The most important investment most Coloradans make — buying a home — may once again take center stage this month, when a divided Colorado General Assembly starts its 2015 session on Jan. 7.

The General Assembly has failed twice in the last two sessions to pass reforms to the construction defects law, with one effort dying in the House (2013) and the other, Senate Bill 14-220, in the Senate.

One of the big issues for the 2015 Legislature is whether lawmakers can come to a consensus on changes to the state’s construction defects law. But some municipalities aren’t waiting for the legislature to act.

In October, the Lakewood City Council passed an ordinance allowing builders and developers an opportunity to repair construction defects before homeowners and condo associations could sue over defects. The ordinance, which passed 7-4, also requires condominium boards to receive permission to sue from a majority of their homeowners, rather than just a majority of the condo board.

Last month, the Parker Town Council unanimously passed its own ordinance that makes each multi-family property its own plat, or division, and subject to binding arbitration in a construction defects dispute. Both ordinances apply only to new construction.

Colorado’s construction defects law was put into statute in 2001. The Construction Defect Action Reform Act of 2001 has been amended three times since. The most significant, in 2003, added an “opportunity to inspect and repair” requirement before any lawsuits could be filed. In 2007, the Legislature closed a loophole that allowed builders or developers to put provisions in sales contracts that took away some of the homeowner rights established in the 2001 act.

According to attorney Jennifer Seidman of Burg Simpson, which represents homeowners in construction defects lawsuits, the Lakewood ordinance added a new layer. Under current state law, if a builder offered a repair considered unreasonable or even dangerous, the homeowner can reject it. However, under the Lakewood ordinance, the homeowner cannot reject the repair.

Those who opposed the Lakewood ordinance, including Councilwoman Ramey Johnson, a former Republican state legislator, feared the city could be sued since the ordinance conflicts with state law. Johnson told The Colorado Statesman that changes to state law properly belongs with the legislature, not with each individual municipality.

If municipalities continue to take action on their own, Johnson warns, it could lead to gamesmanship and problems with insurance companies, which might not want to put together different liability policies for every municipality. “This needs to be addressed by the legislature,” she said. “All municipalities should have a level playing field,” not a piecemeal solution that will lead to developers “shopping” municipalities for the most favorable environment in which to build.

Municipalities now think they can act at the local level, Seidman said. And if you buy a home in Lakewood or Parker, “you do so with the knowledge that your rights [as a homeowner] are limited,” she explained.

The concern over condo development should really be tied to economics, not construction defects lawsuits, Seidman explains. It’s about stricter lending requirements, finding buyers who qualify for mortgages, higher construction costs and an increased demand for ownership. “As the market shifts, and it is shifting, we will see more development irrespective of what the legislature does. Taking away homeowners’ rights doesn’t encourage good development. Insulating builders and developers from mistakes hurts homeowners and their property values.”

She also notes that last year, an attorney who represents developers admitted that 93 to 94 percent of construction disputes are resolved without going to court. “Builders and developers want a chance to make things right before they’re sued,” she said.

At the heart of the construction defects issue for builders and developer is whether the state law puts a chilling effect on their ability to construct condos and affordable housing. Developers and the Metro Mayors’ Caucus, which includes Lakewood Mayor Bob Murphy and Denver’s Mayor Michael Hancock, say “yes,” as does the Denver Regional Council of Governments. In 2013, a DRCOG-commissioned study linked the state’s construction defects law and a 2010 amendment that clarified construction liability insurance to higher costs for developing condos over apartments.

The actions by Lakewood and Parker have already resulted in at least one builder looking at those communities for condo development.

Dan Nickless, Denver division president of Ryland Homes, told The Statesman that they are actively looking at sites in those communities because of the “forward-thinking” actions. Nickless said he’d prefer to see a global solution from the state capitol, but “frankly we welcome either course of action.”

