From the May/June 2004 Issue

The ABC's of Handling a Small Construction Defect Claim
By: Robert C. Maddox

Year after year Las Vegas ranks as the fastest growing city in the United States. In recent months that growth has become more frenzied than before. The new home market in Las Vegas has been described as "hyperactive."[1] "There is virtually no standing new home inventory in Las Vegas, nor has there been for the past year."[2] New home construction in Northern Nevada is likewise proceeding at an incredible pace.[3] According to Sparks City Planner, Margaret Powell: "As we grow, we get more houses, more people and more code violations."[4]

With demand for new homes being at such an extraordinary level and with entire subdivisions sprouting up in a matter of a few months, it comes as no surprise that everything is not always as it should be. Haste in home construction not only makes waste, it leads to mistakes. Construction problems can range from rather simple matters such as drawers that don't fit, uneven floor coverings or paint that is too thin. More serious defects include roofs and windows that leak, sheet-rock and stucco cracking and plumbing and air-conditioning deficiencies. Such problems can result in the growth of hazardous mold. Among the most costly defects to correct are those associated with soils problems such as expansive soil that swells when it absorbs water causing significant damage to the home.

In dealing with very minor claims, with repair costs less than say $2500 dollars, homeowners may be well advised to attempt to get the problems resolved on their own, following the procedures outlined below.

If the defect appears to be quite serious and you have never handled a residential construction defect case, you probably should consult with one of the attorneys who regularly does this type of work.

So, having read this article and having reviewed the statutes, you have decided that you are going to represent the Smith family who has come to you with a complaint that their home, that is less than two years old, has cracks in the stucco as well as cracks on the sheet-rock walls inside the home. Although you do not need an expert to put the builder on notice of the cracks in the home and start the time running for the builder to conduct an inspection and make a decision as to whether or not the builder is going to perform a repair, at some point you and the Smiths will need to know what is really causing the cracks and what is a proper repair. The cracks may result from framing deficiencies or they may be caused by soil movement, lack of proper compaction or perhaps expansive soils. The cracks could be caused by window or roof leaks allowing moisture into wall cavities causing swelling of framing members. There are other possible causes of such cracks.

Before you can advise your clients to sign a release, you must know what is actually going on. Hiring all the experts you might need to figure out this problem can be extremely expensive. At what time you bring experts in to figure this out on behalf of the Smiths is something that you will have to work out with them.

Whether or not you know the cause of the problem, you can start the legal process by drafting a letter to the builder describing what appears to be wrong and sending the letter to the builder by certified mail. The letter must state that it is being sent in compliance with NRS 40.645. The description of what is wrong does not have to be at all technical. "Cracks in exterior stucco and cracks in interior sheetrock walls and ceilings" is good enough.

Within 30 days of receipt of the notice from you, the builder must put on notice whatever subcontractors he thinks may have responsibility. Once notified by the builder, the subcontractors have a total of 30 days within which to arrange for an inspection of the home. The builder and subcontractors are required to coordinate their inspections in a manner which minimizes inconvenience to the homeowner. Caution your clients of the need to cooperate in scheduling the inspections.

Within 90 days of receipt of the notice, the builder must provide a written response to the homeowner. The subcontractors who have been put on notice by the contractor must provide a written response within 90 days of their receipt of notice. The written response must advise you whether or not the builder or subcontractor has elected to repair the defect. If the repair is of such a nature that the home occupants would be required to move out during the period of repair, the notice from the builder and/or subcontractor must specify monetary compensation for temporary housing and for storage of household items. The written response may also include a proposal for monetary compensation in lieu of repair. On the other hand, the written response may disclaim any liability.

If either the builder or the subcontractor offers to do a repair, the Smiths need to let them do the repair if the Smiths want to preserve their legal rights against the builder. Neither you nor the Smiths get to tell the builder how to do the repair, nor do you want to. Nonetheless, the statute requires that the repairs can only be performed by licensed, bonded and insured contractors; that the work must be performed on reasonable dates and at reasonable times; that it be in compliance with the applicable building codes and that it be performed in a "good and workman like manner in accordance with the generally accepted standard of care." It is important to note that the repair work must be done in a manner not to increase the cost of maintenance of the residence. Whatever needs to be taken out or moved must be put back in at least the condition that it was in prior to the repair work. The statute specifies that the homeowner must be protected against mechanics' liens.

