The Arizona Supreme Court to the rescue?

By Sarah Fenske

Do Arizona homebuyers have the right to sue builders for shoddy construction?

That was the question before the Arizona Supreme Court this morning, as that august body heard arguments for the Lofts at Fillmore case. I wrote about this one earlier this year, but for those who missed it, the question is whether only builder/developers are liable for construction defects -- or whether builders can also be sued, even if they don't contract directly with buyers.

If I lost you already, my apologies. This stuff is a little dry. But for the thousands of homebuyers who find themselves stuck with a lousy house and are desperate to save their investment, it's a big deal.

So here's a little background. The Lofts at Fillmore was the first loft-style project downtown, but residents ran into flooding problems soon after moving in. When the developer, a one-man LLC, refused to make good, they sued.

The problem is that the LLC in question had no assets, according to court files. The developer basically sold the units and then closed up shop.

But when the homebuyers tried to sue the general contractor, who'd managed the work on their units, the court told them they didn't have the right. They could only sue someone they had a contract with -- a builder who was also a developer, basically. When the appeals court upheld that decision, the buyers took their case to the Supes.

The justices asked a bunch of technical questions, which I won't regale you with here. (I know, I know, you're dying to hear every last detail, right? Um, right?) But the more interesting part was in the answers. Both attorneys for the homebuyers and for the builders argued that precedent is on their side -- and that the results would be catastrophic should the justices overturn it.

"Right now, general contractors can barely get liability insurance," argued Kyle Israel, on behalf of the builders. "This is going to put them out of business."

But John F. McGuire, arguing for the buyers, claimed that they have long enjoyed the right to sue -- and that the appellate decision, if allowed to stand, is the one that would wreak havoc.

"This is the way things have been done," he said.

Sounds like just the sort of discrepancy the court should sort out ...

But I had to laugh at one suggestion from attorney Israel. He said the solution isn't to open builders up to litigation, it's to force developers to be more accountable. "The Legislature ought to decide that vendors of homes need to be adequately capitalized," he said, meaning that a developer couldn't be a fly-by-night entity, as permitted today; it would instead by law need enough assets to take care of its buyers.

Really, it's a great idea. But put it in the realm of Never Gonna Happen. Developers are literally the single most powerful lobby at the Legislature. If they're not going to pay for roads, do you really think they're going to let themselves be held responsible for crappy houses? Didn't think so.

So it's up to the Arizona Surpreme Court. Spokeswoman Cari Gerchick tells me that the court typically issues its rulings within a few months of arguments, so stay tuned.

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Sarah Fenske
Contact: Sarah Fenske