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SAN DIEGO-Legislation taking effect July 1 will make wide-ranging reforms to construction defect laws. The changes are expected to significantly change how construction defect suits with homeowner associations are resolved. Indeed, they could hold hidden perils for developers of condominiums and town houses, a real estate attorney says.

For years, construction defect lawsuits involving condominiums have plagued the building and insurance industries, making it impossible for contractors to secure insurance. Developers stopped building condominiums, and homeowners lost market value, according to Roger Haerr, partner in the real estate litigation practice for Luce, Forward, Hamilton & Scripps.

The 1996 Calderon Act, which imposed settlement obligations on homeowners associations as a precondition to filing suit, was largely ineffective because subcontractors and their insurers were not required to participate, Haerr says.

But in October, Gov. Davis signed into law sweeping reforms to the act, requiring all parties to participate in alternative dispute resolution proceedings. Those changes, which become effective July 1, provide a complex resolution plan. If not fully complied with in a timely way, the parties could waive substantial rights.

The statutes are a trap for the unwary developer, contractor or insurer, according to Haerr.

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