Construction Defects with Homeowners - Case Study Example

Foundation Defect Issues with Homeowners Introduction Homeowners may find themselves in a serious and difficult situation when construction defectslike improperly built foundation has been detected. These defects take time to be known, usually years after a building was constructed. Many contractors or builders can easily deny responsibility if a homeowner fails to seek advice from an experienced construction defect attorney. This paper will try to research laws that apply to defective home foundations and a verdict on what will or might happen based on New Jersey legislation and cases. It will try to provide court case evidence to support the contrasting views of each side of the case. Objective: To identify applicable laws in defective home foundations and a verdict on what will or might happen based on New Jersey legislation and cases New Jersey Construction and Related Laws Building foundations in the construction industry is covered by several state laws that protect the homeowners. The New Jersey Department of Community Affairs has set regulations under the Uniform Construction Code (UCC) that every builder or contractor abides prior to and even after sales of homes to new, second or consequent owners. This protects homebuyers from construction defects that vary over time. The first year of warranty covers workmanship or materials for grading that keeps drainage away from the foundation. The second year of warranty period covers mechanical and electrical systems defects. The third year and for up to the tenth, the major structural defects are covered including foundation walls, load-bearing portions, supporting beams and foundation footings. The homeowner should file for claim in the covered period, but may notify the local construction official for foundation damages that may or may no longer be covered by the warranty (NJ DCA, 2010). The law covering construction of foundation is Title 5 Community Affairs Chapter 25 Regulations Governing New Home Warranties and Builders’ Registration or N.J.A.C. 5:25. Specifically, the Act “prescribe the form and coverage of the minimum warranty established by the Act; govern procedures for the implementation and processing of claims pursuant to the warranty; establish requirements for registration as a builder, and procedures governing the denial, revocation and suspension of builders registration; and, establish the requirements of private alternate New Home Warranty Security Plans and of the State New Home Warranty Security Plan,” (§ 5:25-1.2, NJ DCA2, 2010, 1). Adams (2010) cited many builder-contractor liabilities in the case where foundation issues occur among homeowners. Home building foundations usually last for tens or even hundreds of years when done properly. But “serious and difficult to fix […] if built poorly […and] threaten the stability of the home and the homeowner’s investment,” (Adams, 2010, P 1). One of the more critical issues about foundation problems is that it only becomes apparent after several years of completion and even occupancy of the home. The homeowner may be left unsure of what recourse may be available. Recommended Construction of a Home Foundation The functions of a foundation include: supporting the house as moisture barrier that keeps the building dry and mold-free insulates the home from cold protects the home from damages that may result from ground movements (Adams, 2010). It is therefore important for builders to ensure its stability regardless of materials or location. Various measures are undertaken to stabilize the foundation including the proper evaluation of the property’s type of soil, water table and grade in order for a properly prepared foundation mix. Proper ground preparation that is solid and compacted is also necessary to avoid future cracking. The stone must be properly leveled and packed prior to pouring in a slab. Soil must also be reengineered in the presence of landfill materials that may decompose over time. Adams (2010) suggested that “Concrete should be poured in one day to avoid creating a “cold joint” between fresh and semi-cured or cured concrete,” (P 5). A slow process of curing ensures the maximum capacity of the concrete to support weight. Where homeowners are faced the problem of construction issues, the law guarantees through the UCC warranty for homebuyers a covered period to file claim during a covered period or file a complaint to the local court. However, only one option should be done for each damage claim through the process called “election of remedy” (NJ CDA, 2010, P 5). The advantages of immediate and timely filing for a claim are: the warranty will pay for the building correction where a builder may fail to act, and; “warranty covers defects in materials or workmanship that may not be violations of the Code,” (NJ CDA, 2010, P 6). It should also be clear to homebuyers that not all warranty-covered materials and defects may be violation of a UCC code. Filing a complaint with the building department officials help identify and