Faulty construction - sue insurance/builder?

21 Replies

I have a 3 bed 2 bath (1 story) KB home rental property in TX. Recently had couple of plumbing issues where the toilets were not flushing. First time, got the sewer lines cleared in the yard - spent $2500. Then again, toilets kept rocking. A trusted plumber goes out there and starts digging to find the issue. Turns out the builder has a piece of rebar going through the main sewer line. Sewage has been seeping into the ground underneath the flooring for several months. Insurance wont cover it because it is "pre-existing condition" or "faulty construction". The repair and mold remediation job is $20K. 

Any advice on what is the best course of action? 

  • Sell property at deep discount
  • Spent $20k and suck it up 
  • Sue Builder 
  • Sue insurance 

@Yuvaraj Vimawala did you buy this as new construction from a builder? If not there is no one to sue as you were most likely given the opportunity to perform a home inspection and if you did not pick up on it the. Unfortunately it’s one of those things. Home inspectors are pretty specific on their forms that they only inspect what they can see as well.

Sorry about this.

Many new construction homes come with a warranty. 1 year anything, 2 year mechanicals and 10 year structural is pretty common. 

I disagree with @Chris Seveney  This was a latent defect that would not have been detected by a home inspector. 

How long ago did you purchase the property?  I would pressure the builder and even threaten to go public thru the media if the issue is not handled by KB

A couple of side notes:

I would shop around as the pricing seems extremely high to me

I would ask for some help in the meantime from your tenants by asking that no paper be put down the sewer line or this is going to be a frequent clog

@Greg H. he does not state it is new construction (that is why I asked). As @Russell Brazil mentioned, the home will have a warranty for a specific period. If it is new construction then yes it should be covered. You do have to check though as if you were not the first buyer some warranties in some states do not carry to the next purchaser 

Originally posted by @Chris Seveney :

@Greg H. he does not state it is new construction (that is why I asked). As @Russell Brazil mentioned, the home will have a warranty for a specific period. If it is new construction then yes it should be covered. You do have to check though as if you were not the first buyer some warranties in some states do not carry to the next purchaser 

 The builder warranty would transfer but more than likely be outside the 1-2 yr window if not new construction 

However, if it was a resale Texas requires notification of any defects via a Sellers Disclosure as surely this issue would have crept up previously and an action against the previous owner would be in order. I would still pursue the deep pockets which is the builder 

@Chris Seveney , I understand there will be no warranty as its a 2006 property and I bought it as a foreclosure. But isnt anyone accountable for faulty construction? @Greg H. - Thanks, I will get a second opinion. 

@Yuvaraj Vimawala

That was a very important detail that changes everything.  IMO, you have no options but to fix the issue or to sell at a discount with full disclosure

What is the scope of the work ? I would get multiple bids as 20K seems very high

@Yuvaraj Vimawala

Disclaimer: I am not a lawyer

Any statute of limitations for a suit against the builder has long past

The seller via foreclosure is exempt from any disclosure nor has any liability

Looking at the pics, I assumed it was dug up with a jackhammer and seems easily remedied at this point.  

$20k seems very high. If it just a small section of the line that has the rebar going through it, just replace that piece. You already have the area exposed. Dig down a little further so you can expose the whole issue and get an accurate quote.

@Yuvaraj Vimawala . As many have voiced - you have minimal chance of recovery from the Builder, due to expiration of Builder and Structural Warranties , compounded by the fact property was also an "As Is" Foreclosure. 

Among Agents, nationwide and even moreso in Houston the reputation of KB Homes is noted. Click the Link below for results of the February Credit Suisse Agent Survey for which Builders, Agents "Would Most Strongly Discourage Clients From Buying"! 

https://tinyurl.com/yccjhs6p

  

Disclaimer: Although I am a Texas lawyer, I'm not *your* lawyer.

To speak intelligently about this requires a lot more facts than you want to type out, but generally there is a discovery rule to the statute of limitations.  That means if a defect is undiscoverable, the timer doesn't start to run until the defect becomes known.  There could be breach of warranty and DTPA claims against the builder (or rather, its insurance policy or bond).  If a city of Austin build, they might have needed a bond posted or other 3rd party carrier.

Regarding insurance: that would depend on what is covered by the policy.  If the loss is a covered event, then they wrongfully denied the claim.  It also matters what is defined as "pre-existing condition" or "faulty construction".

I would write out a sufficiently detailed scope of work and get 3 bids on my scope (not theirs).  Depending on what was included in that $20K, it might be right in the ballpark or grossly overpriced.

Get some more bids, I am fairly confident no one would take this on contingency. So you'll have to pay for litigation and just preparing the initial documents will be at least half the cost to repair.

