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Don't Let Construction Defects Drive You Into Bankruptcy

Since costly repairs, diminished property value, the cost of temporary housing, and medical bills for associated injuries can quickly add up when construction defects exist, some victims turn to bankruptcy to relieve their financial burdens. However, property owners may be able to file a claim to recover compensation to cover these costs. A developer/builder is responsible for repairing the defective conditions within a property and paying for any losses the defects cause.

What Is the Process of Filing a Claim for a Construction Defect?

There are steps that the owner of the property can follow when claiming for a construction defect.

  1. Identify the defective condition.
  2. Get a qualified expert to inspect the property and access the defects.
  3. Issue the Chapter 40 notice, informing the developer of the defects
  4. The developer and subcontractors are given time to fix the defects

If the developer fails to complete the repairs and pay for the victim's losses, the case may proceed to litigation.

What Is a Construction Defect?

A ‘construction defect' is defined as a flaw in the design, landscape, or construction of a building that;

  • Violates codes or ordinances
  • Is not completed in accordance with the generally accepted standard of care in the industry
  • Causes unreasonable risk to a person or property
  • Causes physical damage to the property

Asserting a Claim for Losses

When asserting a claim, the claimant needs to identify the problem, similarly to how people would determine what is likely to drive a couple to divorce. The proposed fix must be permanent. Some conditions are apparent, such as large cracks on the walls or the floor. These conditions are known as patent defects, and claimants have six years (time is counted from substantial completion) to file such a claim.

Some problems may not be apparent to the property owner, and they are known as latent defects, such as design defects. The owner must file a claim for latent defects within eight years from substantial completion of the project. If the builder knew or reasonably should have known about the defects at the time of construction, the property owner has ten years from substantial completion to file a claim.

Who Can File a Claim for Construction Defects?

Any individual/entity whose interest has been harmed by the defect can assert a claim. A subsequent buyer of the house may also claim; however, there is a limitation in cases where property possession took place when the buyer was aware of the defects.

A Home Owners Association (HOA) or an owner of a condominium may also sue for construction defects in common areas and damage to an individual's interests when the damage is caused by defects in areas the owner or association is required to maintain.

Who Is responsible for Construction Defects?

The claimant can claim damages from the builder, developer, or subcontractors. However, in most cases, it may be better to seek recourse from the builder/developer. The builder/developer may have responsibility for all defects, even if the defects were caused by a subcontractor or manufacturer of the defective materials.

When the Responsible Party Files Bankruptcy

In some instances, the builder/developer may file for bankruptcy protection. Filing bankruptcy may protect the builder from incurring some costs, but it does not insulate the insurance company.

The bankruptcy court can allow the lawsuit to proceed if the recovery is limited to insurance policies' proceeds.

What Are the Remedies Available for the Property Owner?

The homeowner may be compensated for;

  • The cost of the repairs
  • The reduction of value in the property
  • The additional costs, such as temporary housing, investigation costs, and attorney's fees
  • The loss of use and enjoyment of land

Property owners cannot claim for everything, for example, if they purport that the defects caused financial burdens that were a cause of divorce.