BILL ANALYSIS                                                                                                                                                                                                    



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          Date of Hearing:   May 8, 2001

                           ASSEMBLY COMMITTEE ON JUDICIARY
                              Darrell Steinberg, Chair
                  AB 600 (Dutra) - As Introduced:  February 22, 2001
           
          SUBJECT  :   CONSTRUCTION DEFECTS:  HOME WARRANTIES FOR  
          CONSTRUCTION OF RESIDENTIAL PROPERTIES

           KEY ISSUES  :  
           
          1)SHOULD THE LEGISLATURE CREATE A HOME CONSTRUCTION WARRANTY  
            PROGRAM WITH THE GOAL OF PROTECTING CONSUMERS FROM  
            CONSTRUCTION DEFECTS IN NEWLY CONSTRUCTED RESIDENTIAL HOMES  
            AND SPURRING CONSTRUCTION OF AFFORDABLE MULTIFAMILY HOUSING?

          2)WILL THE CREATION OF HOME CONSTRUCTION WARRANTIES IN FACT LEAD  
            TO INCREASED AFFORDABLE HOUSING?

                                      SYNOPSIS
          
          This Bill Creates The California Homebuyer Protection And  
          Quality Construction Act Of 2002 To Provide For 10-Year Home  
          Construction Warranties For All New Residential Properties.   
          This Bill Is Virtually Identical To Legislation This Author  
          Carried In 1999 And 2000 (AB 1221 And AB 2112, Respectively).   
          The Author's AB 1221 Died In The Assembly Judiciary Committee,  
          And AB 2112 Was Stripped Down To Intent Language So That It  
          Could Proceed To A Conference Committee.  Although The  
          Conference Committee Met Several Times, No Vote Was Taken On The  
          Measure, And It Died In Conference Without A Conference Report.   


          The Bill Seeks To Protect Homeowners And Builders From Prolonged  
          Litigation Over Allegations Of Construction Defects.  The Bill  
          Creates A Process Under The Warranty For Resolution Of  
          Construction Defects, Which Includes The Following Steps:   
          Making A Complaint To The Builder, Making A Claim With The  
          Warranty Administrator, Participating In A "Dispute Resolution  
          Conference" (Mediation), Judicial Arbitration, And A Trial De  
          Novo.  The Author Believes This Process Will Be Substantially  
          More Expeditious Than Litigation, And, Unlike Litigation, Will  
          Result In The Actual Repair Of Construction Defects In The Home.

          The Option Of Providing A Home Warranty Is The Builder's.  And  








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          By Purchasing A Home With A Home Warranty, The Homeowner Is  
          Deemed To Have Waived Any Tort Remedies, Including Negligence,  
          Strict Liability, Implied Warranties, Or Any Other Common Law  
          Remedy Other Than For Breach Of Warranty Contract.   
          Additionally, If The Warranty Provides For It, The Homeowner Is  
          Also Deemed To Have Waived Any Noncontractual Claims Against Any  
          Design, Professional, Or Trade Contractors Covered By The  
          Warranty Who Performed Professional Services Or Works Of  
          Improvement On The Subject Property.

          The Bill Also Eliminates The Prohibition Under Current Law Of  
          Requiring Homeowners With Construction Defect Claims To Resolve  
          Their Disputes Through Binding Arbitration.

           SUMMARY  :  Creates the California Homebuyer Protection and  
          Quality Construction Act of 2002 to provide for 10-year home  
          construction warranties for residential properties.   
          Specifically,  this bill  :  

          1)Makes the following findings:  a) California has a statewide  
            home building crisis; b) nationally, most of the least  
            affordable housing markets are in California; c) multifamily  
            housing, including condominiums and townhouses, has  
            traditionally been the entry level type of housing designed  
            for single people, young families, and senior citizens; and d)  
            Californians need affordable homes that incorporate high  
            quality construction, and they want to buy from homebuilders  
            who are able to stand behind their workmanship.

          2)Authorizes participating homebuilders to offer home  
            construction warranties as a condition of the sale of new  
            residential homes, pursuant to which the homebuilder shall be  
            responsible for the correction of any construction defect  
            covered by the warranty.  Such warranties shall last for a  
            minimum of 10 years, with protection under the warranty  
            beginning on the date of substantial completion of the  
            residential home to which it applies.  The warranty may not be  
            canceled or changed at any time during the term of the  
            warranty.

