A week ago, I started a series of blog entries intended to debunk the myths being disseminated on Senate Bill 15-177 (“SB 177”) by a coalition of special interest groups led by the Metro Mayors Caucus and Denver Chamber of Commerce. This coalition has one goal and that is to destroy the rights of homeowners to adequately recover from builders for construction defects to their homes.
The first debunked myth was that SB 177 will promote the construction of quality affordable housing. While it certainly didn’t take a rocket scientist to debunk that myth, the spin on affordable housing was just the tip of the iceberg for this coalition.
Myth Number 2: SB 177 Will Protect the Right of Homeowners and Builders to Rely Upon the Fundamentally Fair Arbitration Provisions in the Declaration
To debunk this myth, it is essential to understand that prior to the first unit being sold in a condominium association, the condominium declaration is recorded. This declaration regulates a variety of issues including whether arbitration is utilized for construction defects. Legislators should understand that many attorneys for the developers of these condominium projects write these declarations to ensure that homeowners are at a distinct disadvantage when seeking to hold the developer responsible for their shoddy construction. Homeowners have absolutely no say in the self-serving mandatory arbitration provisions placed in these declarations and, without a law degree, it’s difficult to understand the legal and practical consequences of these provisions.
It is not uncommon for these declarations to require mandatory arbitration with the developer choosing the arbitrator. In some cases, the developers will even draft caps on their liability into their declarations. Why would they do this? Because arbitrators that are pro-builder are widely recognized as giving much smaller awards to homeowners for defective construction than those awards homeowners would receive from a jury. It’s just that simple. Stack the deck against the homeowner and significantly cut the developer’s losses.
Typically when arbitration is mandated to resolve disputes, this method of alternative dispute resolution is agreed upon between the parties. In addition, these agreements will outline a fair method for the parties to utilize in choosing arbitrators. After transitioning an association from developer to homeowner control, it is unconscionable to not permit the homeowners to amend the declaration to remove one-sided and unfair arbitration provisions placed in the declaration by the developer.
Also, in the HOA context, it is important to understand that the use of arbitration is more expensive than having the dispute heard by a jury. Arbitrators are paid an hourly rate for their services. If you have a panel of three arbitrators and the arbitration takes say three weeks – the arbitration fees will be significant. The association’s portion of the arbitration fee comes off the top of the award for the construction defects. In some cases, this means the association doesn’t have enough funds to repair the defects.
It’s time for the coalition to come clean about the fact that the arbitration provisions in SB 177 are intended to ensure that homeowners do not adequately recover for the defective construction to their homes. This is not how things are done in Colorado!
Stay tuned for the next installment of Debunking the Myths of SB 177.