For a case involving four or fewer homes, the repair work must be completed within 105 days of sending the initial notice to the builder. There is a provision requiring that the homeowner and builder agree to a reasonable date for completion if the repairs cannot be completed within the time limits of the statute.

Within 30 days of completion of the repairs, the builder or subcontractor must give the homeowner a written statement describing the nature and extent of the repair, methods used to conduct the repair and the extent of any materials or parts replaced.

Neither the builder nor the subcontractor can insist upon the homeowner signing a release of claims related to the defect alleged in the notice. Because the builder or subcontractor decides what repair work is to be done, the builder or subcontractor takes the risk that the repair is going to be effective.

Up to this point, the homeowner does not necessarily need to have an expert evaluate the cause of the defect or the merits of the repair done. However, if you or the homeowner have any question about the efficacy of the repair, you are going to need expert assistance. If, in the Smith situation, the sheet-rock subcontractor came in and patched the cracks in the walls and the stucco subcontractor came in and patched the cracks in the stucco with nothing further being done to correct what might be the underlying problem, an expert analysis is going to be necessary. The Smiths may not want to spend the money for this right away, but they will when the cracks reappear. Once you have had the expert analysis done and you determine the cause of the cracks, you need an opinion as to what is necessary to properly correct the underlying deficiency and you need to know what it is going to cost to do that work. You then need to make a demand on the builder for money. In your demand you need to include the cost of repair, attorney fees, expert fees, any loss of use and enjoyment that may have occurred or is likely to occur in the future and any other costs associated with the claim. The elements of the homeowners' damage claim are spelled out in NRS 40.655.

Unless the builder sends you a check by return mail, before you can file suit, you must engage in mediation. You propose a mediator to the builder's counsel. If they agree to the mediator, you proceed to schedule the mediation. The homeowner pays $50.00 and the builder must pay the balance not to exceed $750.00 per day. If the builder does not agree with your choice of a mediator and you reach an impasse, you can simply specify one of the alternative dispute resolution services identified in NRS 40.680.

If mediation is unsuccessful, you can file your lawsuit against the builder. The causes of action should include breach of express and implied warranties as well as negligence. If the Smith's home is in a common interest community, review the statutory warranties provided at NRS 116.4113 and 116.4114. Even if the Smiths were not the original purchasers of the home, the statutory warranties automatically pass to the subsequent owner.

If the builder's counsel seeks to compel binding arbitration pursuant to such a clause in the "warranty" provided by the builder, be sure to read Burch v. District Court, 118 Nev. Adv. Op. No. 46. The "warranty" may not be enforceable against the homeowner.

Have in mind that simultaneously with sending the initial notice to the builder pursuant to NRS 40.645, you could commence a proceeding before the State Contractors Board against the builder. The grounds for disciplinary action against the builder are spelled out at NRS 624.301 - 624.305. The Contractors Board will send an investigator to conduct an investigation and the investigator will determine what specific provisions apply. The only relief that the Contractors Board can order in your favor is that the builder do some repairs. The Contractors Board can, of course, impose other discipline against the builder or subcontractor, but in terms of specific help for the Smiths it can only be that the builder performs some repairs. Filing a proceeding with the Contractors Board against the builder may help apply some additional pressure to get the builder to fix the problem.

In addition to disciplinary proceeding against the builder or subcontractor, in the course of the Chapter 40 proceeding any party, the homeowner, the builder or the subcontractor, can request an advisory opinion from the Contractors Board as to the efficacy of the repair performed. This is a provision that was insisted upon during the 2003 Legislative Session by the subcontractors group. It is not a provision that homeowners' counsel would typically utilize.

This should help get you started.
Good luck.

[1] Hubble Smith, Southern Nevada Economy: LV Home Sales Enter Hyperspace, Las Vegas Review Journal, March 24, 2004
[2] Id.
[3] Alison Bath, New Staff Sought to Keep Pace with Building, Reno Gazette Journal, March 29, 2004
[4] Id.

Bob Maddox, a Harvard Law School graduate, has been representing homeowners for more than 28 years, having helped thousands of homeowners get their defectively constructed homes fully repaired. He practices primarily in the area of construction defect law, has offices in both Reno and Las Vegas and is a member of the NTLA Board of Governors.

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