Homeowner FAQ & Common Issues
Q.
I only bought my home a few years ago. My Builder says he’s not responsible after 1 year. Is that true?
A.
- No, it is not. This is by far the biggest misconception in the eyes of the public. The truth is virtually every house comes with at least a 1 year warranty. If you find a problem in the house and report it to the builder within 1 year, you then have another 5 years in which to bring a claim to force the builder to pay.
- Beyond the typical 1 year warranty, the statute of limitations for breach of contract is 6 years in Alabama. In some situations, builders can be held responsible for serious defects in houses for up to 20 years after completion.
- Builders give many excuses why they are not responsible for fixing your home, and most of their excuses have no legal justification. McGrath Law Firm lawyers focus exclusively on construction and consumer law and have been holding builders responsible for houses they built up to twenty (20) years after construction. We use our years of experience in construction and law to assure you get the most fair and just recovery to cure the defects and damage in your home.
Common Excuses Builders use:
- Statute of Limitations- “Your 1 year warranty is up”
- The Home Contract: Limits on Liability
- Cracks and leaks are normal
- Lack of maintenance by homeowner
Q.
My home warranty expired and I’m having severe problems with my house. What are my options?
A.
By law, all new homes in Alabama come with warranties. Even if you don’t receive a written warranty of any kind from your builder, the Alabama legislature has enacted a pretty good set of laws to hold a builder accountable for defects.
For example, each new home built in Alabama comes with a "warranty of habitability" for the original buyer. This warranty is supplied to virtually every new home built in Alabama excluding manufactured homes and some custom built homes, through the common law.
A warranty of habitability provides that each home built in Alabama shall be fit for its intended purpose-that is being used as a residential dwelling for at least one year. Historically, what makes a home "livable" or "habitable" has been taken on a case by case basis by our courts.
Under the Alabama warranty of habitability law, a defect generally must make itself apparent within one year of the home being occupied. At that point, it is incumbent upon the homeowner to notify the builder, in writing, of the defect. This firm recommends the use of certified mail for notification.
After notifying the builder, the homeowner has up to five (5) years to bring a lawsuit after noticing the defect for the first time. Other claims for negligence or misrepresentation are often included in actions over the same defects. However, the statute of limitations for those claims can expire as early as the second anniversary of the sale being closed.
Historically, these warranties and laws have allowed homeowners a fair playing field to recover the cost of defects and lost property value in courts if a builder refuses to accept responsibility.
What most consumers are unaware of is that most written warranties provided by builders, especially after market warranties (commonly called “2-10” warranties) actually take away the right to go to court and provide only a fraction of the protection guaranteed by the legislature. Today’s warranties need to be carefully reviewed before you close on your new home and in most cases rejected before you agree to buy the house.
It is essential to read any warranty carefully. Most warranties are filled with legalese and the vast majority of builders using these warranties will initially deny responsibility and refuse to fix your problems. The McGrath Law Firm knows all of your rights under Alabama law. Contact us to make sure you know your rights before assuming the builder really is not responsible for a costly defect.
Q.
I am not the original owner. Can I file a claim?
A.
Maybe. Alabama is a “buyer-beware” state when it comes to buying a used house and the buyer’s rights with a used home are drastically limited compared to buying a new home. There are limited instances where the buyer of a used home can hold the original builder responsible; make sure you talk to an authority if you have a problem with a used residence.
Contact McGrath Law Firm so that we can advise you.
Q.
What is the Alabama Home Builders Licensure Recovery Fund and how do I qualify?
A.
The Recovery Fund is available for homeowners who hired a licensed builder to build a home. If the homeowner receives a judgment against that builder, but is unable to collect on the judgment, the homeowner can collect up to $20,000 toward the amount of the judgment comprising actual economic damages from the Homeowner Recovery Fund. The homeowner must notify the Board by certified mail within 10 days of filing a civil complaint against the licensed builder and provide the Board with a copy of the complaint filed in court. Upon receipt, the Board will provide the homeowner with a copy of the Homeowner’s Recovery Fund Regulations, which includes the procedure for making a claim against the fund.
