13:22:14:18 - 13:22:16:17 13:22:16:17 - 13:22:30:13 13:22:31:08 - 13:22:49:13 Speaker 1 Welcome to the uncommon area where we're dedicated to reimagining ways. We provide board members and managers with the resources to create uncommon communities where residents love their HOA and truly love where they live. 13:22:55:07 - 13:23:18:01 Speaker 1 Welcome to the uncommon area. I'm Matthew Holbrook, and this episode is all about construction defects. Joining me to talk about this very important topic is Joe Smith of Bourg Simpson law Firm. They are based in Colorado. And Joe provides a really good perspective. An introduction as to how to think about defects that might be in a community association 13:23:18:01 - 13:23:26:15 Speaker 1 And what a board of directors might do to pursue remedies for any defects that might be in the community. So I hope you watch and I hope it's beneficial for you. 13:23:26:23 - 13:23:43:17 Speaker 2 thank you, Joe, for joining us for this episode in the Uncommon Area. And, we're going to be diving into construction defects. So, maybe just by way of, of getting started. Can you define for us what do we mean when we say construction defect? 13:23:43:17 - 13:24:40:01 13:24:40:01 - 13:24:41:04 Speaker 1 litigation. 13:24:41:04 - 13:25:05:10 Speaker 2 Generally speaking, there are multiple solutions to addressing, defect, situation for an association. In other words, litigation is not the only way to go. Talk for just a minute. How an association might address a defect issue that arises in their community, before they might necessarily need to pursue litigation, how might there be a more 13:25:05:10 - 13:25:07:04 Speaker 2 amicable resolution? 13:25:07:04 - 13:26:51:06 13:26:51:17 - 13:27:01:08 Speaker 2 Now, you mentioned different statutes and different states. Are there dramatic differences about how to pursue this type of resolution from state to state? And maybe if, you know, 13:27:01:08 - 13:27:07:06 Speaker 2 what are some of the outlier states that might be more dramatic than others in their differences? 13:27:07:06 - 13:28:35:12 13:28:35:12 - 13:28:38:08 Speaker 1 and worth considering the extent. 13:28:38:08 - 13:28:59:10 Speaker 2 So considering those differences between states, when an association is considering that they do need to pursue, a legal route to get resolution on defects, what are some of the things that just generically, regardless of the state they're in, that, a board of directors should be weighing in, considering, 13:28:59:10 - 13:28:59:13 13:28:59:13 - 13:29:05:05 Speaker 2 when they're thinking about, pursuing litigation, for a defect. 13:29:05:05 - 13:32:25:17 13:32:25:19 - 13:32:26:16 Speaker 2 So, 13:32:26:16 - 13:32:36:17 Speaker 2 working through, what you just said, kind of the highlights are make sure that you understand what, time factors that there might be for a board to consider. 13:32:36:17 - 13:32:36:21 13:32:36:21 - 13:32:51:13 Speaker 2 Whether it be some type of statute of limitations or other timing mechanism that could pass and the association might forgo its its right to pursue, litigation to resolve a defect issue. 13:32:51:15 - 13:33:17:20 Speaker 2 And then you are also bringing up the importance of identifying, any issues that do arise and to have that discussion with legal counsel and other experts to determine, do these defects rise to the level that it makes sense and is worth it to go through, a litigation process? So those are kind of if I'm hearing you correctly, kind of summarizing your your two main points, I think, do I have that about right. 13:33:17:20 - 13:34:25:22 13:34:26:00 - 13:35:02:15 Speaker 2 So going back to you brought up the idea of tolling agreements, to essentially put a pause on the, the, the time limitations, to work from that, does an association have to have reasonable cause for concern about a potential defect in order to put a tolling agreement in place or could an association put a tolling agreement in place if they are aware that they're bumping up to a statute of limitations, and they want more time to be able to evaluate? 13:35:02:15 - 13:37:06:10 13:37:07:12 - 13:37:49:17 Speaker 2 So I think that there are a fair number of board members and maybe even some managers that might be under the impression that they can just essentially file a tolling agreement automatically at any given time. And, I think what you are highlighting is that it's an agreement actually between two parties. And in order to reach that agreement, there needs to be an incentive on the builders, side of the equation to say, hey, it is in our interest to put a pause on the timing, which means that there has to be some element to that that gives the builder reason to believe that there is the possibility of resolution, maybe in a more favorable 13:37:49:17 - 13:38:04:00 Speaker 2 kind of a way, whereas if they don't agree to a tolling agreement, then the association's alternative is to immediately start down the road of the litigation, which may not be in the in the builder's interests. My summing that up correctly. 