SAN DIEGO-In today’s market, broken residential projects makeattractive targets for real estate investors seeking to takeadvantage of low prices for distressed properties. However, theseprojects come with a hidden cost that might not surface for years:construction defect liability. Residential projects in Californiaare notorious for being the target of construction defect claims.If a purchaser of a residential project does not consider andproperly prepare for potential homeowners’ defect claims, anyprofits can quickly vanish.

Even after the enactment of SB800, California’s “right torepair” law, some potential homeowners’ defect claims do not expirefor 10 years. Professional residential developers are veryaware of these risks and plan accordingly from the inception of aproject. However, often buyers of broken projects arereal estate investors who plan to perform only a bit of cosmetic“refreshing” before selling units, or who intend to complete onlyminor construction on nearly completed units before selling them,and as a result may not consider the potential for later claims byhomeowners.

Both the California Civil Code and case law place the purchaserof the project in the line of fire for defect liability. Thepurchaser of the project, as the seller of the individual units, isa target under California defect law and will be sued by theindividual unit buyers in the event of defects.