BUILDER BLARNEY

Written by: J. Robert Eckley

Eckley & Associates Video ArticleBBrrrttt! It's your secretary on the intercom. She's telling you that your client is on line one and he's livid. He's shouting at her that the home inspector you referred him to was just thrown off the new home site by the Builder you lined him up with. She adds, though, that the Builder is also on line two saying he's damned if he's going to let any "puny home inspector" review his "flawless work" and that as punishment for sending an inspector at all, the Builder is blackballing your brokerage from his entire subdivision and refusing now to honor his "2 Year Registrar's Warranty" on anything you ever had an inspector examine at the site. As you stand there trying to figure out in which order you should be harangued and abused, your secretary tries at least to note helpfully that the home inspector is holding on line three, threatening merely to sue everyone for assault, trade interference and defamation. You feel that striking pain starting again in the left side of your chest, but like the stoic this business had made of you, you simply reach for the Zoloft and nitro tablets in the top desk drawer and resolve through a cardiac infarction-induced, teeth-clinched grin: "...By golly, it's just going to be another one of those 'character building days' in real estate..."

If this sounds roughly familiar to you, take hope (before the medication). There is a light in this scenario beyond the flash of myocardial seizures. It's the LAW and as to the Builder's bizarre outbursts, it all runs in favor of the customer, the home inspector...and YOU. Let's dissect the above event a bit.

First, faced with a construction defect epidemic in this state, it behooves the buyer and the real estate licensee to get home inspections even on new homes--perhaps especially so, when it is considered that construction skill levels and Builder liability for shoddy work have been so dumbed-down recently by the booming home sales economy and the Builder lobby, respectively, Quality work, in those rare instances when uncovered, has often gained one of two new adjectives: "Fluke" and "miracle" Indeed, unlike the used home that has stood for, say, 10 years, the new home in this new political hotbed has yet to prove that it can function for 10 minutes--and statistically very well may not. Don't think that just because the city or county building inspector did not "red tag" this house when it was under construction that it is quality built. The city and county inspectors are only required to briefly sight-examine isolated stages of construction and are statutorily exempt from examining for construction quality at all. And don't be too assured that the bilked consumer won't include you in the lawsuit when the Builder you sent him to fails to deliver the quality product you said he would. He will. Commission's Rule R4-28-1101 A and B imply to real estate licensees the duty to use due diligence to determine the condition of all homes, used or new, and the Substantive Policy Statements under these rules suggest that at last some of this duty can be discharged by the liberal use of a home inspector. The "bottom line?" Old or new, get it INSPECTED!

Second, the Builder told a lot of fibs to your secretary. A few of them:

FIB ONE: He suggested that a Builder, after entering into a sale contract by which he agrees to build and deliver a specific home to a Buyer (for which Buyer is bound by the contract to pay) may bar a registered Home Inspector engaged by the Buyer to inspect the property from coming upon the property, entirely, or bar the inspector unless the inspector provides financial assurances to the Builder in excess in amount of coverage of that required of Inspector by state law under the BOTR, or by use of the threat to void Builder warranties otherwise protecting the Buyer, or a threat to suspend the Builder's performance upon or terminate the construction contract or any warranty on it. Can he do that? ANSWER: No.

The Builder, in addition to the authority set forth, below, owes the homebuyer certain performances as set forth under the licensure laws and rules of the Registrar of Contractors ("ROC"). From the ROC perspective: ARS 32-1154 states that a construction licensee "shall not commit" any of an enumerated series of acts or omissions. One enumerated "act or omissions" is at "1. abandonment of a contract or refusal to perform after submitting a bid without legal excuse for the abandonment or refusal." ARS 32-1159 A. provides that a "covenant, clause or understanding in, collateral to or affecting a construction contract ...that purports to indemnify, to hold harmless or to defend the promisee from or against liability of loss or damage resulting from the sole negligence of the promisee or the promisee's agents, employees or indemnitees is against public policy of this state and is void. [Thus, any clause of a construction agreement or a side agreement which tries to excuse the Builder from his lawful duties is void.]

