04 September 2011

A Bill of Rights for Colorado homeowners

Legal protections for homeowners are recorded as far back as the Code of Hammurabi in Ancient Babylon.[1] These rights have carried over into modern times, as reflected in the statutory and common law of Colorado today. Although there is no constitutional right to be free from construction defects, the legal remedies available to homeowners today can be considered to form a virtual "Bill of Rights" for homeowners. The Witt Law Firm has compiled some of these here to provide information about what legal options may be available when a residential builder refuses to fix negligent work in Colorado.

I. The right to a new home that is suitable for habitation. In 1964, Colorado became the first state to adopt an implied warranty of habitability for completed homes. Our state Supreme Court rejected the rationale of “buyer beware” and ruled that any builder who sells a new home impliedly warrants that the home will be suitable for habitation—that is, fit to live in.[2] Nearly five decades later, this warranty remains one of the most important protections available to Colorado homeowners, and it has been compared to strict liability for construction defects.[3] It is not limited to the house itself, but also extends to the surrounding areas, such as the underlying soils and common elements of a townhome community.[4] Although builders frequently seek to disclaim this warranty in the fine print of their sales contracts, courts have been reluctant to enforce such waivers.[5] The courts have ruled, however, that the implied warranty only benefits the original purchaser of a home; subsequent buyers of a home cannot take advantage of this protection.[6]

II. The right to a new home that complies with the building code. Many homeowners ask how a house with code violations can pass inspection. The reality is that cities and counties simply do not have enough inspectors or resources to police every item of construction on a job. Building inspectors try to catch major violations, but it is not their job to perform quality control for private builders; it is the responsibility of the developer and general contractor to make sure that their employees and subcontractors are following the code. Though most Colorado builders take this responsibility seriously, some try to cut corners and hope that the inspectors will not notice. Fortunately, Colorado’s implied warranty of habitability requires that builders who sell homes to the public construct them in a workmanlike manner and follow the local building codes.[7] If they do not do so, the homeowner may sue for the cost of correcting the violations, even if the building department issued the builder a certificate of occupancy.[8] Notably, most codes incorporate manufacturer’s recommendations, so this means that a builder who uses materials without following the installation instructions (for example, installing siding without a weather-resistive barrier) may be liable for breaching the implied warranty of habitability.[9] This is true regardless of whether any physical damage has occurred.[10]

III. The right to a home that has not been damaged by negligence. Although subsequent owners—those who buy a used or previously-occupied home—cannot typically assert claims for breach of the implied warranty of habitability, they are not without recourse. If someone discovers construction defects or code violations after buying a used home, he or she can often assert claims for negligence against the builder or any responsible subcontractors.[11] To prevail on a negligent construction claim, the homeowner must show that the builder or subcontractor either failed to use the degree of care expected of such professionals or violated the code, and that their actions either caused property damage or exposed the home’s occupants to life-safety risks (such as an increased danger of fire or exposure to toxic mold).[12] To avoid a statute of limitations defense, the homeowner may also need to demonstrate that a particular defect appeared within six years of the time the home was completed, and that he or she initiated the claim within two years of the first physical manifestation of that defect.[13]

IV. The right to a soils report. It is well-known that soils in Colorado feature a high concentrations of bentonite and other expansive clays that, when exposed to water, can swell with incredible force, cracking foundations and causing structural damage to homes. Less well-known is the fact that builders are required by law to provide anyone purchasing a new home with a soils analysis and any related site recommendations at least fourteen days prior to closing.[14] If a significant potential for expansive soils has been recognized, the builder must also supply the buyer with a publication detailing the problems associated with such soils, the building methods to address these problems during construction, and suggestions for care and maintenance. Builders who fail to provide this information are subject to a five-hundred dollar fine plus other liability.[15] Anyone considering the purchase of a new home in Colorado should insist on seeing a copy of the project’s soils report and confirmation that its recommendations were followed.