If the builder was not licensed by the Board at the time that the work was undertaken, the homeowner is not eligible.
Source: www.hblb.alagama.gov
Q.
What do I need to know about building or buying a home in outlying counties?
A.
Outside Madison County, throughout most of North Alabama, there are no inspection departments. Even if there were, most of these inspections would only be “spot” inspections performed at certain times throughout the construction process. Once sheetrock is up, most construction defects are not visible, even to trained inspectors. Moreover, Alabama law specifically states that building inspections are not for the benefits of the homeowner.
Q.
Are licenses are required for builders in Alabama?
A.
Yes, anyone building homes for the purpose of sale in Alabama is required to obtain a license from the Alabama Homebuilders Licensure Board. www.hblb.alabama.gov
The Homebuilders Licensure Board was established in 1992 to enforce the provisions of The Home Building and Home Improvement Industries Act, codified at Ala. Code § 34-14A-1 (Amended 1975), et seq. which provides for the licensure of persons engaged in residential construction in the State of Alabama.
The Homebuilders Licensure Board can discipline a licensee by:
- Reprimanding the licensee
- Imposing a fine that is to be paid to the Board
- Suspending their license for a period of time
- Revoking their license
- Requiring the licensee to attend builder education classes.
The Homebuilders Licensure Board cannot:
- Order a licensee to return to a property to take corrective action
- Order a homeowner to allow a licensee to return to the residence to take corrective action
- Establish monetary damages in favor of or against a homeowner or licensee
- Order a licensee to reimburse a homeowner for faulty construction work
- Order a homeowner to pay a licensee for work performed
Before you contract with a builder, we strongly recommend you verify that they have a current license on the HBLB website and obtain certificates of liability insurance directly from their insurance agents for not only your builder, but also each subcontractor they hire.
Q.
Are Builders required to have insurance in Alabama? (Short Answer-NO!)
A.
It is imperative everyone know builders are not required to carry general liability insurance by the Homebuilders Licensure Board.
It is equally important for everyone to know there is no state license or insurance requirement for subcontractors either.
We cannot tell you how heart wrenching it is every time homeowners facing hugely expensive repair bills discover their builder has no insurance coverage. These days, if a builder has any assets, they are almost always hiding them behind fancy-sounding company names to protect them from being sued. These families might have avoided foreclosure or bankruptcy if they had taken a few easy steps to verify their builder had liability insurance when he built their house.
Any builder that hesitates to provide you with liability insurance certificate sent directly from their insurance agent that lists your name should be avoided at all costs. The same applies for all of their subcontractors too. Any legitimately insured builder can provide you with these certificates with a single phone call to their insurance agency.
Unless you are buying a house in a city or county that requires a builder and subcontractors to provide the inspection department with a certificate of valid liability insurance, most do not.
The City of Huntsville and City of Madison inspection departments require builders and subcontractors to carry liability insurance and provide proof of insurance each year when they renew their business licenses or obtain building permits. By contrast, although Madison County also requires builders and subcontractors to carry liability insurance, it does not require the builders to provide proof of insurance and as a result, many builders in Madison County are uninsured.
Surprisingly, Limestone, Marshall, Morgan and Jackson Counties have no inspection department, and therefore there is no insurance requirement of any kind for building in these counties. (Individual cities such as Athens and Guntersville do have inspection departments that apply only within the city limits but have no jurisdiction in the county at large.
Before you contract with a builder, we strongly recommend you verify that they have a current license on the HBLB website and obtain certificates of liability insurance directly from their insurance agents for not only your builder but also each subcontractor they hire.
Q.
What do I need to know about my sales/construction contract?
A.
McGrath Law Firm strongly recommends reading your entire sales/construction contract thoroughly, even multiple times. These contracts are written by teams of lawyers representing builders and real estate agents so naturally most of the fine print is not for your benefit. Primarily, we recommend that you search the contract for an arbitration clause and “Limited Warranties” filled with legalese. If your builder wants you to sign these kinds of contracts, we recommend you refuse to sign the contract, unless they will remove or cross out these terms. Any builder who insists on an arbitration clause and a complicated warranty should be viewed with great scrutiny. No two things prevent more homeowners holding builders responsible for their mistakes than arbitration clauses and warranties filled with exclusions and waivers.
