Excessive litigation a threat to home construction
“If this carries on, it will have devastating impacts on construction here in New Mexico,” said John Garcia, Executive Vice President of the Home Builders Association of Central New Mexico.
Garcia has been sounding the alarm that an excessive number of lawsuits are slowly dismantling the home construction industry.
The lawsuits have targeted new sub-division in Albuquerque and Los Lunas, claiming that many homes in each subdivision have significant construction defects. The law firm filing the largest bulk of these types of lawsuits is Kasdan, Lippsmith, Weber, Turner LLP. They have three offices in California, one in Phoenix and one in Albuquerque.
“They maliciously create an opportunity to shake up the market for the interest of a law firm that is not from here and doesn't benefit anybody in New Mexico, except it benefits the law firm from California that preys on the market,” Garcia said.
The HBA accuses the law firm of enrolling homeowners into lawsuits before truly knowing if those homeowners actually have construction defects.
Advertising material from the law firm, obtained by 4 Investigates, informs homeowners the defects have been discovered in similar tract homes. It adds-- the firm has recovered “in excess of $1 billion for its clients.” The advertisement is attached to a survey that homeowners can fill out and send to the law firm for a free inspection to see if defects are present in their home.
The inspector will examine stucco and dig into the roofing to look for possible problems. If the inspector finds an issue, that homeowner can get enrolled in a mass action lawsuit against the home builder.
“That's not fair. That's not fair to the builders, the industry and in the end it's not fair to the consumers,” Garica said.
With dozens of homebuilders in a single subdivision signed up as plaintiffs, Kasdan will sue the home builder. The home builder then wraps in all of the subcontractors into the suits, including roofers, electricians, stucco workers, framers and plumbers.
The 4 Investigates team spoke to the owner of a roofing company who didn’t wish to be identified, who told us his company has battled so many lawsuits, he is closing down the family business that has been operating for more than 40 years.
Even though he tried to resolve any customer complaints quickly, the mass action lawsuits forced him to pay heavy legal fees and attorneys’ costs. He adds his business insurance premiums and deductibles skyrocketed after his insurance company was forced to pay out hundreds of thousands of dollars in legal settlements.
Another construction company owner, who also feared going public, told 4 Investigates that his insurance dropped him due to “excess liability occurrences.” When he finally found a new insurance company, he was forced to pay 500 percent more than what he was paying before.
When subcontractors pay more for insurance those costs get passed along to the consumer.
The law firm responds
An attorney who works in the Albuquerque office defended his firm’s practices.
“We don't tell people, ‘You have a problem, so you must come to a meeting,’” said attorney Brent Bailey. “We say, ‘We have information about these problems occurring in your subdivision. If you have those problems, come and see us.’”
“What this firm has been accused of is-- intentionally going out and recruiting homeowners to be enrolled in these lawsuits whether you know what their defects are or not. Is that true, do you recruit clients like that?” 4 Investigator Chris Ramirez asked Bailey.
“No, that is not the way we approach cases. If you look at the complaints we file, all of our complaints have a list of defects that we found in the subdivision where we are putting the case together. That list is done by the preliminary work of the inspectors and experts. We don't pursue claims for people who don't have those problems.”
Bailey affirms his clients have legitimate construction defects and provide the 4 Investigates Team with photos showing cracked walls and spongy-looking stucco.
The Home Builders Association worries homeowners may think these lawsuits offer a quick buck for nothing. 4 Investigates obtained a secret settlement offer break down that reveals on average, the attorneys take 40-percent. After other litigation costs and taxes, the homeowner walks away with about 30 percent of the settlement.
Homeowners who enroll in these lawsuits also may know that while their home is subject to litigation, a cloud is placed on the title of the home indicating it is construction defect litigation. Homes may not be sold, bought or refinanced until the claims are resolved.
Changing the system
For the last few months, Speaker of the NM House of Representatives Brian Egolf (D-Santa Fe) has been meeting with homebuilders and subcontractors.
“I'll be the first to say, litigation is not the best solution for the vast, vast, majority of problems that arise between contractors, subcontractors and homebuyers.” Speaker Egolf said.
After hearing of the issues, he wants to create legislative changes that would make litigation a last resort option, versus the first resort option that currently exists.
“We need to set up a solution so that valid claims of homebuyers and home builders can be dealt with in a way that is not as costly, is quicker and delivers the most important thing—which is for subcontractors to have certainty for their future and for homebuyers to get a house that is safe, well built, and is going to be good for their family for many years.”
Egolf is proposing creating a construction review board. Homeowners would first file a complaint about a construction defect with the board. The board would determine if the claim was valid. If it is, the board would work with the contractor and homeowner to resolve the dispute. Litigation would become a last resort option.
Many in the industry worry, if nothing changes more subcontractors will be forced out of business and home prices will continue to rise.