Pay it Forward: A Proactive Model to Resolving Construction Defects and Market Failure

Abstract

This article first describes the extent and nature of the defects that are increasingly occurring with newly built and converted condominiums and detached single-family homes. The article then reviews the existing common law and statutory protections in the United States. The article then focuses on two states' attempts to provide more than the typical protections currently, and generally, available to new homeowners against construction defects and evaluates the effectiveness of these protections in practice. Finally, the article proposes model legislation that addresses the identified problems through an attempt to discover and then require the type of ex ante proactive bargain that the parties would have struck if they were truly of equal bargaining power and sophistication. The proposal adopts those features from the most innovative state statutes and local ordinances examined within this article and keeps in mind the need to avoid requirements that will create undue expense on developers, expenses that the developer may pass along to home purchasers in the form of higher housing costs. The proposal also contains a description of the basic warranty that would be required for all new homes, provides a procedure for handling the claims, and offers a source for repayment of these claims. This article also proposes a more expansive warranty that would not be mandatory, but that the developer and the new home buyer could agree to for an additional charge.