V. The right to a fair interpretation of sales contracts. As mentioned above, many builders seek to limit their liability by requiring homebuyers to sign contracts of adhesion—contracts offered on a “take it or leave it” basis with no room for negotiation—that include boilerplate waivers purporting to eliminate many of the protections discussed here. Most homeowners sign these contracts without realizing that they could be giving up their right to the most basic expectation that their new home will be fit to live in. Fortunately, legislative amendments in 2007 provide that any purported waiver or limitation of a homeowner’s right to recover for property damage caused by negligent construction is void as against public policy.[16] 

VI. The right to a strong homeowners association. In the early 1990s, the Colorado Legislature enacted the Colorado Common Interest Ownership Act, which made numerous changes to the law governing homeowner associations or “HOA’s.” Due in part to concerns that there were not enough building inspectors to keep up with the rapid pace of construction, the Act empowered HOA’s with the right to file suit on behalf of two or more homeowners for construction defects, even if such defects are located in the individual units that the homeowners maintain.[17] This can be a crucial protection, as it may permit an HOA to recover the cost of making repairs to defects that appear in numerous units across a community (for example, leaking windows), without the expense and inconvenience of joining the individual owners in a lawsuit.

VII. The right to proper interpretation of liability insurance policies. The homeowner rights described here may be little consolation if a builder becomes insolvent or bankrupt. Fortunately, most builders have liability insurance that is intended to cover property damage caused by construction defects, regardless of whether they have enough assets to pay a judgment. In some recent cases, however, builder’s insurance carriers have argued that coverage for such damage should be excluded under the theory that defective work is more akin to an intentional act than an accident (notwithstanding the fact that the same carriers had collected premiums for years from builders who expected to be insured against such losses). In 2010, the Colorado legislature outlawed this practice and clarified that courts must presume that property damage is covered under standard liability policies, unless the builder intended and expected the damage to happen.[18] This is consistent with prior rulings from our state Supreme Court, which had recognized the difference between someone who deliberately causes property damage (for example, a vandal who throws a rock at a window) and someone who makes a poor decision that inadvertently causes property damage (for example, a child who throws a baseball near a window).

VIII. The right to interest on incurred repair costs. Although a 2008 Supreme Court decision reversed prior caselaw allowing recovery of pre-judgment interest on unrepaired property damage, homeowners can still seek interest on any sums that they have paid out-of-pocket to repair construction defects or related damage.[19] Unless the parties have agreed otherwise, this interest will accrue at the rate of 8% per year.[20] Homeowners should not overlook such interest when calculating damages from construction defects or asserting claims against a builder.

IX. The right to avoid mechanics liens following payment. When subcontractors provide labor or materials to a construction job, Colorado law grants them a lien on the property.[21] If the general contractor does not pay the subcontractors, they can foreclose this lien and to take title to the property, even if the owner believes that he or she has paid the general contractor in full for the job.[22] Homeowners enjoy a special exception from this rule, however. On a single-family or two-family house, a homeowner’s payment to the general contractor is a defense to any subcontractor’s attempt to foreclose a lien on the property. [23]

X. The right to a jury. The most important thing about this right is that it can be easily lost. Unlike its federal counterpart, the Colorado state constitution does not guarantee the right to a jury trial in civil cases.[24] Although court rules do provide that parties are entitled to have a jury decide most money claims, homebuyers may unwittingly lose this right by signing a sales contract that requires disputes be resolved in a “bench trial” to a judge, instead of to a jury.[25] Some contracts may go even further and require binding arbitration of such matters.[26] Historically, parties have looked to arbitration as a more affordable, unbiased, and technologically sophisticated alternative to a traditional lawsuit in court.[27] Arbitration can often be more expensive than court, and its expedited procedures may not be favorable to consumers.[28] Families considering the purchase of a home should therefore pay close attention to builders’ sales contracts and understand that they may be giving up the right to have a jury decide their claims in the event that the builder refuses to make repairs or honor its warranty.

