Homebuilders fighting defect lawsuits get aggressive

Sacramento Business Journal - April 30, 2004

by Mike McCarthy

Staff Writer

After four construction-defect lawsuits were filed by 85 of its homebuyers starting last year, JTS Communities Inc. opted to bypass the plaintiffs' attorneys to deal with the homeowners directly -- a tactic JTS says has led 55 plaintiffs to drop their complaints.

The aggressive strategy is one example of what Sacramento homebuilders are doing to deflect construction-defect lawsuits that they blame on "predatory attorneys" hunting for fees. Builders say the costs are driving insurers and contractors out of business, plus raising the cost of homes.

The attorneys counter that if builders don't want to be sued, they should build better houses (see story below). It took lawsuits to get builders to pay attention to homeowners, they claim, and there are more Band-Aids than permanent fixes in the new strategy to go directly to homeowners to get lawsuits to go away.

Firm numbers are hard to come by, but industry observers estimate that hundreds of litigants have filed defect lawsuits against local homebuilders in recent years.

Other countermeasures:

• Builders are finding alternative ways to slow rising insurance costs (see related story, Page 8).
• The California Building Industry Association is pushing three bills in the Legislature to ease conditions for builders.
• The Building Industry Association of Superior California is developing a program to teach homebuilders how to better deal with hostile homeowners. "We aim to be more proactive, talking to homeowners before any problem arises," said Dennis Rogers, director of governmental affairs for the local trade group.

Just fixing it: JTS and a few other builders might be setting the pattern for resisting lawsuits by communicating more directly with homebuyers. The company is asking its plaintiff-homeowners to let the company just fix the problem, even if their attorneys tell them not to talk to JTS.

"The plaintiffs' attorneys are all over us," said Larry Carter, JTS' co-owner. "They hate our guts because we're trying to handle the homeowners' problems."

Other builders are taking a similar route. "All of us do that to some degree," said Brendan O'Neill, chief financial officer for Beazer Homes of Northern California, and last year's president of the local Building Industry Association of Superior California. "Trial attorneys get real aggravated about that, because it's all a numbers game for them."

JTS, owned by Carter and Jack Sweigart, is Sacramento's ninth-largest homebuilder, based on its sales of 609 homes last year. That gave it a 4 percent share of the 15,205 homes sold in the four-county area, said Greg Paquin, head of housing analyst The Gregory Group.

The company builds some of the area's most deluxe homes, he said, which boosted its average sales price to $511,642.

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