BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2013-2014 Regular Session
SB 652 (DeSaulnier)
As Amended April 30, 2013
Hearing Date: May 7, 2013
Fiscal: No
Urgency: No
TW
SUBJECT
Real Property Disclosures: Construction Defect Litigation
DESCRIPTION
Existing law requires a seller of real property to disclose to a
buyer any fact materially affecting the value and desirability
of the property. This bill would specifically require the
seller of any real property to disclose to a potential buyer all
construction defect damage claims, including the status of such
claims, made by the seller.
BACKGROUND
In 2002, the Legislature enacted SB 800 (Burton, Ch. 722, Stats.
2002) in response to concerns expressed by builders and insurers
over the costs associated with construction defect litigation,
as well as concerns expressed by homeowners and their advocates
over the effects of the California Supreme Court decision that
held that defects must cause actual damage prior to being
actionable in tort. (See Aas v. Superior Court (2000) 24
Cal.4th 627.)
SB 800 provided a pre-litigation procedure in which a homeowner
must present a notice of claimed defects to a builder, who is
given the opportunity to correct the defect. Although SB 800
was enacted to relieve builders from rampant litigation and
simplify defect repair procedures for consumers, SB 800 has
resulted in the unintended consequence that a subsequent
purchaser of the property may be unaware that the original
homeowner has made defect or building standards violations
claims against the builder's warranty.
(more)
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In order to provide better notice to a subsequent purchaser of
claimed defects and building standards violations in the
property, this bill would require the property seller to
disclose all prelitigation claims presented to the builder and
provide the status of the claims to a potential purchaser.
CHANGES TO EXISTING LAW
Existing law requires the transferor of real property,
consisting of one to four dwelling units, to provide a statutory
transfer disclosure statement (TDS) as soon as practicable
before transfer of title. (Civ. Code Sec. 1102.3(a).)
Existing law codifies the form and content of the TDS, which
includes numerous disclosures, including whether the seller is
aware of any significant defects or malfunctions in specified
components of the home. (Civ. Code Sec. 1102.6.)
Existing law provides construction defect liability standards
for newly constructed housing and a pre-trial process for the
resolution of construction defect and building standards
violations disputes. (Civ. Code Sec. 895 et seq.)
This bill would require the seller of any real property to
disclose to a potential buyer all claims, including the status
of such claims, for construction defect damages made by the
seller.
COMMENT
1. Stated need for the bill
The author writes:
Current law requires a homeowner to follow a mandatory
procedure (pursuant to SB 800) prior to filing a construction
defect lawsuit that includes a builder's absolute right to
repair prior to a homeowner filing a lawsuit with the hopes
that this will reduce litigation. The process begins with a
homeowner submitting a written claim of alleged violation(s)
to the builder; the builder must acknowledge receipt of the
claim and has the right to conduct an inspection of the
claimed defect(s). The builder is then allowed to repair the
defect(s). If the builder fails to repair the defect(s), or
the homeowner is dissatisfied with the repairs, the homeowner
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may proceed with the filing of a lawsuit.
Existing law also requires that a seller of real property
disclose at the time of transfer anything that materially
affects the value of the property.
There is presently no statutory requirement that a homeowner
notify a potential buyer of a construction defect within the
home. For example, if a homeowner receives a cash settlement
based on an alleged defect, the homeowner does not need to
disclose the nature of the defect to the prospective purchaser
or whether a repair was made. A potential buyer should be
aware of this fact and know whether or not that defect has
subsequently been repaired.
SB 652 requires a homeowner when selling to disclose any
construction defect claim and the resolution of that claim.
2. Defect and building standards violations disclosure
requirement
Existing law requires the seller of real property, consisting of
one to four dwelling units, to provide to the buyer a statutory
transfer disclosure statement (TDS) before transfer of title of
the property. (Civ. Code Sec. 1102.3(a).) Existing law
codifies the form and content of the TDS, which includes
numerous disclosures, including whether the seller is aware of
any significant defects or malfunctions in specified components
of the home. (Civ. Code Sec. 1102.6.)
Existing law also provides construction defect liability
standards for newly constructed housing and a pre-litigation
process, known as the Right to Repair Act, for the resolution of
the construction defect disputes. (Civ. Code Sec. 895 et seq.)
This bill would require the seller of any real property to
disclose to a potential buyer all claims made in the
pre-litigation process, including the status of such claims, for
construction defect damages made by the seller.
In support, the California Building Industry Association
asserts:
Among other things, the Right to Repair Act provides a process
that the homeowner uses to get problems addressed without
having to go through a more time consuming litigation process
- although it does not close the courtroom doors if the
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homeowner is not satisfied with the repair. This
prelitigation process begins with a notice from the homeowner
to the builder.
. . .
[A]fter resolving the claims, builders have been contacted by
subsequent purchasers with the same claim. Subsequent
purchasers of the home have not been informed about the
previous claim and how it has been resolved. Unfortunately,
the subsequent purchaser has become a victim of fraud.