          3)Provides that, upon proper notice from the homeowner subject  
            to a home construction warranty, the homebuilder shall, for  
            the duration of the period covered by the warranty, be  
            responsible for the correction of any construction defect  
            covered by the warranty.  Correction of any construction  








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            defect includes repair, replacement, or payment of reasonable  
            costs to repair or replace (based on existing construction  
            codes and standards of construction practice in effect at the  
            time of original construction), or, at the builder's option,  
            rebuilding the structure in accordance with the original plans  
            and specifications or payment of the reasonable market value  
            of the property (without a reduction for existing construction  
            defects) plus relocation costs.  The choice as between repair,  
            replacement, or payment is the builder's.

          4)Provides that if a homeowner elects to purchase a home subject  
            to a home construction warranty, "the provisions of that  
            warranty shall be deemed to be the exclusive election of  
            recourse by that homeowner and the participating homebuilder  
            for the claims covered by the warranty.  The parties to the  
            warranty contract are deemed to have waived any tort remedies,  
            including negligence, strict liability, implied warranties, or  
            any other common law remedy other than for breach of warranty  
            contract. . . .The homeowner who is party to the warranty  
            contract, should the warranty so provide, waives any  
            noncontractual claims against any design, professional, or  
            trade contractors covered by the warranty who performed  
            professional services or works of improvement on the subject  
            property.  This section does not preclude or limit any right  
            of action for bodily injury, wrongful death, or fraud and  
            intentional misrepresentation."

          5)Defines construction defect, for purposes of this act, as a  
            defect in design, materials or workmanship that:  results from  
            an act or omission of the builder (or a contractor working for  
            the builder); occurs during the original construction of the  
            improvement, or in connection with the warranty repair work;  
            renders the improvement or some part of it not reasonably fit  
            for its intended purpose; and materially affects building site  
            work, substructure, building shell, or building services.  The  
            builder shall be responsible for all physical damage  
            proximately caused by construction defects covered by the  
            warranty and for the actual reasonable cost of alternative  
            shelter expenses during the period of repairs.

          6)Provides that for a licensed contractor to participate in this  
            homebuyer warranty protection program (and offer such  
            warranties), the contractor must be certified by the  
            Contractor's State License Board (CSLB).  In order to be so  
            certified, a builder must:  a) hold and maintain a valid  








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            license as a general building contractor; b) provide proof of  
            an insurance policy providing coverage for the obligations of  
            the warranty; c) demonstrate proof of administrative capacity  
            to administer and process complaints and claims (either  
            in-house, or through contract with an insurance company or  
            warranty administrator); d) develop and implement a quality  
            assurance program meeting specified requirements; and e)  
            provide a summary of any alternative dispute resolution  
            process to be used under the warranty.  

          7)Provides that a contractor shall be deemed to be certified if  
            the CSLB fails to act on a contractor's application within 30  
            days.  The contractor is required to file an annual renewal of  
            the certification, however, the board is required to renew the  
            contractor's certification unless the board finds that the  
            contractor fails to meet any of the above requirements.  

          8)Provides that any action taken by the CSLB to suspend or  
            revoke the certification of a contractor to issue such  
            warranties shall not affect the obligations of the contractor  
            under any previously issued warranties. 

          9)Sets forth the following process to seek resolution of  
            construction defect problems for home buyers under a home  
            construction warranty:

             a)   The homeowner registers a complaint.  The homebuilder,  
               warranty administrator, or licensed insurance company is  
               obligated to acknowledge receipt of an initial nonemergency  
               complaint within 15 days of receipt.

             b)   The homebuilder and homeowner schedule a mutually  
               agreeable time for inspection of the condition.

             c)   Upon completion of the inspection, and no later than 30  
               days from receipt of the complaint (unless the parties  
               mutually agree to an extension of time), the homebuilder is  
               required to provide a written statement indicating his or  
               her belief as to whether the condition giving rise to the  
               complaint is covered by the warranty, and any corrective  
               action the builder intends to take to resolve the problem.   
               If the homebuilder determines that the condition is not  
               covered under the warranty, the written statement shall  
               describe the process for filing a claim under the warranty  
               to resolve the dispute.








