Rotten houses
Their home was finished in September 2001. Thatâs when the Heredias say their problems really began. âOnce we moved in, we started noticing things were wrong,â Tom Heredia recalled. âLocks were installed upside down. The lights in the bedroom didnât work. There were cracks in the garage-floor concrete and in the stucco.â
SN&R Newsreview.com
Rotten houses
Homeownership has doubled in California since the 1960s. But, by some estimates, as many as 15 percent of new homes sold are defective. Welcome to the dark side of the American dream.
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Courtesy Of Big Architecture
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| By R.V. Scheide
Ah, the sweet smell of success. You paid your dues, gave the best years of your life and rose to the top. Now itâs time to kick back and enjoy the view, the silvery surface of some distant lake as seen from, say, the Serrano Country Club in the El Dorado Hills east of Sacramento. Swimming pools, nature trails and an 18-hole championship golf course all within easy access of your palatial $800,000 custom home. Country air perfumed by fragrant wildflowers carpeting the verdant hillocks. Itâs the scent of the American dream. Go ahead, breathe it in deeply. Youâve earned it.
Certainly Tom and Pat Heredia earned it. The couple spent their productive years in San Jose, he as a high-tech CEO and she as a United Airlines flight attendant. Shortly after the turn of the century, they decided to retire early. They cashed out, and for half the price they would have paid in San Jose, they purchased a 3,500-square-foot dream home in the Placer County foothills, where they planned to live happily ever after. Little did they know that their fairy tale was about to go seriously sideways.
Their home was finished in September 2001. Thatâs when the Heredias say their problems really began.
âOnce we moved in, we started noticing things were wrong,â Tom Heredia recalled. âLocks were installed upside down. The lights in the bedroom didnât work. There were cracks in the garage-floor concrete and in the stucco.â
The Heredias soon found themselves in a legal dispute with builder James Plott. Through their attorney, the Heredias hired Jerry Lewis, a Sacramento architect who specializes in investigating so-called construction defects. The list of alleged required repairs Lewis submitted to the El Dorado County Superior Court was lengthy: redo all of the stucco, repair incorrectly installed interior doors and frames, install a vent for the kitchen stove, replace a warped hardwood floor, fix leaks in the tile roof, and on and on.
Plott refused to discuss the case with SN&R. But Plottâs attorney, Mark Hardy, defended his clientâs work. âThe case went to binding arbitration, and an award was issued,â Hardy said. âThe award was certainly less than what the plaintiffs requested.â
For the Heredias, one thing was certain. âOur dream home got very nightmarish,â Tom Heredia said.
Welcome to the dark side of the American dream.
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Homeownership long has epitomized the American dream, and today more Americans own homes than ever before. According to the U.S. Census, in the four decades since 1965, the number of American homeowners has more than doubled, from 36 million people to 74 million people. In Sacramento County, the number of homeowners has increased by one-third since 1990, from 223,360 people to 305,779 people. Obviously, this increasing number of owners requires an increasing number of new homes, and thereâs the rub: It may be a cliché, but they just donât build âem like they used to.
Itâs not possible, given the countryâs population growth, its insatiable demand for housing and the depletion of its natural resources. The tremendous post-World War II homebuilding boom was achieved by employing methods of mass production more akin to Henry Fordâs Model T than Abe Lincolnâs log cabin. Thanks to rampant deforestation and the decline of readily available quality lumber, builders must depend more on manmade materials that are often inferior to their natural counterparts. According to many industry observers, budget constraints have led to less supervision on job sites, lower wages for non-union journeymen and an overall decline in the pool of skilled labor.
The end result, according to a 2004 investigation by Consumer Reports, is an increasing number of defective homes. The magazine reported that the number of new homes with so-called construction defects may be as high as 15 percent--or 150,000 of the 1 million homes built in 2003. âThatâs a huge number,â one consulting engineer told the magazine. âI donât think many of these houses will last 50 years.â
Sacramento architect Lewis agrees. âToday, residential buildings are essentially disposable structures,â he insisted. âA lot of whatâs being used in homebuilding today, the materials and methods, come out of strip [mall] construction, where thereâs no point in pretending youâre building something thatâs going to last. When you incorporate them into a house that people expect to last for generations, you get into some serious problems.â
Problems such as the Heredias experienced. âThe house was a mess,â Lewis said. âThere were a number of problems manifest that the builder hadnât been able to address, a whole host of issues.â
Lewis compares blueprints with completed structures to determine if the plans have been followed, if the proper materials have been used and if the original design itself is sound. âTypically, the kind of projects weâre dealing with are flawed from the beginning,â he said, adding that heâs generally contacted to investigate defects âbecause something is leaking. Anything thatâs letting water in on a wooden structure is trouble over time.â
Often he works in conjunction with Vince Bartels, a contractor with 20 years of experience who performs âdestructive testingâ on various components to determine if theyâve been assembled correctly. Bartels bores through walls and floors like a doctor performing a biopsy on a cancer patient, exposing layers of stucco, plywood sheathing, foam insulation and wallboard, searching for the lesion that has allowed water to penetrate the structure. Bartels has seen a lot of sick houses in his time.