We hope that the above will be helpful to those with questions about residential construction defect claims in Colorado. Please note, however, that this information is of a general nature; it should not be relied upon as legal advice, nor should one assume that all of the above will apply in all situations. Questions of builder negligence, contract interpretation, applicable statutes of limitation/repose deadlines, and related topics often depend on numerous factual and legal issues. If you think you have a claim for construction defects, you should speak with a qualified attorney promptly to discuss your situation.

[1] In 1750 B.C., Hammurabi decreed that a builder was entitled to specific payments based on the size of a completed house, but that, if the builder "does not construct it properly," he would be liable for any resulting deaths or property damage, plus reconstruction costs. See L.W. King, Code of Hammurabi, pp. 229-233, http://avalon.law.yale.edu/ancient/hamframe.asp.
[2] Carpenter v. Donohoe, 154 Colo. 78, 83-84, 388 P.2d 399, 402 (1964).
[3] Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041, 1045 & n.6 (Colo. 1983).
[4] Roper v. Spring Lake Dev. Co., 789 P.2d 483, 486 (Colo. App. 1990); Heritage Vill. Owners Ass'n v. Golden Heritage Investors, Ltd., 89 P.3d 513, 515 (Colo App. 2004).
[5] Sloat v. Matheny, 625 P.2d 1031, 1034 (Colo. 1981); Lakewood Vista at Green Mtn. Ranch Ass'n Inc. v. Foxpointe Vista Phase I Ltd., No. 03CV790 (Colo. 1st Dist. Jefferson Cty., Sept. 8, 2004) (copy on file with author), citing Buecher v. Centex Homes, 18 S.W.3d 807 (Tex. App. 2000), aff'd 95 S.W.3d 266 (Tex. 2002).
[6] Gillespie v. Plemmons, 849 P.2d 838, 840 (Colo. App. 1992).
[7] Carpenter, 154 Colo. at 83, 388 P.2d at 402.
[8] See, e.g., Int'l Bldg. Code § 110.1 (2003 ed.).
[9] E.g., Int'l Bldg. Code § 1405.15 (2003 ed.).
[10] See Colo. Rev. Stat. § 13-20-804(2)(b) (2003).
[11] Cosmopolitan Homes, 663 P.2d at 1046; A.C. Excavating v. Yacht Club II Homeowners Ass'n, Inc., 114 P.3d 862, 870 (Colo. 2005).
[12] Colo. Rev. Stat. § 13-20-804(1).
[13] Colo. Rev. Stat. § 13-80-104(1).
[14] Colo. Rev. Stat. § 6-6.5-101.
[15] Id.Hoang v. Arbess, 80 P.3d 863, 870 (Colo. App. 2003).
[16] Colo. Rev. Stat. § 13-20-806(7)(a).
[17] Colo. Rev. Stat. § 38-33.3-302(1)(d); Heritage Vill., 89 P.3d at 515.
[18] Colo. Rev. Stat. § 13-20-808(3).
[19] Goodyear Tire & Rubber Co. v. Holmes, 193 P.3d 821, 828-29 (Colo. 2008).
[20] Colo. Rev. Stat. § 5-12-102(1)(b).
[21] Colo. Rev. Stat. § 38-22-101.
[22] See In re Regan, 151 P.3d 1281, 1286 (Colo. 2007).
[23] Colo. Rev. Stat. § 38-22-102(3.5).
[24] Colorado Coffee Bean, LLC v. Peaberry Coffee Inc., 251 P.3d 9, 27 (Colo. App. 2010).
[25] Cf. id.; see Colo. R. Civ. Pro. 38(a)
[26] See, e.g., Gergel v. High View Homes, LLC, 996 P.2d 233, 235 (Colo. App. 1999).
[27] See Philip L. Bruner, "Rapid Resolution ADR," 31 Constr. Law. 6-7 (Spr. 2011).
[28] See Caroline E. Mayer, "No Suits Allowed / Increasingly, Arbitration Is the Only Recourse," Wash. Post, July 14, 2002, at H1.