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             d)   If a California Home Construction Warranty provides for  
               alternative dispute resolution to resolve disputes under  
               the warranty, the method of dispute resolution shall be a  
               "dispute resolution conference" (which is simply mediation  
               by another name) with subsequent referral to judicial  
               arbitration.  Appointment of a neutral and impartial  
               facilitator (for the dispute resolution conference) shall  
               be accomplished within 60 days from the warranty  
               administrator's receipt of a written request from a  
               homeowner to resolve the claim.

             e)   If the participants cannot reach an agreement during the  
               dispute resolution conference, the matter is referred to  
               judicial arbitration.  Among the issues to be determined by  
               the arbitrator is the reasonableness of offers made or  
               rejected during the dispute resolution conference -  
               requiring the disclosure of what are otherwise required by  
               law to be confidential mediation proceedings.

             f)   Either party unsatisfied with the decision of the  
               arbitrator may request a trial de novo, on the facts or the  
               law, after completion of the judicial arbitration.   

          10)Requires a homebuilder who receives written notice of a  
            construction defect covered by the warranty which creates an  
            imminent threat to the health or safety of the residents to  
            take reasonable steps to correct the defect as soon as  
            practicable.  If the builder fails to correct the defect in a  
            reasonable time, the homeowner may have the defect corrected  
            and may recover from the builder the reasonable costs of  
            repair, attorney's fees and costs, and any other damages  
            recoverable under any law not inconsistent with the provisions  
            of this Act.

          11)Authorizes any participating homebuilder to offer a warranty,  
            as a condition of the sale of a new residential home, which  
            includes a provision to submit all complaints, claims,  
            disputes, and controversies relating to construction defects,  
            construction deficiencies, or any and all issues arising from  
            the construction of the new residential homes, regardless of  
            the nature of the claim, the injury or damage sustained or the  
            type of remedy sought, to a dispute resolution conference with  
            subsequent referral to judicial arbitration.









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          12)Permits a home construction warranty to also include a  
            provision to submit any and all disputes or controversies  
            regarding scope of coverage under the warranty or breach of  
            the warranty to a dispute resolution conference, with  
            subsequent referral to judicial arbitration, as well as any  
            and all disputes or controversies against a warranty  
            administrator or insurance company.

          13)Limits the recovery of a homeowner or homeowner's association  
            that unreasonably rejects an offer made by the builder during  
            the dispute resolution conference or arbitration process to  
            the reasonable cost of repairs that are necessary to correct  
            the construction defect and are covered under the warranty,  
            and necessary attorney's fees and costs incurred before the  
            offer was rejected.  The arbitrator shall determine the  
            reasonableness of the rejection of an offer of a settlement  
            made during the dispute resolution conference or arbitration.

          14)Provides that if a participating builder fails to make a  
            reasonable offer during the mediation or arbitration process,  
            or fails to complete, in a good and workmanlike manner, the  
            repairs specified in an accepted offer, the limitations on  
            damages and remedies provided for under this bill shall not  
            apply. The arbitrator shall determine the reasonableness of an  
            offer of settlement made during the dispute resolution  
            conference or arbitration.

          15)Provides that a home construction warranty transfers to a  
            subsequent purchaser with a transfer of title.

          16)Prohibits a participating homebuilder, warranty  
            administrator, or a sales, marketing, or other representative  
            of the homebuilder, from knowingly misrepresenting the terms  
            and conditions of a home construction warranty.

          17)Fails, despite the assertions relative to the need for  
            greater multifamily housing (specifically condominiums and  
            townhouses) and the effect of construction defect litigation  
            on this type of housing, to limit the home construction  
            warranties, and concomitant restrictions on seeking legal  
            redress in the courts, to attached multifamily housing units.   
             

          18)Eliminates the provision of existing law which affirmatively  
            allows parties to bring a court action for construction  








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            defects, even if there is a binding arbitration provision in  
            the underlying contract.

           EXISTING LAW  :

          1)Provides, as part of the Davis-Stirling Common Interest  
            Development Act, for the establishment and regulation of  
            common interest developments and the homeowner associations  
            which govern such developments.  (Civil Code section 1350. All  
            further references are to the Civil Code unless otherwise  
            noted.)