Q.
What is the difference between Cost-Plus and Fixed-Price Contracts to Build?
A.
There are pros and cons to each:
Fixed-price contracts are generally resisted by builders. They commonly choose inferior materials and cheaper labor to increase their profit margin. While homebuyers may feel more secure knowing a firm price on their new home, this type of contract can be particularly dangerous in terms of its potential for construction defects. If you are considering a fixed-price contract, the contract should list as many details and specifications as possible to prevent short-cuts, substitutions and cheap building practices.
Cost-plus contracts typically pay the builder a percentage of the cost of the entire house for managing the construction process. (For instance “cost-plus 10% means the builder will be paid $10,000 if the house costs $100,000 in materials and labor). These agreements must be very carefully written because the builder actually benefits as the costs go higher. Most home buyers interview several builders and in large part choose their builder based upon the amount of the bid they submit. Virtually all of cost-plus contracts written by builders disclaim any obligation if the costs exceed their bid. In the past several years, we have seen more and more examples of builders submitting low bids just to get beat their competitors for the contract. Once the contract is signed, the homeowner finds out the hard way that the builder fabricated the bid and never had any realistic hope of staying on budget. For these reasons, a carefully drafted cost-plus contract is essential to protect you from financial ruin.
Q.
What should I do before I purchase a home?
A.
McGrath Law Firm recommends taking the following simple steps prior to purchasing a home in order to limit your potential for ending up with a construction defect.
- Ask your builder for references-lots of them. Then take the time to call these people.
- Check to see if your builder builds home within the city limits of where you live. City inspection departments often have more stringent requirements which marginal builders will avoid. County inspection requirements (if there is a county inspection department at all) are generally more lax. A builder who does not build inside the city limits may do so for this reason.
- Ask to see proof of liability insurance. Make sure the policy will extend through the time it takes to complete your construction. Insist that the policy limits exceed the entire contract value of the house you are building. Policies issued or underwritten through Zurich Insurance Company have been especially problematic in the past.
- Call the Alabama Home Builders Licensure Board. They have lists of complaints filed by consumers. While the Licensure Board will not tell you any details about the complaints, any builder who has complaints against him at that level should be viewed with more scrutiny.
- Refuse to sign an arbitration clause. Any builder who insists on an arbitration clause should be viewed with great scrutiny. No one thing prevents more homeowners from being able to make a builder accountable for their mistakes than an arbitration clause.
Q.
What is Arbitration, and why should I refuse to agree to it?
A.
Many homeowners are told arbitration with their builder benefits them because it is faster, cheaper or better than being able to hold your builder, realtor or pest control company responsible in a courthouse with a judge.
There is nothing about arbitration that benefits a consumer or home buyer over having access to the courts. Stated another way, the entire intent and purpose of arbitration is to prevent homeowners and consumers from seeking justice from builders and other big businesses.
Before you purchase your home, review the sales contract, warranty and every other document completely. The McGrath Law Firm recommends that you refuse to sign any arbitration clause. Unfortunately, arbitration clauses prevent many homeowners from being able to hold a builder accountable for construction defects.
Q.
Why should I always strike out the “As-Is” language in any contract?
A.
Always strike out the "As-Is" language in any contract, even your real estate agent's contract, if you are buying a new home.
Almost every real estate contract or builder’s contract says something to the effect that the property or the house is being sold “as-is” and that you, as the buyer, are not relying on any statements or representations about the quality or specifics in the house. Always strike that language out, and take action to make specific written notes on repairs or improvements to the property that are promised as part of negotiations. You must have everything written down and signed if you want to hold them to it later.
Simply stated, anything that is not written down on the contract (the minimum square footage, that a fence will be installed later or exactly how landscaping will be completed, etc.) is generally not enforceable after the closing unless it is written down and signed by the seller or their agent.
Q.
Do I need to hire a home inspector for a new home?
