In 1996, I came to Las Vegas, fresh out of law school as a new lawyer, trying to find a job and make a name for myself. With two small children, my wife and I saw Las Vegas as a great opportunity to lay down some roots. We saw Nevada as a great place for a lawyer fresh out of law school to start a career.
One of my first projects was the representation of a local stucco subcontractor in the very first “California style” construction defect lawsuit in Las Vegas. In taking on this assignment, what I did not know was that a couple of years earlier the Nevada legislature had passed laws which were advertised to protect homeowners when their homes were built with defects. The laws provided that the usual costs associated with complex litigation were not to be borne by the homeowner, but instead by the homebuilder and their subcontractors. Under Nevada’s new construction defect statutes, the homeowner was able to sue the homebuilder for construction defects, thereby forcing the homebuilder to fix the problem or face the consequences of Nevada’s construction defect law. One of the most remarkable provisions in the law is the complete payment by the homebuilders and their subcontractors of ALL of the homeowner’s attorneys’ fees and litigation costs, including, expert fees, interest, diminished value, court costs, and even relocation for the period while repairs were being completed.
The argument made in support of these laws was based on principles of fairness. If a homebuilder built a home with substandard materials using substandard labor and walked away from the homeowner after a very short warranty period, then why should all of the costs associated with the poor workmanship be left for the homeowner to bear? However, the consequences of these laws, as found in NRS 40.600 et. seq., have been devastating to the construction industry, the insurance companies and to a lesser degree the banking industry that has been left with homes needing significant repairs and no money anywhere to remedy the issues.
The reality is that Nevada’s construction industry has been subjected to legitimate defects of homeowners as well as illegitimate claims of defects documented by experts hired by lawyers. Often times expert defect reports include an extensive list of alleged defects with no lasting impact on the home. Legitimate defects need repair money for the homebuilders to correct the issues. However, more often than not, illegitimate defects also received money. More importantly, all of the defects received reimbursement of attorneys’ fees, interest and all costs including expert fees, associated with the litigation. In fact, for the longest time, if a jury in a construction defect case found just one defect to be legitimate, regardless of the damage caused, then the homeowner could expect a reimbursement of all of its attorneys’ fees and costs (including costs associated with all of the other defects not found to be legitimate by the jury). The source of the attorneys’ fees awarded was builders and their subcontractors usually through their insurance carriers. The potential fee awards scared homebuilders and their subcontractors into settling cases not only for legitimate defects but also claims for illegitimate defects.
Nevada’s construction defect law now requires a homeowner who was involved in litigation to fully disclose all of the defects claimed, legitimate and illegitimate, when placing their home for sale. In addition, homeowners are also required to show what repairs were done for the defects they claimed were associated with their house. The full disclosure requirement had a significant effect on the selling of houses that had been involved in a construction defect lawsuit. Being handed page after page of defect allegations, caused potential buyers to second guess the purchase of a pre-owned home. The result was a spike in new home sales and an overabundance of availability in pre-owned homes. As the land for new development diminished, the price of new homes skyrocketed. Eventually, the economy caught up with Las Vegas, resulting in the crash of housing prices.
Is construction defect litigation the only cause of this fall in the markets? Of course not, but the construction defect laws have certainly not helped. What can be done? No other state guarantees lawyers their fees and costs in construction defect cases and Nevada should not either. For the last five legislative sessions, construction groups and their lobbyists have tried unsuccessfully to amend Nevada’s construction defect laws to delete the guaranteed payments of attorneys’ fees and costs. These groups have so far been unsuccessful. Maybe it is time that Nevada’s legislature took a serious look at reforming the construction defect law to balance the needs to protect homeowners from poor workmanship with the need to ensure illegitimate defects are not provided a guarantee of recovering attorneys’ fees and costs.
Hansen Rasmussen, www.hrnvlaw.com