          2)Requires a homeowners' association, prior to commencing an  
            action for damages against a builder of a common interest  
            development based upon a construction or design defect, to  
            give written notice to the builder against whom the claim is  
            made, commencing a mandatory pre-litigation process (known as  
            the "Calderon process").  (Section 1375.)

          3)Provides that the pre-litigation process shall not exceed 90  
            days, unless the parties stipulate to an extension of that  
            time period.  During this process, the parties shall try to  
            settle the dispute or attempt to agree to submit it to  
            alternative dispute resolution.  (Section 1375.)

          4)Provides that a construction defect action may be brought  
            against any person who develops real property or performs or  
            furnishes the design, specifications, surveying, planning,  
            supervision, testing, or observation of construction or  
            construction of an improvement to real property.  (Code of  
            Civil Procedure sections 337.1 and 337.15.) 

          5)Provides that an action based on latent defects (defects not  
            apparent from a reasonable inspection) in construction must be  
            brought within 4 years of discovery of the defect (if the  
            action is based on breach of contract or warranty), but in no  
            event may such an action be brought more than 10 years after  
            the date of substantial completion of the development or  
            improvement.  (Code of Civil Procedure sections 337 and  
            337.15.  See e.g.  FNB Mortgage Corp. v. Pacific General Group   
            (1999) 76 Cal.App.4th 1116 and  Liptak v. Diane Apartments,  
            Inc.  (1980) 109 Cal.App.3d 762.)

          6)Finds that judicial arbitration is an efficient and equitable  
            method for resolving small claims, and thus requires the court  








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            in a county with 10 or more superior court judges, in all  
            civil actions in which the amount in controversy is less than  
            $50,000, to submit the matter to judicial arbitration.  In  
            smaller courts, the court may provide by local rule, when it  
            determines that it is in the best interests of justice, that  
            all civil actions in which the amount in controversy is less  
            than $50,000 shall be submitted to judicial arbitration.  For  
            civil actions in which the damages exceed $50,000, judicial  
            arbitration may only be provided upon stipulation of the  
            parties.  However, any action otherwise subject to judicial  
            arbitration shall be exempt if found by the court not to be  
            amenable to arbitration on the ground that arbitration would  
            not reduce the probable time and expense necessary to resolve  
            the litigation.  (Code of Civil Procedure sections 1141.10 and  
            1141.11, Rule of Court 1600.5.)

          7)Specifies various costs that the party requesting the trial de  
            novo shall be responsible for assuming if the judgment at  
            trial is not more favorable than the arbitration award for the  
            party requesting the trial.  (Code of Civil Procedure section  
            1141.21.)

          8)Creates a process whereby courts may order parties in a civil  
            action to mediation, finding that in appropriate cases  
            mediation provides parties with a simplified and economical  
            procedure for obtaining prompt and equitable resolution of  
            their disputes.  Such civil action mediation is intended as an  
            alternative to judicial arbitration, and neither shall be  
            ordered in cases in which the other is ordered.  (Code of  
            Civil Procedure sections 1775 and 1775.4.)

          9)Provides that determinations of a court to send a case to  
            mediation shall be made after consideration of the expressed  
            views of the parties on the amenability of the case to  
            mediation.  Amenability of a particular action for mediation  
            shall be determined on a case-by-case basis, rather than  
            categorically.  (Rule of Court 1631.)

          10)Provides that no evidence of anything said or any admission  
            made for the purpose of, in the course of, or pursuant to, a  
            mediation is admissible or subject to discovery, and  
            disclosure of the evidence shall not be compelled in any  
            arbitration, administrative adjudication, civil action, or  
            other noncriminal proceeding.  All communications,  
            negotiations, or settlement discussions by and between  








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            participants in the course of a mediation shall be  
            confidential.  (Evidence Code section 1119.)

          11)Provides that home buyers have the right to bring a judicial  
            action for construction or design defect damages even when the  
            purchase agreement contains a binding arbitration clause.   
            (Code of Civil Procedure section 1298.7;  Villa Milano  
            Homeowners Ass'n v. Il Davorge  (2000) 84 Cal.App.4th 819.)

