Board needs to decide how to address possible defect litigation

Q: I am the president of a condominium community which is not yet four years old. As a board, we feel a responsibility to assure that each of the buildings meet the design specifications and the code requirements.

We have been approached by several law firms presenting their case to represent us and provide an inspection team to verify our community is in compliance with all laws and codes.

Some of the board members and homeowners are less than enthusiastic, especially with current economic conditions and the possibility that if significant defects are found requiring a construction defect litigation with the builder that they might have difficulty obtaining a loan or selling their unit. Also, the possibility of tearing up the walls to get to areas to inspect tend to scare owners.

I have read the NRS 116 and Chapter 40. I have also obtained some bids on having the inspections done without any attorney involvement but have found this to be beyond our budget. My understanding is that the builder would be obligated to reimburse fees if litigation was required but without a law firm initiating the inspections, it is costly.

Are my concerns out of line? Are these law firms just making business for themselves or is the best advice is to just let the lawyers handle the whole procedure?

A: The attorneys' goals are to initiate construction defect lawsuits. I have yet to witness a case where their interest was not self-serving. Having made that statement, if you and the board believe that you may have construction defect problems that ultimately would cost the homeowners money to correct over the years, you and the board would need to consider the pros and the cons of a construction defect lawsuit.

You do not have many viable alternatives. There have been a few developers along with their insurance companies that have made settlements with their associations, in lieu of construction defect lawsuits, but they are the exceptions to the rule.

To finance a construction defect lawsuit is expensive.

The lawsuit will impact Federal Housing Administration and Veterans Administration financing as well as conventional financing, causing homeowners to have difficulties in refinancing or in selling their homes.

With our recession in Las Vegas, the construction defect lawsuit could accelerate the foreclosures or bankruptcies within your association as FHA and VA financing would no longer be available.

You could check the statute of limitations. If you had a few more years left before the statute of limitations expire before you had to initiate a lawsuit, you could decide to wait.

This is not the most viable alternative since this has many legal pitfalls. It could be argued against the association that the delay caused more damages and that the developer should not have to be responsible for their repairs.

Any homeowners who wished to sell their homes would need to disclose that fact to potential buyers that their units may have construction defects and that the association was waiting before initiating a construction defect lawsuit against the developer.

In addition, there is a real possibility that the association and individual homeowners would have to finance repairs, with no guaranties that they would be reimbursed.

Your board and your homeowners will need to discuss in detail all aspects of a construction defect lawsuit. Your homeowners will have a vote in this important issue.

The bottom line is that your association needs to select the best firm to represent your association. Check the firms with the Nevada State Bar Association.

Barbara Holland, certified property manager, broker and supervisory certified association manager, is president and owner of H&L Realty and Management Co. Questions may be sent to Association Q. & A., P.O. Box 7440, Las Vegas, NV 89125. Her fax number is 385-3759 or she can be reached by e-mail at support@hlrealty.com.