SOMA Grand homeowners at 1160 Mission Street have just filed suit against the building’s developer, builder and architects claiming “construction defects and building standard violations,” primarily stemming from common waterproofing issues.
The defects were identified by forensic architects and consultants retained by the homeowners association through counsel, The Miller Law Firm. The same law firm has filed construction defect claims against the developers and builders of 255 Berry Street, Park Terrace (325 Berry), 888 7th Street, 88 Townsend, and Cubix (766 Harrison) as well.
Pay for a million dollar plus condo in the sky and this is what you have to deal with. Ugh.
Is the list of mid-rise/high-rise home owner associations who Have Not sued the developer/architect/contactor team shorter or longer than the list of those who do sue?
Well, buyers in a bull market tend to be more emotional than rational. They say “there’s safety in numbers”, but I’ll say “herd mentality makes the salesman happy”.
When you have 100s of buyers lining up for new projects, people are more worried about how to get their condo than actually looking at how the condo tower was built or how it will function.
“Is the list of mid-rise/high-rise home owner associations who Have Not sued the developer/architect/contactor team shorter or longer than the list of those who do sue?”
Agree with the above comment. It’s to the point it’s almost become expected in SF, anywhere from 5-10 years after the initial sale. These law firms seem to specialize in identifying recent buildings, linking up with the HOA, and filing suits against the developer for big money.
I’m curious, as this litigation almost guarantees reduced financing ability… Is the potential (although temporary) reduction in value worth the ultimate settlement?
Suing your developer is par for the condo course and, under CA law, you have a limited time (10 years as I recall) to do it, so most associations file their suits just before the deadline so as to maximize the time they have to uncover defects.
I think the HOA wouldn’t be doing their job if they didn’t hire forensic architects to look into possible defects prior to the expiration of the statute of limitations. If defects exist, developers (and their insurance companies) need to be held accountable.
I wouldn’t want to be one of the HOAs that doesn’t look into this and lets the statute of limitations pass (and gives the developers a free pass). Board members would be exposed to possible liability for breaching their duty to the HOA.
BT is right, and I believe if you file within the first 10 years, then there is an additional 10 year extension, so if you file a lawsuit near the end of year 10 you wind up with 20 years.
Almost all condos file such lawsuits these days.
Builder/Developer sue all the trades involved, builder and all trades settle. Attorney’s collect fees, homeowners each receive a nominal amount and the “defect” goes unrepaired.
I’ve seen it a 100 times.
In some ways, I’m glad I’m poor!
Amen BayGuy! And I bet it’s true that in the end most of the money ends us with the lawyers and not with the homeowners or condo association.
Funny aside: I had a friend who worked for a firm that provided comprehensive documentation management for developers and construction companies to prepare in advance for (and reduce the risk from) defect lawsuits. It was a classic risk-prevention product – they would work with the developer to make sure all the construction documents, change orders, contracts etc were in order before and during construction, so that they would be ready to defend themselves when (not if) they got sued. His company didn’t make it, because when times were good developers were so busy making money they didn’t feel it was needed, and then when the market tanked no one had money to pay for their service.
Do developers take out extra insurance policies to guard against these delayed expenses?
In the cases I’m aware of, I’m sure the lawyers made out well but some substantial repairs were also made on the buildings. For the homeowners, the goal is not monetary damages but to get actual defects (and every building has them) fixed on someone else’s dime.
How pecular all of the noted lawsuits are for condos in SOMA and Mission Bay. fishy fishy…do I smell condo ambulance chasing?
ncydr, that’s where all the new construction is (or at least within last 10 years). See prior posts on why that is significant.
The associations are often misguided by these ‘forensic consultants’ and attorneys about these situations. Homeowners and boards usually fail to realize that a pre litigation or litigation notice is filed and on title for the entire project, and will cause problems in refinancing and/or sale of the units. The entire project will be devalued/impaired until the issues are settled or litgated, which can take years. Hope no one plans on selling or refinancing anytime soon…
I was on a HOA board for serveral years during construction defect litigation against the developers that only resolved recently. I sympathize with the tough position the board is in. On the one hand, once you file this claim it is virtually impossible for anyone to sell or refinance (despite what attorneys will tell you- I saw it first hand). On the other hand, new HOA’s never have the money to make the repairs needed. From what I’ve heard, SOMA Grand has very serious water issues, including some major flooding after rains. That should not happen in a new building- period. Also, developers are given ample opportunity by law to fix problems before a lawsuit is filed.
