2007-07-16

WHAT EVERY MINNESOTA HOMEOWNER SHOULD KNOW ABOUT CONSTRUCTION DEFECTS AND WATER INTRUSION IN RESIDENTIAL PROPERTIES

Literally thousands of Minnesota homes built in the past decade have experienced water intrusion problems, causing an explosion in residential construction defect litigation.  While the debate continues as to who is at fault, there is little debate that construction defects have resulted in millions of dollars in damages statewide.  Today it is not uncommon for a home that suffers from water infiltration to require hundreds of thousands of dollars of repairs. 

Since there are strict time limitations that apply to all construction defect claims, it is important for homeowners to understand their rights and take action quickly.

Defining the Problem

Water infiltration typically involves rainwater penetrating the exterior of a home, entering the interior walls and slowly, secretly rotting the structure.  It's an insidious problem, as damage can occur with little or no outward signs to a prospective buyer of a home, let alone a long-term resident. 

While the statutory new home warranty (Minn. Stat § 327.A.01, et seq.) provides protection to homeowners in the event that a major construction defect is discovered, that protection is subject to very strict timelines and a complicated body of case law before any sufficient compensation can be had.

Negotiating Claims - Not a Do-it-Yourself Project!

Attempting to negotiate a claim without the assistance of an attorney or an engineer creates two central risks.  A builder, always cognizant of the timelines and requirements for pursuing such a claim, may not negotiate in good faith – instead simply stalling until legal deadlines are past.  This is certainly not true with all builders; however, the only certain way to stop the clock ticking on the deadline for a legal claim is the service of a lawsuit.

It is also a risk to negotiate without the input of an engineer representing your interests, as the typical homeowner can never know whether an estimate or repair offered by the builder is sufficient to take care of the entire problem.  Engaging in negotiations without an engineer can often result in an incomplete repair and a waiver of any future claims against the builder.  It is also important to remember that the builder's insurance representatives are not acting on your behalf.  An attorney should review any release offered by a builder or its insurer for a construction defect claim.  An engineer representing your interests should review any offer to repair or scope of repairs offered by a builder and/or its engineer.

New Home Buyer Inspections

The issues facing a prospective buyer of a new or recently constructed property (a property constructed within the last 20 years) differ from those faced by an existing homeowner.  If the seller of a property is not aware of a construction defect or water infiltration problem, the seller is not liable to the buyer upon completion of the sale.  Generally, a claim for seller’s misrepresentation can be successful only if the seller knew the condition of the property and failed to include the information their seller’s disclosures. 

The inspection process for homes with potential water damage issues must be diligent.  A moisture testing company should always be retained if any concern is raised.  These include, but are not limited to, the age of the home, the exterior cladding, or vague references in the seller’s disclosures to water damage.

Given the rapid rise of home values in Minnesota within the past 10 years, it is undeniable that your home is oftentimes your family’s greatest financial asset.  Whether you are a potential buyer or current homeowner, protecting this asset in today’s climate requires care, caution, and thoroughness.  A complete and systematic understanding of the issues requires the assistance of a legal professional and often a moisture specialist or engineer.  The checklists below are illustrative of some of the issues that should be considered, but are by no means exhaustive.  They are merely intended to identify issues for which professional help should be sought.

CHECKLIST FOR HOMEOWNERS

·                      The age of the home is critical, as a legal claim for defective construction must be commenced within two years of the date of discovery of the defect, and that discovery must occur no more than 10 years after the completion of the construction (within two years of the breach of warranty for a statutory warranty claim).

·                      If you settle with your builder and waive future claims, be aware that it can also result in a waiver of the remainder of your 10-year new home warranty and other claims for future damage.

·                      The identification of alleged code violations during the investigation process may create new obligations in future seller disclosures.

·                      Courts apply the time deadlines to statutes of limitations and statutes of repose in cases like this very strictly.  The discovery of a “small problem” may begin the clock for other conditions in the home.

·                      Immediately upon discovering a problem, a homeowner must notify the builder in writing.  Telephone conversations or an in-person meeting does not satisfy the statutory obligation.  If you do not notify the builder or contractor in writing within six months of discovering the problem, you may lose all rights under the statutory warranty.

·                      Insurance representatives for builders and engineers representing builder’s insurers do not owe a duty to you, the homeowner.  Do not confuse the loyalties of these parties.

·                      You should not sign any release or waiver without first consulting an attorney.

·                      Rely on your own experts to evaluate whether or not an offer to repair is sufficient and complete.

·                      The Minnesota Legislature is considering various amendments to the current laws related to homeowner construction defect claims.  If as a homeowner you are faced with construction defect issues, consult a lawyer well versed in the latest legal developments.

CHECKLIST FOR PROSPECTIVE PURCHASERS OF RESIDENTIAL PROPERTY

·                      Any seller’s disclosure that includes an indication of past window leaks or unexplained moisture should be considered a red flag requiring further investigation.

·                      Although water infiltration is not limited to stucco homes, all buyers considering purchasing a stucco home should require a moisture test on the home as a contingency to the sale.

·                      A prospective buyer should propose “walking away” from a real estate transaction if the seller refuses to allow a moisture test.

·                      Any sign or indication of moisture problems are best investigated by a licensed professional engineer in addition to a moisture testing company.  Many real estate inspectors do not include water infiltration or hidden moisture damage inspection during their review.

·                      When purchasing a home known to have had moisture damage that has been repaired, find out if the sellers have waived any future warranties on the property or its components, such as windows.

·                      Remember that the damage from moisture intrusion is often hidden, and often cannot be detected even by experts without the use of proper testing equipment.

·                      Water intrusion and construction defects are not limited to homes clad in stucco.  These problems are also found in homes clad in brick and other types of siding.

·                      Seller disclosure laws in Minnesota only require sellers to disclose “all material facts of which the seller is aware” and, therefore, the purchase of a damaged property may result in the purchase of someone else’s lawsuit.

J. Robert Keena is a partner with the Eden Prairie, MN law firm of Hellmuth & Johnson, PLLC.  Co-Chair of the firm's Litigation Practice, he concentrates in the area of Construction Litigation, focusing mainly on construction defect claims.  For additional information or a free consultation regarding construction defect and water intrusion issues, contact Keena at 952-941-4005 or jkeena@hjlawfirm.com .

Disclaimer:    This information is for general reference only and should not be relied upon as legal advice.  No one should rely on this communication as legal advice or to create an attorney-client relationship.  If you are in need of legal advice, you should retain an attorney to assist you.