Report: Consumer Protection

Who Pays for Faulty Construction? How North Carolina Families Bear The Burden For Shoddy Building Practices

Released by: NCPIRG

Owning a home is the most important investment many families will ever make, but it is one of the least protected products on the market.

When homeowners in North Carolina suffer because of mistakes made by builders, they face a variety of unfair and unnecessary obstacles, and have too few tools to hold builders accountable. This report examines five case studies in shoddy construction and makes recommendations for homeowners and policy makers to protect home investments. Below are summaries of two case studies:

The Gilberts
The Gilberts purchased a $500,000, custom built home, which after completion had 31 building code violations. The builder refused to fix the problems, didn’t have liability insurance, and fi led for bankruptcy, which means that even if the Gilberts win a lawsuit, it’s unlikely they’ll receive any money from the contractor.

The Gilberts could apply for relief from the state’s homeowner’s recovery fund, but the application procedure fi rst requires them to obtain a court judgment in their favor. Even then, there is an extensive waiting list and very little money in the fund. The value of their property has dropped from $500,000 to $137,000 and the Gilberts have had to spend most of their savings on legal costs.

The Smiths
Looking for a place to retire, the Smiths purchased a new home built by a large tract builder in the state. After moving in, the walls cracked, the porch separated from the house, and the columns supporting the house began to shift. After years of band-aid fi xes, the home is still unfi t for habitation.

Unfortunately, the builder included clauses in the Smiths’ contract that waive the homeowners’ implied warranty and lock them into binding arbitration. This means that the Smiths must agree to the repairs deemed necessary by an arbitrator and have no legal recourse should the arbitrator rule against them.

Policy Recommendations – The Homeowners’ Bill of Rights

The Homeowners’ Bill of Rights is a set of policy solutions that will provide homebuyers and homeowners with the ability to protect their investments.

Hold Builders Accountable for Shoddy Work

  • Builders and contractors should not be able to contract away a homebuyer’s implied warranty.
  • Homeowners should have the ability to hold builders accountable for latent defects for up to ten years.

Reform Licensing Requirements for General Contractors and the Licensing Board for General Contractors

  • Contractors must have a license to perform any work that costs more that five thousand dollars. Current law allows anyone with a hammer and nails to do work that costs less than $30,000, which leaves homeowners vulnerable to scams and incompetence.
  • The Licensing Board for General Contractors should include at least three consumer representatives to serve as watchdogs for the public.

Provide Consumers with the Ability to Protect their Investments

  • Builders should be required to purchase comprehensive liability insurance to cover construction defects.
  • The eligibility requirements for the Homeowner’s Recovery Fund should be changed to ensure that consumers deserving of relief are not precluded from seeking it.
  • Homeowners should be able to hold accountable the manufacturers of building components in addition to general contractors. When specific parts (i.e. stucco or piping) malfunction and damage a home, homeowners should have the right to hold manufacturers accountable.

Advice for Consumers

Recommendations for Homebuyers
Too often buyers of new homes assume that their home is well built simply because it is new. Homebuyers can do a simple set of things to ensure that their new home is sound:

  • Hire a private inspector or structural engineer to inspect the house;
  • Research the builder through the local Better Business Bureau or General Contractors Licensing Board;
  • Hire a real estate attorney to thoroughly examine the contract to ensure that all warranties and rights are protected.

Recommendations for Victims of Shoddy Homebuilding

  • Be persistent and get correspondence in writing;
  • Contact the Attorney General’s office, the Better Business Bureau, and your state representative;
  • Consult an attorney.

*For a more comprehensive list, see p. 19 of this report.

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