13:38:04:00 - 13:39:02:22 13:39:02:22 - 13:39:10:07 Speaker 2 Sometimes, it seems that, a builder might have an incentive to, 13:39:10:07 - 13:39:40:05 Speaker 2 want to see the association, file that lawsuit and begin the, the process of litigation, because maybe that triggers the builder's insurance coverage in some way. Is there any validity to that perspective? And does that affect how an association might strategically approach this kind of, of a situation where they know that, hey, maybe we need to do something to trigger that insurance coverage, which might make the builder more amenable to, 13:39:40:05 - 13:39:42:21 Speaker 2 how these these issues could ultimately be resolved. 13:39:42:21 - 13:41:52:13 13:41:52:13 - 13:41:53:22 Speaker 2 Yeah. Of course. Go ahead. 13:41:53:22 - 13:43:55:12 13:43:55:12 - 13:43:58:14 Speaker 1 for the notes, ended up the way how. 13:43:58:16 - 13:44:25:06 Speaker 2 Strategically do you think about an approach with a builder any differently based on, how experienced they are in building HOA or condo associations? So, for example, let's say you have a builder who has historically built commercial buildings, and then they venture into a residential condominium building. And this is their first or second 13:44:25:06 - 13:44:26:16 Speaker 2 project like that. 13:44:26:16 - 13:44:41:14 Speaker 2 They may not be as well versed in some of the ins and outs of the defect process. Does that matter in any way, strategically to how an association might go about pursuing a claim? 13:44:41:14 - 13:46:11:05 13:46:11:05 - 13:46:14:07 Speaker 1 that an early resolution. 13:46:14:09 - 13:46:45:00 Speaker 2 So taking a step back for a minute, going back to the the statute of limitations or other time factors, would your recommendation be that an association that is coming up on one of those time limitations that they proactively engage with an attorney and or experts to be able to do a full assessment of their community to determine what, if any, defects they might have, even if they are not aware of any at the time. 13:46:45:00 - 13:48:36:17 13:48:36:17 - 13:48:39:05 Speaker 1 look at the community before? 13:48:39:07 - 13:49:09:22 Speaker 2 So along those lines, how do you address the critique of the, the legal defects side of the equation where you are incentivized to find defects in order to make your living? And, maybe that is pushing certain associations into a long litigation process that has a lot of downsides for the association, when maybe they didn't need to go that route in the first place. 13:49:10:00 - 13:49:23:20 Speaker 1 I understand the the perception, and I understand that technically there probably is this appearance of, of interest. 13:49:23:20 - 13:51:45:18 13:51:45:18 - 13:51:48:02 Speaker 1 or significant for the community. 13:51:48:04 - 13:52:01:01 Speaker 2 So related to that, what are the downsides of A to an association for going through defect litigation? What are the what are the negative things that they're going to experience along the way? 13:52:01:03 - 13:52:04:15 Speaker 1 You would say that the individuals in a team 13:52:04:15 - 13:52:37:09 13:52:37:09 - 13:52:55:08 13:52:55:08 - 13:55:53:18 13:55:53:18 - 13:56:09:10 Speaker 1 defects to the community. There's a cost of repair associated with that. If there's a shortfall, it may trigger some of these needs to go out and get funding in a way that isn't going to be convenient, and that some of the owners may not even be able to afford at the end of that. 13:56:09:12 - 13:56:39:21 Speaker 2 Yeah. And I would just add to your list, you also have, in the process of the litigation, the potential for things like destructive testing that could create a certain level of inconvenience to the owners going through the process. I, I wanted to ask, is there a typical kind of moment of truth that, comes up in, in the litigation process? 13:56:39:22 - 13:56:51:13 Speaker 2 It's like normally right here at this stage, this is where, you know, it's going to kind of make or break the case. Is there anything typical along those lines, or is it just different in every case? 13:56:51:13 - 14:00:43:03 14:00:43:03 - 14:00:45:00 Speaker 1 or break points of these cases. 14:00:45:02 - 14:00:54:04 Speaker 2 Yeah. How, how often does a case actually go to trial versus settling? Kind of what's the breakdown on that? 14:00:54:06 - 14:00:56:12 Speaker 1 Let me say, in the construction, virtually. 