Originally posted by @Yuvaraj Vimawala :

@Chris Seveney , I understand there will be no warranty as its a 2006 property and I bought it as a foreclosure. But isnt anyone accountable for faulty construction? @Greg H. - Thanks, I will get a second opinion. 

The builder is responsible for faulty construction, but not to you. The builder's responsibility runs to the person or entity that hired him.  Your recourse would be to the seller, but since you bought as-is in a foreclosure, you do not have recourse there either.

Take a close look at your property insurance, though, and discuss with your broker.  Many "faulty workmanship" exclusions have an exception for ensuing loss. So while it wouldn't cover the costs to repair the faulty workmanship, it may cover the cost to repair the resulting damage (i.e. water damage to interior of the house, etc.), but only if that type of damage would otherwise be covered (i.e. if the work resulted in mold, but you have a mold exclusion, then no coverage for the work or the mold).

Originally posted by @Yuvaraj Vimawala :

@Chris Seveney , I understand there will be no warranty as its a 2006 property and I bought it as a foreclosure. But isnt anyone accountable for faulty construction? @Greg H. - Thanks, I will get a second opinion. 

 You should expect problems on as is reo sales. 12 years later after it is buily, no one has any liability. 

I am astounded at the plethora of absolutely wrong answers. But it explains why many investors are flippant in their product quality issues.

The law that applies in this situation is the statute of repose. In Texas, unless changed in the last legislative session, it is 6 years. Being a 2006 build you would have until 2012 to discover the defect.

But warranty periods, who owns the property, etc. have little to do with the issue.

As time has expired, you bought this house as-is, and your insurance has a iron-clad trial-tested exclusion. Time to be an investor and invest another $20,000. Or, if that is in-fact a competitive price for repair, take it off your selling price, as you will certainly need to disclose this known and publicly discussed defect.

Since you purchased "as-is", you would have to prove the prior owner knew of the defect and failed to disclose it if you intend to sue him/her. Even then, if you prevail the most you might get is a judgment lien. When purchasing "as-is", a seller can be liable under the Deceptive Trade Practices Act if they commit fraud by intentionally failing to disclose a material defect. 

What type of flooring?

My gut reaction is fix it, but get more labor bids and stain the concrete in that room instead of replacing the floor.. 

@Yuvaraj Vimawala  Sorry to hear this. It sucks! 

Anytime I hear sue, that just sounds like more money, so you may want to seriously consider before litigating as you could end up spending $20k on legal fees pretty quickly. 

This is a personal decision I'm not sure anyone can help you make. The tricky part is that you probably have to disclose this as a material defect if you do sell. 

Thinking long-term might help you make a decision if you are going to make 20k in cash flow in 2 years, for example, then maybe fixing the issue isn't such a bad idea. 

Think long term. 

Hope this gives you some consolation. Goodluck. Thanks! - Ola 

@Yuvaraj Vimawala  @Jerel Ehlert

Late last year, my buyer client and I discovered through inspection that the master bath shower drain on a 2012 builder home in Leander, TX had never been connected (see below). The sellers were the original owners who bought in 2012 and had no idea about this. Unfortunately, the builder firmly refused to do anything about it, and insurance was no help. We immediately offered to take the property as-is for a substantial discount. The sellers were initially going to reject that and fight the builder legally instead. However, after talking with a few attorneys, they decided that they'd rather just be done with it. I don't know if that was primarily due to the legal cost or it being unlikely to have a favorable legal outcome. The options they had left were to complete the repairs themselves or to sell as-is at a discount. They had already moved out of state and didn't want to deal with a partial bathroom remodel. So, I was able to get the property for my client well below appraised value.

Here's the problem for educational purposes:

The photo is looking down through the floor drain in the master bath shower with the decorative drain cover lifted. The portion of white PVC pipe you see down in the hole is the very top of the drain pipe that is supposed to be connected to the shower pan via some additional plumbing connectors. It's hard to tell from the picture, but there's actually quite a gap between the shower pan and the drain pipe. According to both the general inspector and a plumber, it appears that this was never hooked up to begin with. So, all the water from the shower had been dropping straight from the hole in the shower pan onto the slab and void space around the PVC drain pipe directly beneath the shower.

The crazy thing was that there was absolutely zero damage (or evidence of concealed damage) that would indicate that this was an issue. The sellers were showering every day without having any idea. All that water has to go somewhere. The plumber told me that, "The foundation is porous and can absorb quite a bit of water. It will eventually work its way through and out where it can." My client had a foundation inspection, which also revealed nothing of note.

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