Building controversy: Curbing lawsuits on home construction a bad move, some say

By Peggy Lowe
Rocky Mountain News

House Bill 1161, brought and paid for by the Colorado Association of Home Builders, has ignited nearly as much debate, controversy and derision at the legislature this year as the state budget crisis.

The measure seeks to place restrictions on homeowner lawsuits against builders. Opponents like to describe it as a suburban David vs. Goliath - little homeowners vs. big builders.

Critics say it’s anti-consumer and could be unconstitutional.

“We don’t shy away from suing people who are rich and powerful,” said Scott Sullan , an attorney who has represented thousands of homeowners. “Those kinds of people don’t like that.”

But the proposal’s advocates say frivolous lawsuits are forcing insurance companies to raise premiums dramatically or drop coverage for construction projects, which is particularly harmful to smaller contractors.

Bill: heavy hitters among measure’s supporters

“If this bill does not pass, I think more and more smaller to medium-sized builders will got out of the market,” said Rob Nanfelt, government affairs director of the Colorado Association of Home Builders. “They will not be able to compete with the larger guys who are either self-insured or have the ability to pay the bills.”

Colorado Concerns, a group of powerful CEOs and other business leaders, wrote to legislators on behalf of the bill, saying it has been misrepresented by opponents and the media.

“HB 1161 encourages resolution before litigation - but assures the consumer is made whole,” says the Colorado Concerns letter.

The home builders association is spending at least $355,000 on a lobbying blitz for this single bill, and it is backed by a deep-pocketed coalition of Colorado heavy hitters that reads like a power lunch list at The Palm.

Colorado Concerns, for example, is headed by Steve Farber, whose law firm is so politically connected it’s often just called The Firm. Others are Barry Hirschfeld of Hirschfeld Press; Daniel Yohannes, vice chairman of US Bank; and Dick Robinson of Robinson Dairy.

Another significant name on Colorado Concerns’ letterhead is Larry Mizel, who is spearheading the lobbying effort on House Bill 1161. Mizel is CEO and president of MDC Holdings Inc., the parent company of Richmond Homes, the largest Colorado-based home builder and one of the 10 largest in the U.S.

Richmond celebrated a banner year in 2002, selling 2,919 homes in Colorado and 8,900 nationally. The company’s net income last year was $167.3 million.

Mizel didn’t return a phone call seeking comment.

While home builders were busy constructing new homes for Colorado’s enormous influx of people in the last decade, there are numerous documented cases of homes destructing before their owners’ eyes.

Those problems can sometimes be blamed on shoddy building, but most often on Colorado’s shifting soils, a kind of geological streak of bad luck for some owners that causes foundations to move and crack. The soils contain bentonite, which swells when wet, cracking basement walls and unsettling houses.

Statistics are hard to come by, as people with the most serious problems often end up filing lawsuits, which frequently are settled outside court.

But a check of the Colorado Consumer Line, a joint operation of the Colorado attorney general’s office and the Better Business Bureau, is revealing.

At least 1,536 people statewide called with complaints about home construction, improvement or a service like plumbing or engineering during the past 12 months, said Ken Lane, a spokesman for the attorney general’s office. That’s the third-highest category of complaints, behind problems with telephone and television interests.

Attorney General Ken Salazar believes House Bill 1161 would “greatly limit” going after any “construction professionals” under the Colorado Consumer Protection Act. He’s offered a compromise bill, although legislators haven’t expressed any interest in it.

House Bill 1161 requires homeowners to go to builders with their list of complaints and give them the first right of refusal on repairs. Homeowners would have to provide 90 days’ notice before filing a lawsuit.

The bill also would make it virtually impossible to get triple damages, a “hammer” offered by state consumer laws that was created to be a deterrent to incompetent or unscrupulous companies.

But the measure goes even further, say its critics, placing severe restrictions on homeowners’ rights and unfairly protecting builders from lawsuits. It would also affect people who do remodeling projects or get other repairs.

Before the bill was approved by the House, Rep. Mark Larson, a Cortez Republican, asked other lawmakers to kill it and removed himself as one of its sponsors. Larson calls the bill “the Home Builders Indemnification Act of 2003.”

Home builders say they are only seeking to cut down on lawsuits with their lottery-size verdicts. Those suits are making it virtually impossible to get insurance, and if a builder can get it, it’s very expensive.

“The bottom-line issue is what it’s doing to the cost of housing,” said Sen. Andy McElhany, a Colorado Springs Republican and one of the bill’s sponsors.

Sullan, the homeowners’ attorney, is fighting back, spending $36,000 to lobby against the bill. He’s being assisted by the Colorado Trial Lawyers Association, homeowners’ associations and the Colorado Water Congress, which has expressed fear that it will lessen protections on projects like dams or sewer lines.

The triple damages threat doesn’t exist any longer, Sullan said, due to a legislative change made in 1999. Since then, he said, there has not been one verdict or arbitration award that offered triple damages.

Most homeowners don’t want to win the lottery and only go to trial when a builder is unresponsive or makes a poor offer, Sullan said. Most homeowners just want to get their home fixed or get fair-market value, he said.

“There’s this misperception that they can all just sit down and work it out,” Sullan said. “But the builders just thumb their noses at homeowners.”

One of those homeowners is angry and hitting the streets. Freda Poundstone, who has lobbied at the legislature for 36 years, is fighting the bill as president of her homeowners’ association.

Poundstone lives in a $560,000 home in Douglas County and she and her neighbors have problems with basement molds, improperly wired sump pumps and a lack of vents in basements.

“I think the home builders are in the opinion that they are in control of this (legislative) body and they can get what they want,” Poundstone said.

If the builders do get what they want - passage of the bill - Poundstone said she will take action. She’s threatening to gather signatures on petitions to place the issue before voters.

“I’m not going to lay down and let these people walk all over us,” Poundstone said. “If I were them, I would be highly embarrassed to be introducing legislation like this when they’re still selling homes. Don’t you think this bill says ‘buyer beware’?”