It’s unfortunate for owners. These suits almost invariably take 5 years to resolve. That’s a tough pill for anyone looking to sell and will result in a lot of involuntary landlords (which can then make it difficult to sell even when the litigation resolves).
As for the recovery, we recovered a substantial amount of money. Yes the attorneys do quite well, but we recovered over $40K per unit and there is no way we could have done an assessment for anywhere near that amount.
Advice to anyone on SOMA Grand Board: start talking to a local bank(s) about this case and get set up for financing. As long as the damage is not catastrophic you may be able to point buyers to a specific bank that has already agreed to make mortgages on the buidling. Fannie Mae won’t buy the loans so you have to use lenders that hold them.
speaking from experience, mission has it right above
I own a unit in a building in Oakland that is currently in litigation. Mission, did you try to have your property taxes reduced as a result of the pending litigation since you could not readily sell due to limited financing options?
Appreciate your comments Dave. Supplimenting it, these condos were built and completed around 2007-2008 which means they have 4 more years before their statue of limitation expires. Other new condos in lower pacific height, haight and sunset completed at the same time but they didn’t get published and hopefully they will not get mired in claims.
I understand certain construction components actually expire earlier than 10 years as their replacement parts is never intended to last 10 years along with the expectation HOA is to perform routine maintenance and replacement which sometimes are neglected.
It really doesn’t take much for law firm to track down the TCO or Final Completion date of these buildings at Tax Assessor’s office to target a market for construction defects.
The very sad thing is these claims drive up cost of housing significantly due to the added risk each developer and insurer must carry. We the buyers and renters have to absorb it one way or another.
“we recovered over $40K per unit”
Interesting stuff, thanks for sharing.
What was the average purchase price?
How much money was actually spent to correct the alleged defect? (Did HOA members get to vote if/how money was spent?)
How much did the value of the units drop after the lawsuit was brought?
I heard once a production builder state the company made 40% of its revenues in CA, 35% of its earnings in CA and 90% of its litigation spending in CA.
That 10 year deadline is not quite accurate. These laws have changed and many types of claims have much shorter claims deadlines. Since you are generally required to bring all of your claims at once most of these suits will be filed well before 10 years. Plus as a practical matter major defects, such as water intrusion, show themselves very quickly and action has to be taken right away to fix the problem.
Willow- some owners did successfully challenge property tax values though this was also during the time the SF assessor voluntarily reduced values so many people did not bother. The challenges take years so some owners are still working on challenges brought 2 or 3 years ago.
Soccermom- the values dropped by about 1/3. Cash sales only. Once the case resolved values almost immediately returned to full market rate which is all about mortgage financing and Fannie Mae buying the loans. Owners do not get a vote in how funds are spent but the board by law must spend the funds on reserve items. $40K was a lot of money per unit- there are very few owners who could have shelled out that kind of money for an assessment (6-7% of purchase price).
HOA’s basically have three options when they find serious repair problems on new buildings: 1. Assess the members for the cost, 2. Borrow the funds, secured by future dues, or 3. Sue. The last one has no out of pocket costs and comes with a lot of expert help. There should be a 4th option, which is get the builder to fix the problems, but that seems very rare.
Owned a condo in Williamsburg Brooklyn with extensive water intrusion problems: incompetent flashing work and roof installation. (Example: to install a water pipe on the roof deck, the builders just drilled up thru the roof membrane and installed a straight pipe.) Several of us with top-floor units had near total destruction of walls and floors. Builder was horrible, made a couple of half-ass attempts to address the problems and then went totally dark. Suing was our only option. It was painful and indeed made it impossible for anyone to sell while the lawsuit was underway, but eventually we received a high six-figure settlement for the building, which was distributed by the board according to actual repair costs, enabling repairs of all the damage.
Sometimes suing is the only available option. Too bad the builders wouldn’t take responsibility for the quality of their building – it would have saved them a bunch of money, and everyone a lot of trouble, if they had.
