Proposition 201 creates a huge incentive for dissatisfied buyers to sue. There's little risk in going to court to ask for more than the homebuilder is offering.
Proposition 201 proponents, mostly unions, say the initiative is to protect new homebuyers against shoddy construction.
Opponents of Prop. 201, mostly homebuilders, claim that its intent to encourage litigation and enrich trial lawyers.
Although some of their arguments are stretched, opponents have the much better case. The primary effect of Prop. 201 would be to increase litigation rather than fix homes.
Consumer surveys indicate that most people are generally satisfied when they buy a new home. When they aren’t, however, it is a very big deal. For virtually everyone, their home is a major investment, both financially and emotionally.
In the 1990s, the home construction industry in California was racked by an explosion of construction defect litigation. The condo market largely froze.
In a former life, when I ran a public affairs agency, I was hired by the industry here in Arizona to promote an alternative dispute mechanism to prevent the California litigation craze from coming here.
I apparently wasn’t very successful, because legislation wasn’t passed in Arizona until long after I had become a journalist.
However, legislation was passed in 2002, on a very strong bipartisan vote. Only three of 90 legislators voted against it.
The current law is intended to encourage the resolution of disputes over home construction without litigation.
The buyer tells the homebuilder what he thinks is wrong. The homebuilder can make an offer to fix it. If buyer and builder agree, the repair is made. If not, the buyer still can sue.
If the dispute goes to court and the buyer gets more than the homebuilder offered, the homebuilder has to pay the buyer’s attorney fees. If, however, the buyer gets less than the homebuilder offered, the buyer has to pay the homebuilder’s attorney fees.
Under Prop. 201, the buyer would never have to pay the homebuilder’s attorney fees. In fact, the buyer would get attorney fees if he won anything, even if it was considerably less than the homebuilder offered before litigation.
This creates a huge incentive for dissatisfied buyers to sue. There’s little risk in going to court to ask for more than the homebuilder is offering.
You have to really like litigation to think that’s a good idea. And it’s likely to work against most dissatisfied buyers who just want their problems fixed, because it dramatically reduces the incentive of the homebuilder to be proactive before litigation.
That’s the heart of the measure and the main reason it should be rejected. Prop. 201, however, has other provisions, the consequences of which opponents are at least somewhat exaggerating.
You may have heard the opposition protesting that Prop. 201 even allows people who don’t buy a home to sue. That, however, isn’t for construction defects, which would clearly be ridiculous.
The proposition also requires that new home contracts contain additional disclosures, mostly about financial arrangements the seller may have with those doing the financing for the homeowner. This is the provision over which nonbuyers can sue.
That’s less ridiculous, but only slightly so. If someone doesn’t end up buying, what harm has he suffered? If there are harmful nondisclosures, real buyers can make the case.
Opponents are also making a big deal out of Prop, 201 striking current law exempting new home contracts with arbitration clauses from the dispute resolution mechanism set up by the statute. The proponents are trying to do away with arbitration is the claim.
What the proponents are trying to do by striking that provision in existing law is unclear, and certainly the overall thrust of the proposition is to encourage litigation. The Federal Arbitration Act, however, protects arbitration contract provisions and pre-empts state laws to the contrary.
There is one provision of Prop. 201 that would be a major disservice to most buyers of new homes that isn’t getting discussed enough. It would allow buyers to back out of a deal within 100 days and get 95 percent of their deposit back. If that were enacted, either construction on new homes would be routinely delayed for 100 days or deposits would become astronomical.
Proponents of Prop. 201 want voters to think it’s about a 10-year warranty on new homes. But Arizona courts have generally held that there is an implied warranty that new homes have to remain functionally fit for eight years, so there’s less gain in this than it appears.
Regardless of the motivation or the intent, the primary effect of Prop. 201 will be to have construction defects litigated rather than fixed.
Robert Robb, an Arizona Republic columnist, writes about public policy and politics in Arizona. E-mail: robert.robb@arizonarepublic.com