EDITORIAL: Home 'defects' put hurt on owners

On one thing, we'll bet most Hawaii homebuyers and would-be buyers, homebuilders, insurers, real estate agents and (maybe) even lawyers in the field agree: For median-income households, homes here cost too much, take too long to build and are too vulnerable to bureaucratic and/or legal hurdles that hike costs and stall the process of buying or selling "affordable" homes.

One of those hurdles is Hawaii's process for addressing construction defects in a completed home — as documented by the University of Hawaii Economic Research Organization (UHERO), in a report commissioned by the nonprofit Hawai'i Homeownership Center.

This must change.

Construction defect liability lawsuits have become more frequent and more likely to include multi-family units since 2001, UHERO reports. In complicated cases, with many homeowners involved, such as in condo towers, these lawsuits can drag on over a decade, while a potentially costly compensation order looms. And potential repairs lag.

In response, project insurers have raised their rates and limited coverage, leading to a 500% rise in premiums for developers that, needless to say, is passed on to the homebuyer. Mortgage lenders charge would-be buyers higher interest when a home is involved in litigation — and that takes mortgage payments higher.

Once a construction-defect lawsuit is filed, complications bloom. Cooperation to find a less-costly solution or repairs by the builder comes to a screeching halt. Buyers — and their lawyers — benefit most from squeezing the highest settlements from the seller/developer, and sellers/developers lose the incentive to speed up the process.

The Hawaii Contractor Repair Act (CRA) was supposed to address this. It requires parties to parse out repair and compensation costs, and make mediation efforts, before going to court. But the CRA has condo tower-sized loopholes that the construction industry complains are being used against them, thereby favoring litigation.

House Bill 420, which is working its way through the Legislature, seeks to address the issue. However, some of its current provisions go too far in restricting homebuyers' options, while others just extend the uncertainty over litigation that's raising homebuilders' costs.

An ideal law would press cooperative steps to get repairs done quickly over lengthy legal battles, reduce lawyers' incentive to build mammoth cases over questionable "defects," and also control use of legal tactics that can drag these cases through the courts for, in some cases, decades.

Support for HB 420 by Housing Hawaii's Future and the Young Democrats of Hawaii bolsters our bet that Hawaii's taxpayers — especially working parents who hope to afford a home for their families — want CRA improvements that reduce home-building timelines and costs.

That puts the ball in the Legislature's court. Changes to the law must preserve the rights of homeowners to compensation for defective work while tailoring the rules of engagement to favor cooperation, repairs and closure in a far more timely manner.

Class-action suits, which have popped up like mushrooms in this century, are among the most troubling to consider. Once a class-action lawsuit is live, builders are actually restricted from making repairs, say builders such as Ho'opili developer, D.R. Horton.

Further, builders allege, many homeowners don't even know they're included in a lawsuit — class-action cases add plaintiffs automatically unless they opt out, giving homebuyer attorneys an automatic, unearned edge in court.

Changes in the law are definitively needed, even as HB 420's individual provisions need adjustment. The CRA was enacted to require homeowners and contractors work collaboratively on alleged building defects before litigation. A palatable bill will push further toward this goal.