           FISCAL EFFECT  :   The bill as currently in print is keyed fiscal.

           COMMENTS  :   In support of the need for this measure, the author  
          submitted the following statement to the Committee:  

            The state's existing system for settling construction  
            disputes depends upon litigation, is time consuming and  
            costly for consumers and often does not result in actually  
            repairing the problem.  California needs a system that will  
            allow desperately needed 'smart growth' housing to be built  
            again. . . .Not only is the current lawsuit-dependent system  
            inefficient and costly for homeowners, but abuses of this  
            system have also led to a collapse in the construction of  
            affordable, land-efficient townhomes and condominiums.

            The existing system, dependent upon litigation to resolve  
            construction disputes, adds to homeowner costs and delays. .  
            . .All homeowners foot the bill - through higher costs - for  
            the lawsuit-first system.  According to a study conducted by  
            the University of Southern California, construction defect  
            lawsuits against homebuilders can increase the cost of the  
            average home by as much as $68,000. . . .Abuses of the  
            existing construction dispute system have . . . made  
            attached condominium and townhouse projects magnets for  
            class-action lawsuits.  Because builders can no longer  
            afford to insure these projects, the construction of  
            attached housing units has dropped 84% statewide in the past  
            five years. . . .

            Assembly Bill 600 would give homeowners a choice. . .  
            .Passage of AB 600 would make it possible for homebuyers to  
            choose a state-sanctioned ten-year home warranty rather than  
            the current system that depends largely on costly and time  
            consuming litigation.  Consumers retain their ability to  
            sue, but would also have alternatives other than litigation  
            for getting their problems fixed.








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           Background  .  The issue of construction defects, and the proper  
          remedy for such defects, goes at least as far back in history as  
          ancient Mesopotamia.  In the code of laws governing ancient  
          Mesopotamia, known as Hammurabi's Code (famous for its "an eye  
          for an eye, a tooth for a tooth"), the issue was dealt with  
          rather severely:  "If a builder build a house for some one, and  
          does not construct it properly, and the house which he built  
          fall in and kill its owner, then that builder shall be put to  
          death.  If it ruin goods, he shall make compensation for all  
          that has been ruined, and inasmuch as he did not construct  
                                        properly this house which he built and it fell, he shall  
          re-erect the house from his own means." (Code of Laws, Numbers  
          229 and 232.)

          More recently, however, the California Legislature enacted a  
          less dramatic response, known as the Calderon process (pursuant  
          to SB 1029 (Calderon), Chapter 864 of the Statutes of 1995), to  
          require parties to disputes concerning construction or design  
          defects to engage in a pre-filing process in an attempt to  
          resolve the dispute without the need for proceeding to court.   
          Recognizing that there are flaws with the Calderon process,  
          there have been subsequent efforts to fix the process (AB 594 of  
          1997 and AB 1950 of 1998, both by then-Assemblyman Torlakson),  
          but for a variety of political and policy-based reasons, these  
          efforts have not met with great success.

          In 1999 and 2000, Assemblymember Dutra introduced legislation  
          virtually identical to the pending AB 600 to address  
          construction defect disputes through the use of home warranties.  
           AB 1221 of 1999, died in the Assembly Judiciary Committee, and  
          AB 2112 of 2000 was stripped down to intent language, and  
          subsequently died in conference without a conference report.   

           "Voluntary" Nature of the Bill's Warranty  .  The author notes  
          that this bill "give[s] homeowners a choice."  However, the  
          choice of whether to offer a home for sale with a warranty or  
          not is the builder's, not the homeowner's.  The homeowner's only  
          choice is to "vote with his feet," by not purchasing a home that  
          requires a home warranty.  To the extent the use of such  
          warranties becomes widespread, the choice of homes not subject  
          to home warranties may be negligible.  The bill in fact appears  
          to give the builder not just a choice of whether to require a  
          home warranty, but also a choice as to what types of defects  
          will be covered by the warranty.  








