A shocking court decision might free builders from responsibility for home defects

Phoenix, AZ. -"...Yep, these are lousy times to be a homeowner — and it may get much worse in this state. That's thanks to a recent court decision that consumer advocates believe will dramatically weaken new homebuyers' rights. The ruling basically lets builders off the hook for construction defects, saying that unless homeowners have a contract with their builder, they can't sue him...Many homeowners simply do not have contracts with their builder. Instead, they contract with a developer — the guy who assembles the land, deals with city codes, handles sales, and hires someone else to do the actual construction. That guy, the builder, does much of the work, but he's not actually on the contract. And now that means the builder's likely off the hook...If the decision stands, advocates say, it could create a giant loophole affecting the majority of new homebuyers in Arizona — 'millions of owners,' in the words of one lawyer...'If this decision stands,' writes John F. McGuire, the lawyer arguing the case, 'Arizona will become the only state where an owner is left without a remedy while the builders who caused the construction defects walk away with no responsibility.'...As with many infill projects today, the developer was merely a limited liability company, formed specifically for the project at hand. After selling the units, the LLC essentially closed up shop. ( Under Arizona law, the individuals who form the LLC aren't personally liable for anything that goes wrong; they may have the bucks, but homeowners will never get a penny.)...To consumer advocates, the case could have a major impact. That's because, for insurance and tax purposes, few homes today are developed and built by the same entity. Even big companies, like Pulte (PHM) and KB Homes (KBH), tend to form separate LLCs for each project. Pulte Construction may have built your home, but you probably bought it from an entity like Pulte Desert Vista Bloom LLC. The court is saying that only a single entity that both builds and develops is responsible for construction flaws. And if that stands as law, why would anyone choose to both build and develop?...builders and developers often win cases by wearing down the buyer. The more roadblocks they can throw up, the more likely a homeowner is forced to abandon the fight...In an amicus brief on behalf of the Arizona Consumers Council, attorney Lisa Borowsky argues, 'If the decision of the court is left to stand, countless Arizona homeowners will surely be left with no legal recourse for damages resulting from the defective construction of their homes.' You'd think that kind of rhetoric would catch the attention of state officials. You'd be wrong. Although the appellate court decision makes it clear that homebuilder liability may be ripe for legislative debate, the Legislature has all but ignored it...Could it be because homebuilders are always among the top donors to state legislators? Or because homebuilder associations enjoy enviable popularity among politicians?"...
Published: March 13, 2008