A.
Although you’d like to think a “new” house means it was built carefully and correctly, McGrath Law Firm has represented hundreds of families in the last 15 years that bought a new house with at least one serious building code violation that caused extensive damage and expensive repairs.
Most home inspections provide a buyer no guarantee or recourse if they miss a defect.
Virtually every home inspection service in North Alabama disclaims any responsibility above the cost of the inspection fee if the inspector fails to observe or report a costly defect.
No matter how much a experience a home inspector advertises they have, no matter how much insurance they have, almost every single home inspection contract in North Alabama limits the inspector’s liability to the fee you pay them if you buy a defective house.
Ironically, Alabama law requires home inspectors to carry two kinds of insurance to protect homeowners. However, the insurance companies that issue the policies will only sell policies to home inspectors that limit their entire liability to the inspection fee you pay them.
This underscores the importance of asking for a copy of the contract and reading all of the fine print before you allow a home inspector to inspect your home. Most home inspection contracts also require anti-consumer arbitration (click here to read more about arbitration).
Based on the cases we have handled, the majority of home inspectors do not give homeowners their contract to review or sign until the inspection has already been completed and the inspector is delivering the results in a report. You need to ask to see the contract before they do the inspection.
Despite these harsh facts, there are a few highly qualified home inspectors in North Alabama that perform a valuable service to their clients. They can be hard to find though. The licensing requirements to become an inspector are horribly inadequate and do not require any prior experience or formal education in construction.
The new or used homebuyer also needs to be aware of the relationships between home inspectors and real estate agents.
The vast majority of home buyers rely on their real estate agent to select a home inspector. In turn, home inspectors largely rely on referrals from realtors, to make money doing inspections. Our experience has been that agent-dependent home inspectors fail to find and report more major defects that are likely to kill a sale and cost that agent a commission.
Finding a skilled home inspector that accepts responsibility for the contents of their report and will honestly report all of the adverse conditions in a house to you is not an easy task.
We recommend that you review the contracts carefully before allowing the inspection and choose a home inspector that does not limit their liability to the cost of the inspection fee. If you see that language in the contract and the inspector is not willing to strike that provision out, we recommend you call someone else.
In addition, ask the inspector about their formal education (do they have a degree in engineering or building sciences?) and their on-the job experience before doing inspections (have they ever done building or remodeling as a career?). There are very few inspectors with formal engineering or building education. When you find one, you’ll know the difference between that inspector and someone who took the weekend course to qualify for their license.
Q.
What is the role of a real estate agent?
A.
Answer: It depends. There are three different ways real estate agents represent clients. They may work for a seller, a buyer or sometimes both.
Before you hire a real estate agent in any capacity except as your exclusive agent, be sure you are completely aware of the pitfalls and limitations of what a real estate agent has to tell you.
The role of a realtor is to represent a buyer or seller’s best interests in property transactions. Many builders hire real estate agents to represent them in the sales process and to list their homes for sale. In this case, the realtor serves the interests of the seller and not your interests as a homebuyer. This realtor’s goal is to find a homebuyer who is willing and able to buy the home on the price and terms set by the builder. The builder’s real estate agent has very little duty to tell you anything adverse about a house at all. Selling agents receive a great deal of training to use vague language and to avoid giving direct answers to direct questions, much less in writing.
Many homebuyers hire their own real estate agents to assist them in the home buying process. Even a buyer’s agent is motivated by monetary compensation which is typically a 6% commission off of the sale of the home, split equally between the parties. In other words, even when you hire your own real estate agent, it is still in their best interest to move the sales process along as quickly as possible in order for them to turn the sale and move on to the next client.
Homebuyers must recognize that the interests of the realtor are not always perfectly aligned with their own goals of finding a home that is safe, affordable and defect-free. There are many skilled and well-respected realtors in the market who always perform due diligence when helping you purchase a home. However, just as with any business, there are always real estate agents whose primary motivation is not aggressively protecting your interests. Instead, it is selling you anything for the sake of earning a commission, even if they know a builder has a bad reputation.
