Written by The Business Journal Staff
More than a decade after its adoption, California’s Right to Repair Act — otherwise known as the “Fix It” law — continues to create a ton of trouble for area homebuilders and contractors.
SB 800, which took effect Jan. 1, 2003, set the statute of limitations at 10 years for most construction defect claims for new residences sold after the law was adopted. The legislation, which also gave builders and their subcontractors the right to fix a defect before a homeowner could sue, was actually meant to provide better protection to homebuilders and was supported by the California Building Industry Association.
But the law has proven to be a gold mine for attorneys specializing in construction-defect litigation — and has driven a number of area homebuilders out of business.
“It’s cost me more than $200,000 above and beyond my insurance policy just to stay in business,” said longtime Fresno contractor Ellis Atrat, who owns A&A Plastering.
Atrat likened the recent wave of construction defect litigation to “a game of intimidation and money” carried out “mostly by a handful of southern California law firms. It’s just terrible,” he added. “Many honest contractors and subcontractors have been forced into bankruptcy due to the abuse of SB 800.”
“The more lawsuits that are filed, the higher the [insurance] premium rates and consequently the higher the cost of homes as the money has to come from somewhere,” Atrat said.
In business since 1978, Atrat plans to close his plastering company in December, putting more than a dozen employees out of work. “I’m getting out,” Atrat said. “These lawsuits have taken all the fun out of it.”
Atrat is far from the only area contractor impacted by the suits. Earlier this year, Clovis-based homebuilder Generation Homes was forced to file for bankruptcy protection following a tidal wave of lawsuits filed against the company related to the River Ridge subdivision the company built in Reedley in the early 2000s.
“The cause of the bankruptcy solely rests on the construction defect litigation that we incurred down in Reedley,” said Robert Wood, Generation Home’s president.
Wood admitted that the deductible on his construction defect insurance was “probably too high.”
“We approached all of these people and offered to fix their homes,” he said. “Some took us up on it and dropped out of the lawsuit. But in most cases, the people just wanted the money.”
“After the lawsuit is filed, the onus is on the builder and subcontractors to prove there are no defects,” Wood said. “You can only spend so much money testing. These attorneys know that in the end, you’d rather just settle. So they cast a very wide net.”
Building industry officials believe many attorneys involved in the suits gloss over the fact that once a homeowner has joined in a construction-defect lawsuit, that information has to be disclosed in all future sales of the home.
Bay Area real estate attorney Jan Gruen warns homeowners of the dangers of joining in class action construction defect lawsuits, cautioning pending litigation can impact the availability and cost of home insurance and make it “close to impossible” to refinance a home.
“Construction defect lawsuits decrease the value of your home and your community and make your home unmarketable while litigation is pending,” Gruen said.
Some of the Valley’s biggest homebuilders, including Darius Assemi at Granville Homes and John Bonadelle at Bonadelle Neighborhoods, have long railed against the crippling impacts the lawsuits have had on their businesses. Both men have a track record of fighting rather than settling the suits.
Testifying several years ago about the adverse impact the lawsuits have on construction, manufacturing and real estate sales, Assemi told the Fresno City Council litigious attorneys do not give the builder a chance to remedy the situation. “You wake up one morning and there is a lawsuit on your doorstep,” Assemi said.
In a recent YouTube video, Assemi blasted the lawsuit abuse. “There’s a group of attorneys, mostly from Southern California, that file lawsuits against production homebuilders up and down the state. They basically sue homebuilders, their subcontractors and insurance companies, every component of the home, from the roof down to the foundation, including the landscaping.”
“Sometimes the cleaning people get sued as well,” Assemi added. “Many subcontractors have gone out of business because they can no longer purchase liability insurance.”
Mike Prandini, CEO of the Building Industry Association of Fresno/Madera Counties confirmed this week that construction-defect lawsuits are “a continuing issue” for the industry.
“They (lawmakers) have made a few tweaks recently that make it a little easier for builders to make fixes before litigation is started but it’s still a big problem and is driving up costs for everybody,” Prandini said.
Many building industry officials, including Prandini, place the blame for the continuing barrage of lawsuits on the powerful trial lawyers’ lobbyists. “They have a ton of money to spend so it takes an awful long time to get anything done,” he said. “The real sad part about it is that not all trial lawyers get involved in this. It’s really just a few firms statewide” filing all of the suits.
Prandini added that many of the builder-members of his association have already made adjustments in their business plans to compensate for the threat of more lawsuits.
Assemi said the suits “make California less competitive” because “at the end of the day, the consumer ends up paying substantially more.”
Prandini said it’s almost like builders have come to expect the lawsuits now. “I haven’t heard my guys complaining about it a lot lately,” he added. “I guess they’ve just factored this into the price of homes.”