENFORCED! Local building inspections
departments and state regulatory boards ignore serious violations of the building
code, first by approving defective houses and then by doing nothing when
homeowners are stuck with the results.
Homeowners with defective homes are surprised that they are not protected...
This and other editions of the NCHA newsletter have documented the
weaknesses of North Carolina laws, their lack of enforcement, the
outright fraud found in many situations, and how the Homeowner's
Recovery Fund passed in the state legislature over the fierce opposition
of home builders. Because of NCHA's efforts, the specific problems in
North Carolina and the reasons behind them are perhaps better
documented than in any other state.
Dr. Donald Jacob is one of the strongest voices in the NCHA, although
he now lives in New York. Dr. Jacob bought a defective home in North
Carolina in 1986, and within two years discovered that the foundation
was totally substandard. In his long (and futile) attempt to get the house
repaired, he discovered much evidence of fraud and deceit, not just in the erection of his house
but in many others. Working with the NCHA, he uncovered and
documented the following circumstances in North Carolina.
- Homes in North Carolina have been approved by local building
inspectors despite serious, flagrant Building Code violations.
Some licensed building inspectors, engineers and architects are
providing North Carolina contractors with documents falsely
certifying compliance with the State Building Code. Builders use
these documents to deceive unsuspecting homebuyers.
- The North Carolina courts are lenient in allowing builders to
declare bankruptcy and avoid compensating damaged
homeowners if they win an award from a jury.
- The North Carolina construction boom started in the early
1980s. Contractors licenses were handed out not just to builders,
but to politicians, salesmen, real estate agents and any local
businessmen with access to capital. More dependent upon
financial status than knowledge of construction principles, the
licensing process did nothing to protect citizens from incompetent
- The North Carolina Contractors Licensing Board is funded
entirely by fees collected from contractors. Five of the 7
members are contractors. The Board has consistently refused to
enforce North Carolina laws related to construction.
- The North Carolina civil courts have exhibited a peculiar
inability to compensate homebuyers damaged by negligent or
dishonest construction. Through a technique called corporation
folding, North Carolina contractors can change the name of their
company every few years and drain all assets from the old
company. The courts have refused to use the personal assets of
negligent contractors for compensation. Therefore, even if he
wins in court, the homeowner can collect no money.
So this is North Carolina, where outraged homeowners are more
organized than in any other state. But problems with defective
construction and the homeowner's no-win position exist all over the
country. Why can't people who buy a seriously defective new house get
Why Can't Americans Get Their New House Fixed?
The typical response of builders and developers to this litany of horror
stories is something like the following: 'Sure, there are some bad builders
out there. But there are bad doctors, too. And bad lawyers, accountants,
and car salesmen. Most people who buy a new house are very happy
with their home. The incidence of truly bad construction is very small.
You are blowing this thing out of all proportion.'
That is the argument. And it completely misses the point. It is a
defense against an attack which does not exist. My recitation of these
horror stories is not an attack on the construction industry or on home
builders in general. I am not trying to reform an industry that is
comprised of over 100,000 individual contractors, and whose bad apple
builders are scattered among thousands of jurisdictions. My task is far
more focused: to help the individual homebuyer protect himself or herself
against man-made mistakes and a hostile and unhelpful legal system. For
me to argue against the self-serving propaganda of builders and
developers would be a futile effort, of no help to anyone.
I have no doubt that the vast majority of builders are both competent
and honest. That fact does not help the small but significant number of
homeowners who are devastated by bad construction. And devastation
is an appropriate term. It is unconscionable for anyone who buys a fully-guaranteed new home to have to go to court because the house was not
constructed according to local building codes. It is unconscionable for
anyone to lose a fortune because the law allows a builder to sell a
defective house, declare bankruptcy and then continue building houses
under a new name. It is unconscionable for anyone to be sold a new
house that should never have passed inspection.
Lawyers have a term for the situation as it exists with defective
construction: res ipsa loquitur, the thing speaks for itself. The fact is,
there are thousands of unhappy homebuyers, victims of defective
construction. They can be found in every state of the union. The fact is,
our system of litigation and laws is not designed to help the victims
achieve meaningful redress. If anything, the legal system penalizes the
buyer of a defective house because of the enormous cost to litigate and
the irrevocable loss of those funds. The fact is, there is no real penalty
for dishonest and unethical builders, developers and home inspectors.
The fact is, the laws in every state are powerless to make a builder
comply with existing building codes, to make a builder fix his mistakes,
or even to make a builder pay a legal judgment.
All this is true, but the most crucial fact is that, for the individual
homebuyer, the risk of acquiring a structurally defective home can be
significantly reduced by taking a few very important steps. After all, the
problems occur in something completely man-made. We are not talking
about the variables of human disease, or acts of God, or the whims of a
judge or jury. There is no way for any given client to always check if his
or her doctor or lawyer is doing the right thing. There is a way for every
homebuyer to help ensure that his house is being, or has been, constructed
The majority of construction nightmares around the country do not
result from outright, intentional fraud (a situation more often found in the
home repair business). Fraud in constructing and inspecting new houses
does exist, as has been documented in North Carolina and elsewhere, but
by and large contractors building a house want and expect things to go
right; most cases of defective construction don't start out with a builder
intending to cheat the homebuyer.
Defective construction happens, unfortunately, because many builders
just don't know how to build a good house or care about the result. They
are not only bad builders in the hands-on sense, but also bad managers of
craftsmen and subcontractors. No matter how well intentioned they may
have been before the project began, the finished house reflects sloppy,
careless, and incompetent work.
When a bad builder's construction errors are exposed he is apt to
display the traits of bad people: dishonesty, denial, distortion of the truth,
outright lying, vindictiveness. He does not accept responsibility and may
actually fight the complainers. As a result, the homeowners are left
hanging; the more they document the defects, the more likely the builder
will ignore the problems.
Homeowners saddled with a seriously defective house often dig a hole
for themselves, albeit unwittingly. They thoroughly document the
problems yet cannot get them fixed by the people who caused them, and
their documentation makes the house unsalable. In desperation, the
homeowners call upon the legal system; they hire a lawyer.
Unfortunately, from that point the situation almost invariably goes from
bad to worse, as the builder also hires a lawyer. Lawyers hired by
builders are trained to fight first and settle later. Or fight forever and
settle never. Lawyers for builders know that the legal system is on the
side of the builders and against the homeowners, and they take every
advantage of this fact.
* * *
When spokesmen for the building or real estate industries say that "a
very small fraction of the 1.1 million homes built each year have
significant problems," what does that mean? Three percent is a "very
small fraction," but that represents over 30,000 homebuying families!
And if it's 5,000 or 80,000 defective houses each year, so what? The
problem only has to happen to you once.
Behind every story I have quoted and these stories are but a tiny
sample of the construction nightmares documented year after year is a
family full of heartache, disappointment, crumbling dreams. Buy a
defective house from an irresponsible builder and you buy a nightmare
The solution as I see it is not to "fix" the industry, for that is
impossible, given the huge diversity among both builders and the
jurisdictions where they do business. All the housing regulation in the
past 50 years has done nothing for buyers of defective houses. The
solution the only realistic solution is for you, the consumer of new
construction, to become smarter, wiser, tougher.
Section 3 -- A Psychiatrist
Looks For Some Answers
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