The Builder's licensure statutes provide those SPECIFIC LIMITED CIRCUMSTANCES under which a Builder can LAWFULLY interrupt his performance [fail to give warranties, discontinue with the job, the project or fulfillment of his obligations under the contract] without ROC penalty or liability for breach of contract to the buyer. ARS 32-1129.03 A. permits interruption only because of encountering hazardous material or substances. ARS 32-1129.04 allows suspension only for non-payment by the Buyer or a refusal to approve a billing or job estimate. Nowhere does either statute provide for "ceasing performance of any obligation--a warranty for workmanship or obligation or progress on the job--because the other party in contract (the Buyer, lender, etc.) wants to inspect, himself or through a Registered Inspector o others in full compliance with the BOTR and working for him, what he is buying." If the contractor refuses warranties or to continue with the whole or any part of the job under contract for ANY OTHER REASON than those specifically above, he is in violation of licensure and liable for breach, damages, attorneys fees and costs both to the Buyer and the Inspector. To do so is itself a breach of licensure regulations. Mr. Torres, Director of the ROC, has recently issued a white paper supporting and clarifying the basic above points. It will appear in the November, 2004, edition of this publication. Watch for it!

FIB TWO: Can the Builder terminate the period of any warranties as he threatened? ANSWER: No. There is no "Registrar's 2 Year Warranty" and the Builder has no legal ability to void or ask the customer to void warranties which the Builder owes by law. And the Builder owes a lot more than is typically stated on the face of his highly-anti-consumer contract. It is well settled in Arizona that the Builder owes an unwritten, non-disclaimable implied warranty of workmanship and materials and habitability as respects the home. Kubby v. Crescent Steel, 105 Ariz. 459, 466 P.2d 753 (1970), (habitability) Nastri v. Wood Brothers Homes, Inc. 142 Ariz. 439, 690 P.2d 158 (1984), and cannot even be disclaimed by the Builder even in writing (see the ROC rules, above which prohibits that). Such warranties run with the property such that even successive buyers also enjoy it. See Richards, id. Accord: Donnelly Construction Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184, 677 P.2d 1292 (1984). There are other claims and statutes of limitation, but these are the ones applying to contract warranties.

These implied contract warranties run for a minimum of 6 years (NOT 2!), and, at least under currently (Constitutionally questionable as being too short) legal interpretations, no more than 8 years and, if first discovered after the 6th year, There is one more additional year provided after the 8th year if discovered during the 8th year. ARS 12-548. The "Registrar's 2 Year Warranty" is a complete fiction invented by the Builders. What it really means is that the Registrar's jurisdiction over Builder complaints is only 2 years after the date the Builder last touched the project. But the jurisdiction of the civil courts over the Builder is, as is noted above, much, much longer.

Not discussed here but certainly an issue are the Builders' liabilities for intentional or negligence interference with the Inspector/client contract, when imposed by the larger Builders, the regulatory and common law trade liability for restraint of the Inspector's and real estate licensees registered or licensed trade, anti-trust, liability for fraudulent schemes under ARS 13-2310, et. seq., and 44-1522(A), et. seq., all of which have applicability. A discussion of those claims is left for now to the rapacity of the plaintiff's lawyers. The point is that any Builder that behaves like this is outside the pale of the law and the rules of his own licensure. And, to the likely irritation of his malpractice insurer, he is actionably fibbing.

The long and short of it? We cannot let ourselves believe fibs and most particularly, we cannot unquestioningly feed our clients the "Builder-made-whoppers," above. In point of fact, we have an affirmative duty to all transactional parties to use at least reasonable effort to ferret the B.S. out of the deal and that goes for all of the "fact filters" in the real estate equation: the lister, the escrow, the title officers, termite inspectors and the home inspectors. Yet, in the end, the success of the filtration work is still likely going to have to be the primary duty of the real estate licensees who, since they assemble the entire safari and guide the whole trek to and from the Builder's part of the jungle, are best positioned to spot and call out the obvious nature of what they should so clearly smell in the trail ahead. Well before anyone steps in it. And in THAT sense, I guess, it REALLY IS just another one of those 'character building days' in real estate..!"

'Nuff said.