14:00:56:14 - 14:00:57:14 Speaker 2 Yeah. 14:00:57:16 - 14:01:31:18 Speaker 1 Probably 97% of cases are going to settle for trial or arbitration. That's definitely our experience year in and year out. We may have a year and an anomaly here and there as far as having more cases go across the country, city attorney is more than 90% of those actually said no, we're just at a higher level. And I've always attributed that in a consistent case, whether an opportunity was decided build right is pretty black and white. 14:01:31:20 - 14:01:56:07 Speaker 1 But they said they're building codes. There are other standards that are going to tell you whether or not that community was designed or built correctly. A case we rented on the way home today. Maybe I have very little tolerance for me as compared to a passenger. And so those pieces are very, very much dealing with issues, I think. 14:01:56:09 - 14:02:33:01 Speaker 1 Yeah. So in the construction sector and I think this a little more frequently because they're pretty black and white, the question is not so much is the builder developer entity liable? I would say every case we have over my experience, the defense experts all agree that there are certain accidents that require repair. So that is that having to go into that liability when we the greatest area in these cases is what's the right scope of repair and what's the cost of repair. 14:02:33:03 - 14:03:04:07 Speaker 2 Yeah. Well, I think my last question for this episode, is around the ideal dollar amount, for a settlement or a resolution. And what I'm specifically getting at is when factoring in attorney's fees, does an association need to get actually more money than what the cost of repair is to if they have $10 million worth of repairs, but they're going to pay their attorneys some amount of that, they're going to have less than $10 million to do the repair. 14:03:04:09 - 14:03:13:04 Speaker 2 So they need to get more than $10 million. Talk about that as a as a potential reality. And if so, what does an association do about that? 14:03:13:04 - 14:06:12:06 14:06:12:06 - 14:06:23:16 Speaker 1 ways that oftentimes allow the association to stretch that, rather than it might appear just prior to the work out to the original. 14:06:23:18 - 14:06:47:05 Speaker 2 I think it also puts the association in a position where they are likely including claims within the association, where there maybe are genuine defects, but they may not rise to the level that the association feels that they have to repair those defects, and so they may get recovery for those defects, even if they may not end up making those repairs. 14:06:47:07 - 14:06:50:12 Speaker 2 And that helps to to get the additional dollars. 14:06:50:14 - 14:07:29:04 Speaker 1 Right. So maybe that could be a technical deficiency or violation of the code that has resulted, say water insurers have to write. That's something that probably, at the end of the day, could be allowed to be shifted over to other repairs. I think that happens quite a bit in these cases. And honestly, I think that because an association gets their construction defect litigation, it's not unusual for the association's experts to want to do the intrusive testing, for example, that you mentioned, because you just don't know what's going on. 14:07:29:06 - 14:08:01:12 Speaker 1 The stucco or the brick. And you you really do want to try to find all of those defects that are present without obviously deconstructing an entire building or an entire use, so that you can have everything from the truly significant, obvious fact that water intrusion, maybe that damage to the wood framing, to maybe those items that might be technical code violations if you get one of those. 14:08:01:14 - 14:08:14:03 Speaker 1 And then at the end of the day, the association could work with its director just to figure out how to really use those dollars the rest of the process. Many. 14:08:14:05 - 14:08:17:22 Speaker 1 A little round of construction. 14:08:18:00 - 14:08:37:15 Speaker 2 Yeah. That's great. Well, Joe, thank you so much. This has been a really good kind of introduction to, to defect litigation and to addressing defects in the community. I know that there is a volume of information on this that we have, we've barely touched, but, I think this is, this is a helpful introduction for a lot of board members and managers. 14:08:37:15 - 14:08:41:03 Speaker 2 So thank you so much for your time and for your expertise on this. 14:08:41:20 - 14:09:05:14 Speaker 1 I really appreciate Joe and all of his insight and input. Regarding, construction defects in, community associations. I hope that you found this episode to be helpful. And if so, I would encourage you to like this episode and to subscribe to the uncommon area. And it would also be great if you would tell someone else about this podcast so that they could benefit as well.