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           Existing "Lawsuit-Dependent" System  .  The author comments that  
          the existing system for resolution of construction defect  
          disputes is dependent upon lawsuits and recourse to the courts.   
          The Calderon process described above, however, requires parties,  
          before any lawsuit is allowed to be filed (with regard to  
          construction or design defects in common interest developments  
          of 20 or more units), to engage in a pre-filing process during  
          which the parties are expected to try to settle the dispute  
          without the need for court intervention.  This pre-litigation  
          process is unique to construction defect law, and seeks to  
          encourage expeditious resolution of construction defect claims  
          and to avoid the "lawsuit dependent system."  This process was  
          enacted into law in 1995.  It is well understood that there are  
          problems with the Calderon process, but the identified problems  
          appear to be solvable.  It is this precise issue that the Chair  
          of this Committee is tackling with his AB 267, scheduled to be  
          heard in Committee on the same day as the pending measure.  AB  
          267 (Steinberg) is the combined work product of the California  
          Building Industry Association, the Home Ownership Advancement  
          Foundation (a consortium of major builders in the State of  
          California) and the Consumer Attorneys of California.

          Rather than attempt to fix deficiencies in the Calderon process,  
          however, this bill seeks to creates an intricate parallel  
          process for resolving construction defect disputes.  What this  
          measure does is allow a builder to require a homeowner to  
          purchase a home warranty and be restricted to the complaint  
          resolution procedures under the warranty, or to allow the  
          Calderon process to control the resolution of construction  
          defect disputes.   The Committee may believe  that developing two  
          alternative approaches is unnecessary, and that a better course  
          of action would be to seek to improve the identified problems  
          with the Calderon process.

           Broad Application to All Residential Housing  .  The primary  
          asserted rationale for the creation of home construction  
          warranties and the concomitant restriction on the ability of  
          homeowners to bring a construction defect action in court is  
          that, despite the great need for condominiums and townhouses,  
          the construction of this type of housing has declined, and the  
          cause of the decline is construction defect litigation.  The  
          bill is premised on the need for quality affordable housing, and  
          asserts that this means multifamily housing, specifically  
          condominiums and townhouses.  However, the bill has a much  








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          greater reach, applying to all residential homes, multifamily  
          and single family, attached and detached units.  Unfortunately,  
          the author's office has not provided the Committee with any  
          evidence suggesting that decreases in the single family housing  
          market that may exist are caused by construction defect  
          litigation and thus that such a dramatic reduction in the rights  
          of home owners to seek redress in court is warranted.

           Effect of the Warranty Process on the Timeliness of the  
          Resolution of Construction Defect Disputes  .  One of the stated  
          primary goals of this legislation is to provide the homeowner  
          with an expedited method to resolve construction defect  
          disputes.   However, it is uncertain whether the warranty  
          process created by this bill will in fact have the desired  
          effect.  One of the primary criticisms of the current Calderon  
          process (intended to provide for a quicker resolution of  
          construction defect disputes) is that the process takes too  
          long.  

          Unfortunately, the home construction warranty program created  
          pursuant to this legislation may suffer from the same  
          deficiencies as the Calderon process.  The bill allows the  
          parties to "mutually agree" to an extension of time for the  
          builder to respond whether a complaint of a defect alleged by a  
          homeowner is covered under the home warranty.  There is no  
          maximum time period contained in the bill for the required  
          mediation of the dispute.  The bill only provides that the  
          facilitator shall be appointed within 60 days from the warranty  
          administrator's receipt of a written request for dispute  
          resolution.  Continuances are similarly allowed in cases  
          referred to judicial arbitration.  And since both parties, the  
          builder and the homeowner, are entitled to request a trial de  
          novo after the arbitration award is handed down, the builder has  
          the ability to prolong the process in order to seek a resolution  
          more favorable to him or her.  

          Another concern with the Calderon process was its failure to  
          include all necessary stakeholders - including subcontractors,  
          materials suppliers, design professionals and insurers - early  
          in the process.  This measure would seem to suffer from the same  
          deficiency.  Without participation of these players, a  
          homeowner's attempts to fix a defect may arguably be stymied  
          because the party the builder deems responsible for the flaw is  
          not present during the process. 









