12 Most Asked Questions about

Construction Defect Litigation

1. What is the necessary end result of construction defect litigation?
The absolute necessary result of construction defect litigation is the net recovery of funds sufficient to permanently repair the project, refund reserves and pay for expenses of litigation including experts, court costs and attorneys fees. [FAQ Index]

2. What is the average length of time of a construction defect case?
The average length of time for cases handled by our firm from retention to recovery is fourteen (14) months. Cases have been resolved in as little as fifty one (51) days in one case and four months in another matter. [FAQ Index]

3. How are the expert costs to be paid?
There are three basic methods of compensating the experts who are a necessary and invaluable part of the recovery process. These methods are utilizing funds from reserves, procuring an unsecured line of credit or having such expenses advanced by counsel. It is important to note that counsel is not permitted to pay expert costs, only to advance same. [FAQ Index]

The authority to utilize reserves is founded in the Civil Code at Section 1365.5(c)(1) providing that Board of Directors shall not spend funds designated as for reserves for purposes other than the repair of major components for which the Association is obligated or "litigation" involving said repair.

Unlike the temporary use of reserves for operating expense, there is no requirement that the monies be paid back at any certain time, only that the members be advised of the Board's decision to utilize reserve funds for construction defect litigation. Finally, in certain cases, the firm will advance all costs of litigation including expert fees.

4. Will the attorney fees and costs be covered? And, if so, how will you know we'll have enough funds to make the necessary repairs?
Under a variety of legal theories, both expert costs and attorney's fees may be recoverable in construction defect litigation. Generally, only certain court costs are recoverable. However, it is necessary to calculate said costs and fees prior to making any decision on resolution of a construction defect case. [FAQ Index]

5. How many defect cases has Feldsott & Lee handled?
The firm has handled in excess of fifty multiparty construction defect lawsuits with an average case length of fourteen months. [FAQ Index]

6. What happens if we lose the construction defect case?
In the extremely unlikely event that a case were to be "lost", the Association's obligation would be that of payment of the experts. As indicated above, counsel is prohibited ethically from paying expert costs. Though said costs may have been advanced by counsel, they are an obligation of the Association.

Though we have never faced this situation, the experts would need to be paid over a specified time period during which either a bank loan or special assessment needs to be considered. For example, in a case where there are one hundred and fifty condominiums and the expert costs were $300,000.00, each homeowner would be assessed $2,000.00 over a period of time, possibly two years. [FAQ Index]

7. Who can we call about our case or repairs?
During the course of construction defect litigation, questions often arise relative to the proper party and the viability of performing repairs. We want both the Board and the members to feel comfortable calling this office as well as the lead experts so that decisions can be made immediately. A policy is set with the Board for implementation of repairs and , as counsel, we are able to ensure that proper documentation and authentication occurs prior to the repair being completed. [FAQ Index]

8. Will we be able to sell our units during the litigation?
Contrary to much of the published literature on this topic, both condominiums and single family homes are bought and sold during the course of litigation. While some lenders will not work with property involved in litigation, many lenders will and our office is pleased to assist escrow companies and loan officers with public information relative to the particular case. [FAQ Index]

9. What will we have to disclose to a potential buyer?
Irrespective of whether defect litigation is ongoing, individual homeowners have a common law and statutory duty to disclose any "construction defects" they know of, or should know, of to potential purchasers. Recent case law has generally exempted the Association or real estate agents from making such disclosures.

However, the Association needs to inform the members of the fact that there is construction defect litigation and make a copy of the "Calderon" preliminary list of issues available for review and copying. This stems from the requirement that sellers must provide prospective purchasers with a copy of any "Calderon" notice that has been served on the Developer. Finally, there is a box to check on the standard real estate disclosure form (Civil Code 1102) if construction defect litigation has been filed. [FAQ Index]

10. What happens to our property values during litigation? After litigation?
Property values are reflective of the economy rather than the existence of construction defect litigation. While the existence of defects certainly is not positive relative to values, the fact remains that both condominium and single family home values have fluctuated with the economy without regard to the existence of construction defect litigation.

Many recent studies and articles have documented the rise in condominium values over the last six months. This is true irrespective of the fact that many such condominiums remain in litigation. [FAQ Index]

11. What kind of liability do the county or city inspectors have?
Pursuant to the Government Code, county and city inspectors are immune from liability for building deficiencies with minor exceptions relating to fraud or gross malfeasance. [FAQ Index]

12. What are association related issues and what are individual related issues?
This is perhaps the most important issue to consider. The legislature has determined that, in a condominium setting, the Association should be the party to seek recourse for common areas, separate areas that they are required to maintain and separate area damages that are "integrally related" to common area issues.

Accordingly, if a carpet has been ruined due to moisture from a slab or exterior leak, the Association would be the proper party to seek recourse. However, if the carpet was ruined due to moisture from a faucet leak, it would be the homeowner's responsibility. Other examples of homeowner responsibility include kitchen cabinets and interior finishes, unless damaged from the exterior. [FAQ Index]