âThereâs not a project built today that we couldnât go through and find something wrong with it,â he said. âTheyâre building our future work right now.â
Construction defects can be found throughout the economic spectrum, from high-end McMansions like the Herediasâ to affordable apartment complexes such as West Capitol Courtyard in West Sacramento, which hired Lewis and Bartels to investigate alleged defects and recommend necessary repairs in its lawsuit against the complexâs designer and developer.
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Completed in 1995, West Capitol Courtyard consists of eight two-story residential buildings containing 40 apartments and one two-story mixed-use structure, Building J, with commercial spaces housing a Togoâs fast-food restaurant and a Head Start day-care center on the ground floor and six apartments upstairs. The complex, owned by nonprofit affordable-housing developer West Sacramento Housing Development Corp., first began experiencing water-infiltration problems in 1996, according to the lawsuit.
The developer, Rameria Partners, headed by general partners Peter Geremia and Daniel Ramos (the partnership has since dissolved), repaired the leaks and other deficiencies in 1997, but the nonprofit group claims the leaks reappeared in 2001. Unable to resolve the issue with Rameria, West Sacramento Housing Development Corp. filed suit in Yolo County Superior Court.
âThe way [Building J] was constructed causes it to leak from the second story of the building into the commercial spaces below,â complained Charley Learned, the corporationâs executive director. The findings of Lewisâ investigation filed in the case support this allegation. âWeâve been through three winters of this thing. It leaks; the staff scramble around to fix it. You can imagine if one of those walls fell and hit one of those kids.â
But Ramos vehemently defends Rameria Partnersâ work on the apartment complex. âThe buildings we built were good,â he said. âWe used a good architect, a good contractor and good subcontractors. [The plaintiffs] went beyond the scope of what the problem was.â
What began as a leak, Ramos said, became a flood of alleged defects as the plaintiffs âwent in and started tearing the place apart,â looking for every last potential flaw. In court documents, Ramos, Geremia, architect Dean Unger and all of the co-defendants named in the suit deny any responsibility for the defects listed in the complaint, a standard maneuver in construction-defects cases.
Building Jâs alleged construction defects are typical of what Lewis and Bartels say they find on a regular basis. For example, according to Lewisâ investigation, the slope of the exterior decks on Building Jâs second story fails to provide adequate drainage, contributing to the water-infiltration issues in the ground-floor spaces. Lewis and Bartels recently encountered the same problem in a Citrus Heights condominium. A dozen decks were sloped incorrectly, causing severe water damage to the building. âThe decks were leaking like sieves into the living rooms,â Bartels said. One of his employees barely tapped one deckâs 4-inch-by-12-inch support beam with a hammer handle, and the handle pushed right through the decayed wood.
âYou can track all of these issues down to the money,â Bartels said, citing the intense competition between different developers, material suppliers and subcontractors. âYou can track it through the whole process. Itâs a vicious circle.â
Indeed, money seems to be the root of all defects. Design flaws crop up because, as Lewis noted, âyou donât make a lot of money drawing tract houses.â Good supervision doesnât come cheap, so lack of oversight is another frequently occurring theme. âMore and more homes are being built by large builders who donât supervise their workforce,â he said. âWith low-bid subcontractors, the typical guy working is getting paid by the piece, to get as much done as possible in a given workday.â Lots of incentive for quantity and none for quality.
âThe pride of 'Iâm putting my name on thisâ doesnât exist anymore,â added Bartels. âIn this business, you really do get what you pay for.â
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Nowhere is that statement more true than with the materials the builder chooses to use in the construction of a new home. Fifty years ago, the wood used for structural sheathing was real wood, 1-inch-by-6-inch slats nailed by hand to the frame. By the 1960s, structurally inferior plywood had taken real woodâs place, and a decade later, an even more inferior composite material known as hardboard replaced plywood.