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           California Research Bureau Finds No Clear Link Between  
          Litigation, Increased Insurance Costs, and Supply of Affordable  
          Housing  .  At the request of the Assembly Housing & Community  
          Development and Judiciary Committees, and in preparation for the  
          December 1999 interim hearing on this author's AB 1221 of 1999,  
          the California Research Bureau did a preliminary study on the  
          issue of construction defect litigation and its effect on access  
          to affordable multifamily housing.  (See California Research  
          Bureau,  Construction Defect Litigation and the Condominium  
          Market  , November 1999.  Hereafter CRB Report.)  The CRB Report  
          suggests a lack of evidence demonstrating the causal link  
          between construction defect litigation and a decrease in access  
          to affordable multifamily housing.  The CRB Report notes that  
          although there is "little dispute that the [condominium] market  
          has declined . . .  [t]he exact extent and causes of the decline  
          are hard to measure  ."  (Emphasis added.)  The CRB Report notes  
          that "real estate professionals state that construction of  
          condominiums largely tracks the overall real estate market."  A  
          study of the market over time shows "a pronounced boom during  
          the 1980s, fueled in part by favorable tax treatment that was  
          enacted in 1981.  The boom ended in part because of a reversal  
          of the favorable tax laws and overbuilding in many markets.  The  
          strong real estate market led to an increase in the price of  
          homes."

          The CRB further notes that "[w]hile it is clear that the  
          condominium market has stagnated, it is not clear what is the  
          cause."  The CRB offers the following among the possible causes:  
           construction defect litigation; the overall conditions in the  
          real estate market brought about by overbuilding in the 1980s  
          followed by a severe and prolonged recession in California;  
          opposition to new projects by existing neighborhood residents;  
          reluctance on the part of lenders, and their regulators, to  
          finance condominiums because of earlier loan losses; increased  
          affordability of singe-family homes in the 1990s due to falling  
          prices; and preference of home buyers for single-family detached  
          homes.  In fact, the CRB Report notes that "as the market is  
          resurging and homes become less affordable, demand for condos is  
          starting to improve. . . .  The beginnings of a resurgence in the  
          condo market would tend to bolster the arguments that  
          construction defect litigation has not seriously harmed the  
          market  ."  (Emphasis added.)

           Binding Arbitration for Resolution of Construction Defect  
          Claims  .  Current law imposes specific notice requirements on  








                                                                  AB 600
                                                                  Page  14

          contracts to convey real property which contain provisions  
          requiring the settlement of disputes through binding  
          arbitration.  (See Code of Civil Procedure section 1298.)   
          However, the code also provides that, notwithstanding any  
          binding arbitration provision in such a contract, an individual  
          has a right to go to a judicial forum for actions for bodily  
          injury or wrongful death, or for construction defect claims.   
          (Code of Civil Procedure section 1298.7.)

          In November of 2000, the court confirmed the meaning of this  
          provision:  "Code of Civil Procedure section 1298.7 provides  
          home buyers the right to bring a judicial action for  
          construction or design defect damages even when the purchase  
          agreement contains a binding arbitration clause. "  (  Villa  
          Milano Homeowners Ass'n v. Il Davorge  84 Cal. App.4th 819, 822.)  
           The court went on to lament that homeowners were being forced  
          to resolve such disputes by binding arbitration:  "It's a sad  
          commentary of the American justice system that we are farming  
          everything out of the courts through A.D.R., through arbitration  
          clauses and . . . if this is a matter of freedom of choice  
          rather than scarce resources then fine.  But this certainly is a  
          contract of adhesion.  When somebody buys a house, they  
          certainly don't expect that buried . . . is an innocuous little  
          provision:  'If you have a problem with the developer, by the  
          way, you don't get your right to a trial.  You have to go to  
          arbitration.'"  (84 Cal.App.4th at 824, n.3, quoting the trial  
          court decision.)

          This bill however deletes from existing law the provision  
          prohibiting a homebuyer from being compelled to resolve  
          construction defect disputes through binding arbitration.


           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Job-Center Housing Coalition (sponsor)
          Advocacy Coalition for Long Beach
          Alliance of American Insurers
          American Association of Business Persons with Disabilities
          American GI Forum of the Unites States
          Ameristar Financial Services, Inc.
          Apartment Association, California Southern Cities
          Bay Area Urban League, Inc.