In further support, the California Professional Association of
Specialty Contractors states that "[b]y requiring the homeowner
to properly disclose repairs or settlements to subsequent
purchasers, both parties will again be protected from either
inappropriate repairs being made, or homeowners settling for
cash payments and not properly repairing defects."
Also in support, the Civil Justice Association of California
argues "there are still unwarranted lawsuits in this arena, in
which builders, homeowners, and subsequent purchasers become
entangled in litigation due to lack of notification of defects
and subsequent outcomes of the problems. . . . Such outcomes
harm consumers and create even greater uncertainty in the
marketplace. [SB] 652 helps to reduce these problems by
requiring homeowners to disclose . . . any known defects to
subsequent purchasers. This process will help to create more
transparency in the home buying process."
Arguably, this bill codifies a seller's existing responsibility
to disclose to subsequent purchasers defects of which the seller
is aware. However, this bill also specifies that all defect
claims made by the seller, whether or not the defects have been
repaired, would have to be disclosed to the potential purchaser.
This requirement would further effectuate the Legislature's
intent of protecting potential purchasers from being sold real
property with hidden defects that could affect the value and
desirability of the property. (See Civ. Code Sec. 1102.1(b).)
If the seller, in the prelitigation notice to the builder, has
claimed more defects than are substantiated in the builder's
inspection of the purported defects, the seller would have to
disclose the claims.
This bill would also require the seller to disclose the current
status of the claimed defects. Arguably, this provision is
important to protect a subsequent purchaser from unrepaired
defects that were known by the seller, for which the builder has
claimed to have settled. For example, if the seller received a
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monetary settlement from the builder, but the defects were not
repaired, the seller would have to advise the proposed buyer of
the unrepaired defects. This disclosure requirement protects
the subsequent purchaser, who would otherwise attempt to claim
the defect against the builder's warranty on the real property.
On the other hand, if any of the defect claims made by the
seller in the prelitigation notice were ultimately discarded,
the seller would explain to the potential purchaser why the
claims were dropped.
3. Concerns raised
The Consumer Attorneys of California (CAOC) opposed the April
22, 2013 version of this bill because it would have created
additional duties on the part of the homeowner to record notice
of the prelitigation claims and effectively chilled defect
claims due to these additional burdens. As for the current
version of this bill, CAOC has removed its opposition but is
"concerned about the current language and believe it could
create some significant traps or problems for the homeowner. It
is unclear what the requirement to disclose 'all' claims for
damages means. It would be helpful if this was more clearly
defined so that there would be no unfair or confusing burden on
the homeowner. The April 30 language is still largely
duplicative of the information already required in the extensive
disclosure form now required to be completed by the 'seller' by
Civil Code Section 1102.6 which asks, among other things, if the
seller is aware of . . . ."
To address its concerns, CAOC has suggested an amendment to the
existing lawsuit disclosure provision required under Civil Code
Section 1102.6 to include written notice of a claim by the
seller pursuant to the prelitigation notice. CAOC asserts that
this amendment "would clearly expand the definition of "lawsuit"
to comport with the claims procedure under Title 7. It would
mandate disclosure of something clearly defined in the law, a
[Civil Code Section] 910(a) 'notice' rather than something
ambiguous like 'status.' It would also not require that
ordinary or routine requests to builders by owners such as
letters, email, etc. be disclosed."
Support : Advanced Automatic Sprinkler, Inc.; Builders Flooring;
California Building Industry Association; California Living &
Energy; California Professional Association of Specialty
Contractors; Circle M Contractors, Inc.; Citadel Tile and
Flooring; Civil Justice Association of California; Construction
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Employers' Association; Crown Fence; Diversified Roofing
Services, Inc.; EZ Electric; Fiber Care Baths, Inc.; Fischer
Tile & Marble; Fredrickson, Mazeika & Grant, LLP; G.H. Slack &
Son; Geremia Pools; Heffernan Insurance Brokers; Joseph Holt
Plastering, Inc.; Just-Star Construction, Inc.; Larry Methvin
Installation, Inc.; Los Gatos Construction Co., Inc.; Magic
Glass and Door; Martin Roofing Co., Inc.; Masonry Industry Labor
Management Cooperation Trust; MB Builders, Inc.; Michael
Ehrenfield Company; Nevada Republic Electric West, Inc.; New Way
Landscape & Tree Services; Northern California Tile Industry
Labor Management Cooperation Committee Trust; Pro Wall Lath &
Plaster, Inc.; San Diego Rain Gutters; Sierra Stair Works, Inc.;
Signature Homes; Viking Insulation Company; Viloria
Construction, Inc.; West Coast Drywall; Wirtz Quality
Installations, Inc.
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation : SB 800 (Burton, Ch. 722, Stats. 2002) See
Background; Comments 1 and 2.
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