Ah, waterproofing issues. Seems like at least 75% of all new construction gets this eventually. Most new places I’ve lived at have to go through this. There are almost always waterproofing issues somewhere, eventually. And usually it doesn’t go to court, there is a settlement, and the HOA gets some money. Lawyers do too, of course, but the HOA does get some money out of it.
And, Willow, I did successfully get my property taxes lowered, especially during the tear-apart-for-inspection, and construction phases, where any appraiser can immediately see that the value is affected. As usual, you gotta go back and justify it again and again, every year, for as long as it plays out. And, of course, they are so far behind that you have to pay the high tax bill up front, and then a year or two later when your appeal finally goes through, then you get a refund. Meanwhile, the city gets the use of your money. Quite the racket by the tax collector.
The problem for me is where are the building inspectors that focus on light switch face-plates and ignore the stuff I would imaging building inspectors exist to inspect in the first place.
I bought in a two unit condo new building where all of the windows were installed without flashing, a blaring violation, but the building inspector approved the pink slip and didn’t even notice. What a waste of department.
We cannot count on inspectors to find 100% of defects. Anyone who’s had an inspection, fixed the defects found, and then a followup with a different inspector who found another set of defects knows this.
Most builders will voluntarily fix the easy defects. These lawsuits tend to arise from defects that are expensive to resolve.
San Francisco: home of more legal shakedown artists than anyplace. If it wasn’t this, it would be asbestos. Don’t expect the HOA or any of the owners to get anything. And either the HOA at SG is racking up a giant legal bill OR the Miller Group is doing this hinged on a big settlement, which is an ambulance chaser pattern if there ever was one.
ncydr, I think it would be even more sad if people spent a lot of hard earned cash on a condo to find out that there were major defects (like water intrusion) and the developer refused to fix it. Perhaps the developer cut some corners in order to maximize profits? The legal system is there to hold these people accountable (even if those pesky lawyers make some money off of the whole thing).
As far as litigation affecting condo values, this is likely true in the short term as people have noted, but I’d argue that a large special assessment might do even more damage in the long term by scaring potential buyers away. No one wants to see a $40K assessment as they review the HOA records.
SF DBI is worse than awful. Every vendor we brought in to review and repair certain items were blown away that the building passed inspection for occupancy.
A big tip for prospective buyers that I wish someone- like say my well compensated realtor from a prominent local firm- had told me: If the disclosures for a recently built condo include correspondence between owners and the developer about potential repair issues then stay away. At the very least ask lots of questions. Such a building is likely headed for litigation. Current owners will often play down such concerns to prospective buyers due to their self-interet in the value of the building but if owners felt the need to write the developer about unresolved issues it’s a bad sign. You do not want to see disclosures about top floor cieling leaks or water intrusion around doors and windows. Stay away from those buildings no matter what your realtor says or you are buying into a lawsuit and uncertain future. If you must live in the building then wait for the lawusit and scoop up a unit on the cheap. Some owners in my building will get nice windfalls because they had the cash to buy when banks weren’t lending during the litigation.
I don’t mean the inspectors used when buying a home. There are permits issued when a building is being constructed by the City, what are they good for if no one even is interested in seeing that simple things like flashings are installed. What is the use of City Inspectors and their inflated salaries and retirement benefits. The paperwork is for nothing apparently, but it costs quite a bit, and that in itself increases the price of properties. And for the cost of the department I may not count on them 100%, but they should follow-up on a project and not just rubber-stamp the occupancy form.
mission: your 1:16 pm comments are spot on.
dave: I echo your sentiment. A home is such an important purchase. It’s sad to see hard money go to waste.
On the subject of city Inspectors: DBI is way understaffed. From my experience, inspectors can only seem to allot about 1/2 hr – 2 hours per jobsite inspection as they must account for travel & parking to each project, and then at the end of the day return to the office to pick up phone calls. Given limited time on site, their priority has always been lifesafety. Remember that inspector’s duty is “to protect the health, safety and welfare of the public”. Inspecting stairwells, the fire alarm system and exit signage therefore takes precedance over waterproofing issues. Furthermore, inspector are not trained experts in waterproofing. It takes years to understand this science as every building is different in design.
Thanks for the comments everyone.