âThe various composites are much more susceptible to water damage,â Lewis said. âAs long as it stays dry, it stays pretty strong.â But once hardboard gets wet, it warps and buckles and deteriorates. Thatâs a problem in an industry that now works year-round, rain or shine. âI used to talk about hardboard siding holding water like a sponge, but thatâs not fair to sponges,â he said. âSponges dry out quicker.â Hardboardâs limitations eventually led to a nationwide class-action lawsuit against one of its leading manufacturers, Weyerhaeuser. The Washington-state-based lumber giant settled the suit in 2000. Nevertheless, Bartels claimed, âI still see it going up on projects!â
Much more common on construction sites nowadays is oriented strand board, or OSB. Made in sheets like plywood, OSB resembles a mosaic of jagged wood chips pressed and glued together, which is essentially what it is. Although marginally better than hardboard, itâs inferior to plywood in both strength and water resistance. It also happens to be cheaper, and replacing plywood with OSB can result in as much as a $2,000 savings in the construction cost of the average single-family home. That may not sound like much, but on a 500-home development project, the builder would save $1 million.
Lewis, however, remains unimpressed with the savings. Heâs seen more than his share of moldy, warped and waterlogged OSB lately and thinks the material may not be around for long. âHardboard siding got sued off the market,â he said. âI think OSB is going to be the same way.â On both the Herediasâ residence and West Capitol Courtyard, Lewis recommended replacement of all the water-damaged OSB with plywood, a significant and costly undertaking.
More often than not, perceived advances in construction technique turn out to be double-edged. Consider the nail gun, for instance. It allows a single carpenter to do the work formerly done by a half-dozen men. However, thereâs no âfeelâ with a nail gun; if you miss the stud and leave an open hole in a shingle or other waterproof layer, itâs hard to tell. The rain comes in through the hole(s), and if the home is one of those new energy-efficient ones with airtight double-paned vinyl windows, you might as well be living in a Petri dish--the perfect environment for growing mold, another common element in construction-defect lawsuits.
Other advances that were designed to save time but can wind up costing money are so-called one-step stucco systems. Traditionally, stucco is applied in at least three separate coats, each cured separately. The new method applies one coat of stucco at half the traditional thickness and then adds a coat of texture. It works, if itâs done correctly. On Tom and Pat Herediaâs El Dorado Hills dream home, Lewisâ investigation alleged that the stucco wasnât done correctly. âThereâs so little room for error [with one-coat stucco], I donât think you can meet it,â Lewis said. In his report to the court, Lewis recommended completely replacing the exterior with three-step stucco.
Encounter just a few of these potential construction defects together on a single home or project, and the cost of damages quickly snowballs. The Heredias faced a repair bill for hundreds of thousands of dollars in alleged damages to their home. It could take more than $1 million to straighten out the alleged defects at West Capitol Courtyard.
âItâs always going to cost more to fix something than it would to do it right the first time,â Bartels said. âThe people who pay the price are the consumers. The cost gets passed on.â
Cause and defect
Bartels will get no argument on that score from Geremia, although they might differ on the source of the cost being passed on to homebuyers. Geremia, one of the defendants in the West Capitol Courtyard case, is now one of the principals in Sacramento-based St. Anton Partners LLC, one of the largest developers of apartment complexes and condominiums in Northern California. Although he would not comment on the lawsuit, he admits heâs no fan of construction-defect litigation.
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Donât look up: Sacramento architect Jerry Lewis points out a potential leak to West Sacramento Housing Developmentâs Charley Learned.
Photo By Larry Dalton
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âI think the state of construction-defect litigation in California is outrageously out of control,â Geremia said. âIf youâre the developer or builder of a multi-family project, you can expect to be sued on every project. Whatâs happening is the cost to insure to fight litigation on the back end is passed on to the buyer.â
St. Anton Partners builds approximately 1,000 new apartment units annually. Geremia estimates that insurance adds $30,000 to the price per unit, approximately 6 percent to 8 percent of his average construction costs of $375,000 to $500,000. He blames this additional cost on âoverzealous attorneys who put pressure on homeowner associations or property-management companiesâ to file lawsuits.
Californiaâs condominium market boomed in the 1980s before crashing heavily in the 1990s. âConstruction-defect litigation has been blamed for destroying the condominium market,â write Roger Dunstan and Jennifer Swenson in a 1999 California Research Bureau (CRB) report on the topic for the Legislature. âPart of the argument, most often made by builders, is that the board members of condominium homeowner associations are easily persuaded by attorneys to file construction defect actions.â
One factor complicating the issue, the CRB reports, is that no single compendium of data on condominium construction or defect litigation exists, so itâs difficult to track increases or decreases in either with any accuracy. Nevertheless, the perception that construction-defect cases are on the rise is widespread within the industry.