correct the code violation. In case of expired warranty or items that may not be covered by the warranty, homeowners may still pursue to file claim or complaint with the building department (NJ CDA, 2010). Application in Legal Case The coverage as well as law protecting homeowners of foundation defects may be specifically noted on the case of Carl Horosz v. ALPS Estates, Inc (1993). The case has it that the Horoszes (plaintiffs) purchased a home in Wayne, New Jersey, from the defendant builder-developer Alps Estate Inc (“Alps”) in June 1977. In 1981, the Horoszes experienced cold air coming from the washroom, so, they contacted a representative of Alps. It was found that a certain section of the house was constructed on fill and it was causing the house to sink. A concrete and steel was inserted on that portion of the house called “underpinning.” The work was started in October 1982 and completed in April 1983. However, in 1989, the Horoszes once again experienced cold air emanating from an open window that will not close due to un-aligned frame. An excavation done by another party revealed another fill that has caused the home to sink. Alps failed to act on the report of the Horoszes so that the Horoszes filed a lawsuit on September 28, 1989 for negligent repair undertaken by Alps in violation of Consumer Fraud and breached warranties. Alps defense was based on the ten-year warranty of the NJSA 2A:14-1.1 or ten-year statute of repose. The trial court ruled in favor of Alps. However, the Horoszes appealed. While the Appellate Division agreed of the applicability of the ten-year statute, it concluded that the defect have arisen from the 1983 repair work and not on the original construction completion in 1977 or transfer of the property to the Horoszes. On the case Welch v. Engineers, Inc., 495 A.2d 160, 162 (App. Div. 1985), the Supreme Court stated that: The purpose of the statute of repose was to limit the expanding liability of contractors, builders, planners, and designers, see [Beth Israel Hosp. v. Gruzen, 124 N.J. 357] at 362, 590 A.2d 1171 (stating, "We have concluded that the Legislature enacted the statute in response to the expanding application of the discovery rule . . . , the abandonment of the completed and accepted rule . . ., and the expansion of strict liability in tort for personal injuries caused by defects in new homes to builder/sellers of those homes"); see also E.A. Williams, Inc. v. Russo Dev. Corp., 82 N.J. 160, 164-65, 411 A.2d 697 (1980) (discussing history and purpose of statute); OConnor v. Altus, 67 N.J. 106, 117, 335 A.2d 545 (1975) (same); Rosenberg v. Town of N. Bergen, 61 N.J. 190, 195-98, 293 A.2d 662 (1972) (same). Based on that legislative purpose, we have tended to read the statute broadly. See, e.g., Newark Beth Israel Hosp., supra, 124 N.J. at 363, 590 A.2d 1171; Rosenberg, supra, 61 N.J. at 198, 293 A.2d 662 (Supreme Court of New Jersey, 1993, p 3). The statute of repose was to provide a limitation on the liability of contractors and builders that may expand over time. As pointed out in E.A. Williams, Inc. v. Russo Dev. Corp., 82 N.J. 160, 164-65, 411 A.2d 697 (1980), “we have concluded that the Legislature enacted the statute in response to the expanding application of the discovery rule . . . , the abandonment of the completed and accepted rule . . . , and the expansion of strict liability in tort for personal injuries caused by defects in new homes to builder/sellers of those homes”. The NJSA A:14-1.1 states that: No action whether in contract, in tort, or otherwise to recover damages for any deficiency in the design, planning, supervision or construction of an improvement to real property, or for an injury to property, real or personal, or for an injury to the person, or for bodily injury or wrongful death, arising out of the defective and unsafe condition of an improvement to real property, nor any action for contribution or indemnity for damages sustained on account of such injury, shall be brought against any person performing or furnishing the design, planning, supervision of construction or construction of such improvement (emphasis mine) to real property, more than 10 years after the performance or furnishing of such services and construction (Supreme Court of New Jersey, 1993, p 5). It should be noted then that the case of the Horoszes was that of an improvement that was not paid by the owners but shouldered by the builder under the ten-year statute. However, the improvement was finished in 1983, thereby providing the Horoszes another ten years to file for claim from 1983. The 1983 repair was considered an independent undertaking as “an improvement to real property” and covered in the NJSA 2A:14-1.1. The repair of providing an underpinning was important for the habitability of the house. In another case with regards to “improvement to real property”, the Appellate Division found in the case of Brown v. Jersey Central Power & Light Co., 163 N.J.Super. 