He characterized class-action construction defects lawsuits as a “clear business model” by plaintiffs’ attorney that drives up costs for everyone, including the property owners. Once a lawsuit is filed, virtually all communications stops between a builder and a homeowner, and that precludes an opportunity for sometimes minimum problems to be fixed, Nickless said.

“If a builder doesn’t want to stand behind a project, that’s a different conversation,” Nickless said, adding that Ryland stands behind their product and will fix any reasonable defect. “We can do that without damaging the reputation of the community and significantly impacting property values.”

If the legislature does act in 2015, Nickless said one thing he’d like to see is language that requires notification to homeowners when a potential legal action is being contemplated, and that’s well before the lawsuit is filed. This would apply to the current state law that a majority of a homeowner’s association (HOA) board could take action, rather than after a vote by the majority of homeowners.

He cited as an example condos that are owned by his two daughters. The HOA board, which had the authority to investigate defects, spent $600,000 on investigation fees before alerting the homeowners. Many homeowners would be willing to work with the builder on the problems, he said, but by then the board had contracted with attorneys. Even to walk away from the lawsuit, each homeowner would have to pay $3,000 just to cover costs already incurred. “They were handcuffed into that situation,” he said.

Lakewood’s action also has the attention of the Downtown Denver Partnership and the Homeowner Opportunity Alliance, which includes the DDP and the Metro Denver Chamber of Commerce.

Brittany Morris Saunders, vice president for public affairs at DDP, said the Alliance is hopeful a bill similar to SB 220 will surface in the upcoming legislative session. But the Alliance is looking at all options, including what happened in Lakewood, she added.

Saunders doesn’t discount that the economy has played a role in the housing problems in Denver. But “we know that the construction defects [law] absolutely play a part in the decline of affordable housing,” she told The Statesman. She cited recent figures released by the DDP that show housing unit production for downtown Denver and the City Center neighborhood: in 2014: only 37 units were available for sale in the area, while 1,359 were available for rent.

The Colorado Association of Homebuilders, another member of the Alliance, also hopes for positive legislation in 2015. Scott Smith of CAH said he believes what the local communities did was positive, but his group also supports what the Alliance wants in terms of legislation. “But when you get down to it, it’s about consumer protection and the best way to protect consumers. It’s important that a quality product is built,” he added.

Sen. Jesse Ulibarri, D-Commerce City, also has noticed the Lakewood effort, and while he applauds their interest in finding a solution for affordable housing, he believes the statewide resolution is the better fix.

Ulibarri is still in discussions with Colorado Senate leadership on how to move forward on a bill in 2015. The climate for a 2015 legislative solution is different for him than it was in 2014, since he is now in the minority. However, he told The Statesman he was in discussions with stakeholders throughout the summer and plans to talk to the incoming Senate Majority Leader, Sen. Mark Scheffel, R-Parker, on the issue. Scheffel was a prime co-sponsor of SB 220 in the 2014 session.

Should Ulibarri carry the 2015 bill, he hopes to tackle issues such as making sure homeowners aren’t impacted for long periods of time and that defects are resolved quickly. That could come through a mediation process that takes place well before a lawsuit is filed. Ulibarri hopes that such a process in state law would avoid making homeowners wait three or four years for resolution, time that also precludes them from being able to sell their homes, for example.

Another issue is “wrap insurance,” insurance purchased by a developer or builder that covers the home from top to bottom. Ulibarri said it is incredibly expensive, as much as an extra $15,000 on the cost of a single unit. Wrap insurance covers anything that goes wrong with a new unit, whether it’s a defect in construction or installation, or maybe a problem caused by climate change. Ulibarri explained that things happen in Colorado that don’t happen in other states, such as temperature swings from 20 degrees on one day to 70 degrees the next. That can cause window casings or seals to fail, and wrap insurance would cover that. But the cost of that insurance can change the affordability of a condo or townhouse for families who want to buy a home and move into the middle class.

“I recognize that communities have their own challenges, but every community is having an issue with affordability,” he added. “We need a statewide [solution].”

— Marianne@coloradostatesman.com