âSome attorneys do solicit homeowner associations,â said T. Sherman Lewis, regional-construction-practice leader for Hilb Rogal & Hobbs insurance company, one of a handful of carriers left in the state that provide contractor-liability insurance. âTheyâll hang notices on the doorknobs like you do for maid service at a hotel.â
âItâs very common in condominiums,â agreed architect Dean Unger, another defendant named in the West Capitol Courtyard suit. âItâs put condominium construction in jeopardy. The last 10 to 20 years, the attorneys have discovered an opportunity with large groups that can pay the fees for the forensic work.â
One reason construction-defect cases tend to involve condominiums or homeowner associations is the high cost of pursuing a lawsuit. The more people involved, the easier it is to bear the brunt of legal and investigative costs. âLitigation is so expensive that for most single-family-home owners itâs out of the question,â explained architect Jerry Lewis. âIt can cost $50,000 to $60,000, and not many people can afford that.â
âMost of these people bought into a home, theyâre making their payments, theyâre on a budget, and that budget assumes everything is going to be fine for the first five to 10 years,â added Eugene Haydu, a Sacramento attorney who frequently works with Lewis on construction-defect cases. âTheyâre buying into the American dream, and they stretch themselves a little thin. Experts are expensive. Itâs pretty daunting to [homeowners]. Itâs not Joe Blow contractor theyâre going against; itâs the insurance company, and they fight tooth and nail on every case.â
Haydu should know. Before he represented homeowners in construction-defect cases, he was a hired gun for an insurance company. âOne of the frustrating aspects of being an attorney for an insurance company is the divided loyalty between client [contractors] and the insurance company,â he said. He switched to representing homeowners after a contractor told him, âYou donât work for me. Quit kidding yourself.â
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Made in sheets like plywood, oriented strand board, or OSB, is relatively cheap and strong as long as it remains dry. When it gets wet, though, it can swell and delaminate like this sample.
Courtesy Of Big Architecture
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âI wanted to get out and feel like I was representing real people,â he said.
Although opinions can be sharply divided between the factions involved in litigation, there is some middle ground. âEven developers acknowledge that there were some shoddily constructed projects, especially those built in boom times,â the CRB report confirms. âPlaintiffâs attorneys will acknowledge that some frivolous lawsuits, albeit a small minority, have been brought.â
âI deal with a lot of attorneys, and I think most of them are pretty honest,â said T. Sherman Lewis. âThere are builders who have built lousy products, and they do need representation.â
Unger also agrees that some construction has not been up to par, in part because of labor issues and in part because some of the newer materials have failed to hold up over time.
âThereâs always that group of developers that are not capable of maintaining a large staff of quality employees,â Unger said. âIn competitive bidding for government work, thereâs very little opportunity to screen the quality of the labor provided.â
Unger, who served on the state board of architectural examiners in the 1960s, says some firms use ânew materials to keep costs down so their product or housing is more affordable. Meeting budgets is a constant challenge.â In his designs, he tries âto stay away from experimenting with new materials. We try to stick with what we know is going to perform over the years from experience.â
Although there is agreement on some issues, litigation by its very nature is acrimonious, and tensions sometimes spill over.
âWeâre a charitable organization, so we donât have the money to wait someone out,â said Learned, the executive director of the West Sacramento Housing Development Corp. âWeâre at the mercy of the court and somewhat at the mercy of the defendant. Our lawsuit is with some notable Sacramentans. Youâd think theyâd want to make this right.â
Ramos and the other defendants in the lawsuit think the West Sacramento Housing Development Corp. needs to be more reasonable and scale down the number of requested repairs. No one is happy that the case is dragging on.
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Destructive testing: A construction-defects investigator peels back a layer of stucco to examine the problems that may lie beneath.
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âIâve been in business 50 years, and Iâve never had a judgment against me,â said Unger. âIâm 77 years old, and itâs really disappointing to wind up my career with something like this.â
Geremia has grown impatient.
âIâve only been through [construction-defect litigation] twice,â said Geremia. âThe first time it was resolved quickly. The thing is, it can all be repaired. There ought to be some way to remedy the situation besides litigation.â
Homeward bound
In California, homeowners have up to 10 years after assuming ownership to file suit for construction defects; complaints generally are settled through arbitration. Decisions often split down the middle like Solomonâs baby, said El Dorado attorney Mark Hardy, who is qualified to serve as a special master in arbitration proceedings.