179, 394 A.2d 397 (1978), certif. denied, 79 N.J. 489, 401 A.2d 244 (1979), that a free standing electrical transfer switch was such considering that it is not directly connected to the main building constructed. Alps argued that the fill found in 1989 was not related to the 1983 repair. However, the sinkage found in 1989 was only a few feet away from the sinkage and repair done n 1983, thereby, implicating the NJSA 2A:14-1.1. The 1989 date of filing for lawsuit against the Alps definitely has run out of the ten-year statute for the original warranty in the property transfer to the Horoszes starting 1977. However, the Horoszes made a claim in 1983. While acted upon properly by Alps under the statue, the action was irresponsible and negligent which failed to identify another nearby fill that has been causing the house sinkage, thereby making the property uninhabitable. The 266 N.J.Super. at 386, 629 A.2d 1350 stated, “The mere fact that the builder performed the 1983 repairs, rather than a new contractor, makes no difference in the legal principles applicable here.” In another case Daidone v. Buterick Bulkheading, Inc., et al N.J. (2006), the plaintiffs John and wife Laura Daidone sued the defendants Buterick Bulkheading et al for negligence and other cliams. The Daidones hired Buterick to install the foundation pilings for their home designed by the architect Scott Lepley of Lepley Design Group and Lepley-McCorry Architects Ala., P.C. (Lepley) which the Daidones also hired. Lepley prepared, and certified the architectural design of the house. It was approved by the Lacey Township Construction Official on June 23, 1993. Lepley’s role and services with the Daidones ended after the plan was approved. The Daidones contracted with defendant Buterick to install the foundation pilings. The installation was completed and paid in full in May 24, 1994. A certificate of occupancy was issued on June 14, 1994, which by then, Buterick’s services had also been completed. By 1999, the Daidones started to experience problems cause by the settling of their home foundations. Some of these include stress on the natural gas line and electrical panel, the hot water heater pipes ripping through the ceiling, and the sewerage waste pipe ripping out of the floor. The Daidones, however, only secured expert assistance in late 2001. A subsurface investigation and geotechnical evaluation of the expert found that the basement structure settles “due to the underlying soft soils’ suggesting that the length of the pilings may be short based on the information about the soil borings. The report failed to include deficiency in the design and installation of the pilings. Based on the advice of the retained expert, the Daidones made repairs to their home which was completed in July 2002. They filed their complaint against Lepley and Buterick on June 2, 2004. Lepley and Buterick argued that the Statute of Repose, earlier discussed with the Horszes’ case, barred the complaint since they have finished their work more than 10 years after the complaint was filed. The Appellate Division affirmed that the statutory period started upon the completion of the architect or contractor’s work with regards to the property in question. It was also added that in relation to the Certificate of Occupancy, the Statute of Repose, NJSA 24:14-1.1(a) becomes effective upon the designer or contractor’s completion of the portion of their work. NJSA 24:14-1.1(a) states that any complaints to recover damages for any design or construction deficiency or any improvement to real property cannot be entertained “more than 10 years after the performance or furnishing of such services and construction” (emphasis mine for argument purposes). This same role applied to the Rosenberg v. Town of North Bergen, 61 N.J. 190, 293 A.2d 662 (1972). The Daidones argued that the Certificate of Occupancy covers the ten-year repose. However, the Supreme Court disagreed. The Legislature’s public policy preference for finality in construction-related claims should be within the ten years after the date of the completion of work. While the Daidones corrected the defects within the coverage of the Stature of Repose, they failed to file any warranty claim as well as complaint within the covered period. The statute is plain and easily understandable. It needs no further consultation to previous or related laws and court decisions in order to ascertain the coverage period. In Oklahoma, pertaining to construction law and coverage period, plaintiffs Curtis and Jennice Delashaw sued Tyson Foods, Inc. and The Pork Group, Inc for negligence. The US District Court granted the defendant summary judgment based on Oklahoma Statute titled 12, § 95(3). Oklahoma law provides that “a cause of action for injury based on negligence must be brought within 2 years upon the accrual of the cause of action” based on the Oklahoma Statute tit. 12, § 95(3) (Lexis Nebris, 2004, p 2). This is subject to certain instances to a discovery rule that limits the period to start from the date the plaintiff learned or knew of the damages or injury. The discovery rule has been in question due to the proper limitation it should