Unfortunately, we have consulted with a larger than normal number of Clients about unscrupulous real estate agent behavior since the housing crash started in 2008. A lot of builders took unprecedented short cuts to finish houses at any cost and then listed them with real estate agents just as desperate to get a sales commission. Times are still tough out there and we cannot emphasize how careful a homebuyer needs to be in this environment.
Q.
Who does the Closing Attorney represent?
A.
Unless you select and pay the closing attorney yourself, they represent the builder/seller and are NOT there to protect your interests.
The most common misconception by homeowners is the closing attorney is representing them and looking out for the buyer’s interests. Homeowners commonly conclude, “because a lawyer is involved, everything must be ok.”
A closing attorney is NOT your attorney and is not specifically protecting your right to a defect-free house as you purchase your home unless you selected and pay the attorney yourself.
Closing attorneys make money by closing as many sales and writing as many title insurance policies as possible. Builders represent more closings and revenue to a closing attorney in the future. As a result, the closing attorney’s interests are aligned with the builder hoping they will continue closing their sales at the same law firm.
The duties of a Closing Attorney include:
- Reviewing the specific terms of sales contracts
- Evaluating legal documents such as the title policy, deed, mortgage, survey and closing statement.
- Explaining terms of loans
- Ensuring clear title is transferred
- Reviewing charges to ensure that they are in line with estimates
- Providing the Buyer a HUD-1 Settlement Statement, which summarizes the financial aspects of the purchase transaction.
- Providing information about any title or ownership facts that affect the property.
Note! Typically, the closing attorney is only looking for items that affect the title. They are not specifically concerned with latent, or undiscovered defects in the home. If you are buying a new home, the closing attorney will not find any information that affects the property’s condition, and they certainly have not lived at the property in order to discover any possible defects!
In fact, one of the documents given to the homebuyer for their signature in almost every closing is waiver and complete release of liability for the closing attorney and the title company. This new release was implemented a few years ago, and now it is used in almost universally.
Q.
What is a builder/homebuilder’s association?
A.
The Home Builders Association of Alabama (HBAA) is NOT a judicial or regulatory body that will evaluate your rights or help you recover damages from a bad builder.
Being a member of the homebuilders association in and of itself means nothing about the skill or experience of your builder. Membership is open anybody if they fill out the application and pay the membership dues.
The HBAA is not an organization that will help a consumer or hold a builder responsible for defects or damage in your home.
By the same token the Better Business Bureau is also of little use in a construction or home construction dispute based on our experience.
Q.
What is the role of the BBB?
A.
The Better Business Bureau is most consumers’ first checkpoint when researching the credibility of a builder. Homebuyers should recognize that while the BBB does promote a set of ethical best practices for businesses, it does NOT have any legal or policing powers. If a consumer calls the BBB to inquire about the reputation or business practices of one of its members, the BBB will only disclose if there are any “unresolved” complaints against the business and typically nothing more. The BBB simply provides consumers information and informs them about marketplace fraud or sales scams within their region.
Homebuyers should be mindful that while their builder may have a suitable BBB rating, he is not completely infallible. Not all complaints are reported to the BBB and if your builder is new to the market, latent defects found in his homes may only be starting to appear.
The BBB is most commonly thought of as being a resource for consumers to bring their grievances to and get assistance resolving the dispute. Unfortunately, the BBB is composed of and financed by its local business-members. We have seen precious few examples of a complaint to the BBB ever resulting in a change of heart or a satisfactory resolution for the consumer in a contested matter.
Frequently, the BBB attempts to induce a consumer to waive their rights to pursue a claim in the judicial system by agreeing to arbitrate the claim instead with the BBB. The offer sounds attractive enough: it offers the services of the citizen arbitrator for free; a resolution faster than the court system. Unfortunately, the BBB only offers its arbitration services for free if the business is one of their members. Virtually none of the arbitrators have any legal training and most are either present or former members of the same BBB and are biased in favor of other local business-members of the BBB.
We do not recommend the use of the BBB for any dispute resolution services beyond filing a complaint and leaving it “unresolved” to hopefully prevent another consumer from the same fate.
