Residential New Construction Statutory Warranty Summary July, 2006 Nash & Lodge, PLLP by Stephen J. Nash Whether you represent a buyer or a builder of new residential construction, you must be familiar with Statutory Warranty requirements. Can they be waived? How does the homeowner make a claim? How long does the homeowner have to make a claim? These issues impact how the purchase agreement is drafted, how complaints are dealt with and how to make sure that you are protecting your client so that they will use your services in the future and recommend you to acquaintances. Minnesota Statutory Warranty Coverage (Minn. Stat. 327A): One year: Defects caused by faulty workmanship or materials due to non-compliance with building standards; Two years: Defects caused by faulty installation of plumbing, electrical, heating and cooling systems due to non-compliance with building standards; Three Years: Major construction defects due to non-compliance with building standards. What is a Major Construction Defect? A major construction defect is “actual damage to the load-bearing portion of the dwelling…, including damage doe to subsidence, expansion or lateral movement of the soil, which affects the load-bearing function and which vitally or is imminently likely to vitally affect use of the dwelling or the home improvement for residential purposes.” A major construction defect does not include damage due to movement of soil caused by flood, earthquake or other natural disaster. How Long Does the Homeowner Have to Make a Claim? The homeowner must provide the builder with a written notice of the defect within six months of discover of the defect and has two years from “the builder’s refusal or inability to ensure the home is free from major structural defects” (Vlahos v. R&I Construction, et. al.) to bring a claim against the builder. In other words, the two year period does not begin running when the homeowner (or prior homeowner) discovers the defect but, instead, begins when the builder refuses or is unable to honor the warranty. Even if the discovery of the defect is made after the relevant warranty period a claim can be made if it is brought within the two year claim period (Koes v. Advanced Design, Inc.), however, in no case can a claim be made after 12 years from the effective warranty date. The warranty date is the earlier of: 1) date of first occupancy of the home by the initial buyer; or 2) date initial buyer takes legal or equitable title to the property. Does the Homeowner Have to Allow the Builder and Opportunity to Inspect and Repair the Defect? The statute was recently amended to require that a homeowner must provide the builder the right to inspect the property and the repair the defect within 30 days of written notice of the defect. The effective date of this new provision is August 1, 2006. After the homeowner provides the written notice, the builder has 30 days in which to inspect the defect and to make an offer to repair the defect. This amendment raises many potential issues that will be resolved by future litigation and/or legislation. Can the Statutory Warranties be Waived? There is a common misconception that a builder cannot waive the statutory warranties. In fact, the statutory warranties can be waived provided that the builder provides a substantially similar warranty by agreement. In addition, when the parties know of a major construction defect at the time of sale, the parties can waive the statutory warranty as to that specific defect provided that:      1. It is first orally disclosed;      2. It is conspicuously disclosed in the purchase agreement;      3. Its impact on the value of the home has been appraised and agreed to by the parties; and      4. A separate waiver is signed by the parties for each known defect that the statutory warranty is      being waived. Therefore, do not ignore waiver language in the purchase agreement that may alter the buyers rights in the event that a defect comes to light. What if the Builder is a Corporation and Dissolves? In a recent case, the Minnesota Supreme Court (Camacho v. Todd and Leiser Homes) held that if the builder (a corporation) properly dissolved, there was an absolute bar preventing a lawsuit against that builder. In addition, since there was a bar against suing the builder, the homeowner could also not go directly at the builders’ insurance company. The key for builders is that they must follow the statutes and properly dissolve the corporation. Articles of Intent to Dissolve are filed with the Minnesota Secretary of State and then claimants and creditors must be provided with notice (by mailing or publishing). The claimants and creditors must file their claim pursuant to the time frame set forth in the corporation or on the notice. Once completed the corporation files the Article of Dissolution with the Minnesota Secretary of State. Creditors and claimants then have two years to make a claim or their claim is barred even if they were not provided actual notice. Buying from an established, financially stable builder is an absolute must if the buyer wants to have the right to pursue the builder in the future if defects arise. If the builder has properly dissolved, the homeowner is left with suing the subcontractors directly for their work and/or filing a claim with their own homeowners insurance which may or may not cover the claim. Do’s and Don’ts for Real Estate Agents in Residential Construction Disputes In many, if not most, cases, real estate agents are involved when a residential construction defect is discovered. The first call made by the buyer or builder is inevitably to their real estate agent. The following are a number of things you must remember when this happens:      1. You were not hired to deal with construction defects;      2. Dealing with constructions defects is extremely complicated and what is done or not done can drastically alter the rights of the builder and homeowner (there are many limitations dates that require the homeowners to do certain things by a certain date or they will lose their right to bring their claim against the builder);      3. While you have no duty to deal with construction defects, once you become involved you will expose yourself to liability (for example, you try negotiating a settlement while the statutory limits expire preventing your client from pursuing their claim against the builder);      4. If you are a dual agent you cannot favor one side over the other (it is impossible to be in the middle of a dispute between a builder and a homeowner without one of the parties believing that you favor one side over the other, especially if the builder is a regular client of yours);      5. The best action you can take to help your client and to not expose yourself to liability is to advise them to seek the advice of an experienced real estate lawyer. NOTICE: The foregoing is not intended to constitute legal advice for any specific circumstance, but is intended to reflect broadly applicable principles, under Minnesota law, relevant to a typical situation. Each set of facts and each contract is, or can be unique; the unique facts and specific language of the contract may require a different legal analysis and may result in a different outcome. Before proceeding in reliance upon this or any other general description of law, consult with an attorney competent in the field of practice relevant to your situation. Copyright 2007 Nash & Lodge, PLLP