cover: whether an exact nature of defect is construed as discovery or that plain awareness of a problem would constitute discovery. It was suggested that sufficient knowledge be the start of the statute limitations in consideration of prudence required for a person in order to pursue any claim in diligence (Lexis Nebris, 2004). The district court judgment was reversed as the plaintiff’s negligence claim, and the matter remanded to the district court. Another related case to home construction involved a builder / contractor inhibiting itself from liability to homeowners by insuring itself for liability damage and that the damage of the home were established during the policy period wherein the policy has not excluded coverage of any change in the home’s ownership. The case Hong et al and Monterra Homes Powderhorn LLC v. Assurance Company of America and Maryland Casualty Company involved coverage under a commercial general liability or CGL. The case was remanded by the Supreme Court after the Appellate Court decided that one of the homeowner plaintiffs – the Storbakkens - was not covered of the garnish from the insurance company. The Court ruled that the builder Monterra was liable for construction defects to the current owners of several homes it built. Incidentally, Assurance Company insured Monterra during the period when the damage to the homes occurred. The Storbakkens did not purchase their homes from Monterra but from previous homeowner. 80% of the damages were found to have occurred at the Storbakkens’ home during the policy period when their predecessors owned the home in question. The Court ruled that this allowed garnishment of the policy insuring Monterra. The Court of Appeals reversed the decision pointing out that the Storbakkens did not own their home during the policy period and thus, did not suffer the damage during the policy period. The Hoangs and Walts purchased their home from Monterra in November 1995. Another party, the Storbakkens, purchased it from the previous owner Kellans. The Kellans were aware that the property was built on expansive soils typical of the Colorado area. Newly built homes collect moisture underneath making the volume of soil increase over time. The swelling soil exerts pressure on the foundation of the home and continuous or repeated exposure to moisture causes the foundations to crack further damaging the structure. In March 1998, the Kellans sold their home to the Storbakkens. While damage to the foundation has started, the Kellans and Storbakkens were not aware of it until 1999 when the Storbakkens complained of visible cracks in the walls and ceilings throughout their home. Repairs were estimated to cost $444,000. Along with two other couples, the Storbakkens filed suit against Monterra. The plaintiffs prevailed at trial. It was found that damages to the properties were ongoing and progressive starting from the time Monterra sold the properties to the plaintiffs. The trial court awarded the Storbakkens $777,739.89 to cover repair costs, attorney’s fees, litigation costs and interest. These properties were insured by Monterra since August 7 1995, and renewed for each succeeding year for 4 years. The annual policies were identical for each year and majority of the damage on the Storbakkens were apportioned during the first policy year, of which the property was not yet owned by the Storbakkens. Assurance denied the coverage of the Sorbakkens arguing that the builder’s liability has become non-operative when the home was sold to another party even if the damage occurred during the policy period. The trial court found that the Storbakkens were subrogated to the Kellan’s right under insurance policy as a matter of law. The Court of Appeals reversed the decision of the trial court and declared that the insurance policy covering the builder’s liability is not available to a subsequent purchaser. The Supreme Court held that four points are considered for remanding the case: (1) the builder insured itself against liability for damage occurring during the policy period, (2) the damage to the home occurred during the policy period, (3) no exclusion to the policy rendered the insureds policy coverage inapplicable because of a change in the homes ownership, and (4) the builder of the home was liable for the damage to the home (Lexis Nebris 2, 2007, 6) The Supreme Court disagreed and remanded the case to trial court for further proceedings. New Jersey Law Warranty Under the New Jersey law, a builder is required to register with the Department of Community Affairs prior to undertaking any building project. All the names of the officers for corporations were also recorded to avoid abandonment of any previous liability from clients or homebuyers. The Department may deny, suspend, or revoke a registration in the failure to provide warranty coverage, join a warranty plan, fail to correct or settle warranty claims, commit fraud, undertake misrepresentations in the application for registration or violate any UCC (NJ CDA, 2010). The law also prevents builders or contractors to