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Bill seeks to seal cracks

Construction-defect lawsuits at center stage
Homeowners at Rivergate Lofts, south of downtown Durango, won a $26.4 million settlement in 2011 after it was determined there were significant stabilization and support problems associated with defective construction. The state lawmakers are debating whether to make it more difficult to file construction defect lawsuits.

DENVER – As a controversial construction-defect measure hangs over the Colorado Legislature, Durango city officials say the threat of lawsuit holds back development, keeping vacancies low and prices high.

“One issue of particular relevance statewide is the drag placed on condominium development by the state’s condominium defects laws,” read a memo dated Dec. 9 from Durango’s Community Development Department.

State lawmakers are preparing for the centerpiece issue of the legislative session, in which officials will debate whether to make it more difficult to file construction defect lawsuits.

Bipartisan Senate Bill 177 would require mediation before a lawsuit is filed. It also would require a majority of homeowners in an association to agree to a lawsuit before one is filed. The bill is expected to be scheduled for a committee hearing in about two weeks.

A separate measure, Senate Bill 91, would reduce the statutory limitation for filing defect lawsuits from eight years to four years. The measure also had not been scheduled for a hearing as of Friday.

Previous legislative attempts have failed, but sponsors believe they have the momentum in a split Legislature this year to push the measure through to the governor.

The overall goal is to spur housing development by minimizing fear of lawsuits. Homebuilders say they have few plans for building condos and townhomes in the state, suggesting that the risk of being sued is “just not worth it,” according to a survey of homebuilders released last year by The Denver Regional Council of Governments.

In Durango, finding a rental can be difficult. The vacancy rate is 2 percent. With Fort Lewis College housing only 33 percent of its students on campus, the issue is even more critical.

The limited housing supply has pushed rental prices up, and it has been common since 2010 for average rental costs to increase more than 10 percent annually. Durango residents pay more than 30 percent of income on housing.

With the city growing by as much as 4 percent every year, Durango will need about 900 additional housing units within the next eight years, according to the Community Development Department.

But homeowners say a lawsuit may be the only option they have to address defective construction.

Jim Carver, owner of Carver Brewing Co, said he experienced a difficult situation when he owned a condo at the troubled Rivergate Lofts in southeast Durango.

Patios funneled water into the condos, sound traveled through cement and floors were cracking.

Homeowners won a $26.4 million settlement in 2011 after it was determined that there were significant stabilization and support problems associated with defective construction.

Carver said he didn’t notice many of the problems until at least three years into owning his unit. And he said mediation would not have solved much in his case, noting that Rivergate Loft Partners LLC offered a settlement out of court that was much lower than what was awarded.

“As an owner of a condo, I completely disagree with the premise that construction defects is why they’re not building condos in Colorado. That’s not why,” Carver said. “This law is only to make it harder to sue contractors and developers that do shoddy work.”

But Emil Wanatka, president of Timberline Builders, one of the largest developers in Southwest Colorado, said there is no doubt the threat of lawsuit has curtailed development in Durango.

“I’m a townhome builder. I’ve built some pretty significant projects over the years. We’re not doing that anymore,” said Wanatka, who owns a unit at Rivergate. “We wouldn’t take the risk.”

Wanatka said his company never has been sued for defects. But he said the issue still plays a role for him because of insurance requirements. Lawsuit risks make insurance harder to obtain or make insurance requirements so difficult that it’s not worth the investment.

Wanatka also pointed out that during the course of a lawsuit, which could last several years, owners who are not part of the lawsuit might be unable to refinance or sell their units. In his case, Wanatka’s unit at Rivergate experienced no problems, but he believes the lawsuit still lowered his property value.

But in the end, Wanatka acknowledged that construction-defect reform isn’t going to be an immediate solution, noting factors such as attracting insurance companies.

“The key word is suddenly, and the answer to that is no,” Wanatka said. “It’s going to take some time.”

pmarcus@durangoherald.com



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