                                                                  AB 600
                                                                  Page  15

          BRIDGE Housing Corporation
          Bronce & Associates
          Building Industry Association of Tulare/Kings Counties, Inc.
          Building Industry Association, Greater Los Angeles/Ventura  
          Chapter
          Building Industry Association, Orange County Chapter
          California Business Properties Association
          California Chamber of Commerce
          California Landscape Contractors Association
          California Manufacturers & Technology Association
          Century Vintage Homes
          Cervantes Trucking
          Citizens Against Lawsuit Abuse of Los Angeles
          Civil Justice Association of California
          Community Home Builders and Associates
          Consumer Coalition of California
          Council for the Spanish Speaking
          Countrywide Home Loans
          Del Webb's Sun City Palm Desert
          Diverse Strategies for Organizing
          East Los Angeles Community Union
          Filipino-American Service Group, Inc.
          Greater Los Angeles African American Chamber of Commerce
          Greenbriar Home Communities, Inc.
          Hispanic Chamber of Commerce of Sonoma County
          Home Builders Association of the Central Coast
          Home Builders Association of Northern California
          JWD & Associates
          Latin Business LEADERS Association
          Latino Chamber of Commerce of Santa Cruz County
          Mexican American Opportunity Foundation
          Midland Pacific Building Corporation
          NAACP Stockton Branch Economic Development Committee
          Orange County Citizens Against Lawsuit Abuse
          Orange County Business Council
          Pajaro Valley Association of Mexican American Educators
          ProTec Building Services, Inc.
          Professional Insurance Agents Group
          Roofing Contractors Association of California
          Saint Vincent De Paul
          San Benito County Hispanic Chamber of Commerce
          San Diego Regional Chamber of Commerce
          San Francisco Chamber of Commerce
          San Jose Silicon Valley Chamber of Commerce
          Silicon Valley Citizens Against Lawsuit Abuse








                                                                  AB 600
                                                                  Page  16

          Silicon Valley Manufacturing Group
          Small Business Survival Committee
          Standard Pacific Homes
          The Corky McMillin Companies
          Tonique's Total Works
          Valley Industry and Commerce Association
          Ventura Affordable Homes, Inc.
          Zerimar Corporation
          One Individual

           Opposition 
           
          American Association of Retired Persons
          Aqua Restoration
          Avalon at Eagle's Crossing Homeowners Association
          Barr & Clark Environmental
          California League of Conservation Voters
          California Nurses Association
          Center for Community Action and Environmental Justice
          Chicano Consortium
          Chicano-Latino Caucus of the Democratic Party
          City of Santa Monica
          Coalition for Clean Air
          Community Alliance for Stability and Health Economics
          Community Associations Institute
          Congress of California Seniors
          Consumer Attorneys of California
          Consumer Federation of California
          El Concilio del Condado de Ventura
          Evergreen Democratic Club at the Villages
          Executive Council of Homeowners
          Fair Housing Council of San Gabriel Valley
          Foundation for Taxpayer and Consumer Rights
          Gray Panthers L.A. West Network
          Gray Panthers of El Cerrito
          Gray Panthers of Sacramento
          Gray Panthers of West Contra Cost County
          Home Safe Campaign
          Homeowners Against Deficient Dwellings, Inc.
          Homeowners for Better Building
          Imfeld and Imfeld Property Management
          League of United Latin American Citizens
          Los Angeles Coalition to End Hunger and Homelessness
          Los Angeles County Department of Health Services, Toxics  
          Epidemiology Program








                                                                  AB 600
                                                                  Page  17

          National Latino Real Estate Association
          National Lawyers Guild, San Francisco Bay Area Chapter
          Neighbor to Neighbor
          Ohlone Student Health Center
          Older Women's League of California
          Pacoima Beautiful
          People's Community Organization for Reform and Empowerment
          Philippine Action Group for the Environment
          Physicians for Social Responsibility
          Prominence Homeowners of Hayward, CA
          Sacramento Housing Alliance
          Sober Living Network
          South Central Los Angeles Ministry Project
          Southern California Health and Housing Council
          Strategic Actions for a Just Economy
          The League of California Homeowners
          Venice Community Housing Corporation
          Westside Fair Housing Council
          7 Individuals
          

          Analysis Prepared by  :    Donna S. Hershkowitz / JUD. / (916)  
          319-2334