operate even in new corporations in their failure to correct their responsibilities or warranted defects (NJ CDA, 2010). Along with mold, water issues and electrical systems, foundation, floor, wall and roof cracks are some of the most common construction defects. These are caused mostly by the failure to properly analyze and prepare soil, site selection, civil and structural engineering, negligent construction or use of defective materials (Find Law, 2010, P 1-2). New Jersey’s Division of Codes and Standards in partnership with municipalities enforces the UCC that implements building, electrical, plumbing, fire protection, energy, mechanical, elevator and other installation regulations. Another case of possible foundation defect has been detected in the Vailsburg Middle School in Newark City, Essex County when soil gas and indoor air sampling were tested and analyzed the presence of volatile organic compounds (VOCs). The case resulted to vapor intrusion characterized by seeping through of fumes from contaminated soil or ground water through cracks and holes in foundation or building slabs. The remediation program included “excavation in the paved areas to allow for installation of the Perimeter Soil Vapor Extraction System (system),” (NJ DEP, 2009, P 5). While the case was not judicially elevated, it provides a real-life scenario of the consequences for building foundation defects. Conclusion A building’s foundation is a crucial part of the whole project that the term itself implies. In the case of New Jersey, existing UCC as well as laws protecting homeowners / consumers cannot guarantee a hundred percent safety of occupiers due to many possible defects and consequences that may occur as cases above provided. However, the New Jersey Regulations Governing New Home Warranties and Builders’ Registration covers enough specific mandates that encompass foundation defects. While 10 years warranty may not be sufficient, it provides enough leeway and observation period for possible defects that may not be necessarily caused by the foundation itself but by negligence in the preparation process and site planning. In reality, 10 years is also a very acceptable and generous grace period for homebuyers to determine the soundness of their property. If homebuyers are as vigilant and determined as the Horoszes, Hoangs, Kellans and Storbakkens, then, building foundation defects could be properly settled through warranty claims as well as through legal proceedings. But negligence on the part of the homeowners to file claim in a covered period whether it be one or up to ten years, will become expensive and damaging to the homeowners. One of the more controversial issues, however, is the argument with regards to discovery rule and covered periods. While suspicion of construction defect may become apparent on first day of occupancy, it cannot be considered diligent to immediately file a claim or suit against builders without the proper and authoritative evaluation of the damage in question. One crack on the floor may simply be acquired through the fall of a heavy object and not related to construction defect. This should be further clarified by policy-makers and be reconsidered in building statutes. It is also imperative that homebuyers get in contact with expert lawyers experienced in construction laws whether it is for within New Jersey or even federal laws. Sufficient knowledge in the construction codes and regulations helps builders and contactors from committing legal disputes which are not only costly but also detrimental to building a reputation. Likewise, it aids the lawyer in the proper preparation and argument of legal cases arising from defective building foundation. Reference: Adams, Burnett. 2010. “ATLANTA, GEORGIA CONSTRUCTION DEFECT ATTORNEYS WORK WITH HOMEOWNERS TO REMEDY FOUNDATION ISSUES.” September 1. Atlanta Business Lawyer Blog. Accessed from http://www.atlantabusinesslawyerblog.com/2010/09/atlanta_georgia_construction_d_2.html Find Law. 2010. Construction Defect FAQs. Accessed from http://realestate.findlaw.com/construction-defects/home-construction-defect-faq.html Lexis Nebris. 2004. Curtis Delashaw v. Tyson Foods, Inc., and the Prok Group, Inc. No. 027145 US Court of Appeals. New Jersey Department of Community Affairs (NJ DCA). 2010. “Consumer Information for New Home Buyers.” Accessed from http://www.state.nj.us/dca/divisions/codes/offices/nhw_for_consumers.html#5 New Jersey Department of Community Affairs 2. 2010. Community Affairs Chapter 25 Regulations Governing New Home Warranties and Builders’ Registration http://www.state.nj.us/dca/divisions/codes/codreg/pdf_regs/njac_5_25.pdf New Jersey Department of Environmental Protection (NJ DEP). 2009. Site Remediation Program. February 25. Accessed from http://www.state.nj.us/dep/srp/community/sites/pi/g000004877.htm Supreme Court of New Jersey. 1993. Horosz v. Alps Estates, Inc. (paper from Lexis Super) Supreme Court Appellate Division. 2006. Daidone v. Buterick Bulkheading, Inc., 2006 N.J. Super. Unpub. LEXIS 1546 (App.Div., Aug. 15, 2006) Read More