âThatâs the general rule of thumb,â Hardy said. âNeither side is going to get what they want.â The best decision is usually the one that makes ânobody happy.â He said the special master is like a âquasi-judgeâ with special expertise who âserves as the refereeâ in arbitration. He gained his expertise through defending developers and builders, including James Plott in the Heredia case.
â[The Heredias] made a whole list of claims, as is typical in construction-defect lawsuits,â recalled Hardy. He noted that another list that can grow long in such cases is the number of subcontractors named as co-defendants, as developers and builders attempt to shift the blame for alleged damages to other parties involved in the construction project. Like most people involved with litigating construction defects, Hardy sees some abuse on both sides of the aisle. Some attorneys do attempt to coerce homeowner associations to file unnecessary suits, he said, adding that âthere are certain contractors out there who just donât take care of business.â
The California Legislature took steps to address these issues by passing Senate Bill 800 in 2002. The bill, drafted by former Senator John Burton, requires owners to notify builders of any defects before filing suit. Once the builder is notified, the clock starts ticking, and builders must address the issues according to a rigid schedule set by the legislation.
âI think it gives the developer more opportunity to file, to work through the system,â said insurance consultant T. Sherman Lewis. On the other hand, some builders may have trouble adhering to the complex deadline schedule. âIâm sure thereâs going to be people who wonât make the time requirements.â
At the local government level, county and city building departments enforce only minimum standards that ensure new homes pose no risk of injury or harm to inhabitants. They have neither the ability nor the authority to check for construction defects. âWe inspect every structure, but itâs limited to a visual inspection,â said Chuck Iniguez, principal building inspector for the Sacramento County Building Inspection department. âWe donât do forensic or destructive testing. ... We are at a disadvantage.â
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At West Capitol Courtyard, water allegedly leaked from this second-story balcony into the commercial spaces below. Note water stains overhead. The complex first began experiencing water-infiltration problems in 1996, according to a lawsuit.
Courtesy Of Big Architecture
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No matter whoâs regulating the show, construction defects are more or less inevitable. In the race to fulfill the American dream for as many people as possible, mistakes are bound to be made. âI just got a case the other day where someone has a sewer main underneath their house,â reported Haydu. The old, inoperative piping didnât show up on the building plans. âThatâs what keeps attorneys busy.â
In an effort to avoid the legal quagmire in which West Capitol Courtyard remains mired, Charley Learned recently invited architect Jerry Lewis to review another apartment complex still under construction. The builders have partnered with West Sacramento Housing Development Corp., and as executive director, Learned asked Lewis to perform a preliminary inspection of the complex before the nonprofit takes over full ownership.
âBased on our experience being in this lawsuit, we want to make sure any other project weâre involved in doesnât have similar problems,â Learned said.
It turned out to be a shrewd move. Lewis was not impressed with what he found. During a tour of the complex--with an SN&R reporter in tow--he found water pooled up to an inch deep on patio surfaces, unevenly applied stucco with the chicken wire showing and reddish-brown tannin stains throughout the complex--the latter a telltale sign that rain may have penetrated the exterior and saturated the structureâs wood frame.
âWhen finished stuff is at this level, it doesnât give me a whole lot of confidence about how the rest of the work has been done,â Lewis said.
The West Sacramento Housing Development Corp. board of directors will weigh the results of Lewisâ completed investigation against the pressing need for affordable housing in West Sacramento. It may not be an easy decision, but itâs better to have all the information now instead of later.
Tom and Pat Heredia can testify to that. They received a monetary award in their case against builder James Plott, but the victory was bittersweet. In arbitration, the special master found in favor of some--but not all--of their claims.
âThe arbitrator decided that some of the claims that had been raised by the Heredias were valid, and some of them werenât, in his opinion,â said Hardy, the attorney who defended Plott. The arbitrator awarded them $200,000 in damages, according to Tom Heredia.
âWe got the judgment,â he said. âIt was enough to pay Jerry, our lawyer and to fix everything properly. We did get paid. That was the most unbelievable thing about the whole deal.â It was also about as much fun as ants at a picnic. âIt was a nightmare. It just sucked the whole thrill right out of it,â he said. âIn the end--Iâve got to hand it to my wife--through perseverance, itâs not a bad house.â
Asked what he might do differently if they could start from scratch, Tom Heredia said, âI really think you have to get everything up front and documented. No verbal agreements. No 'he said, she said.â The builder could have saved a lot of money. He could have solved all the issues for $70,000.â
Jerry Lewis has a more succinct solution.
âDonât buy anything made after World War II,â he said wryly.
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