SENATE COMMITTEE ON COMMERCE AND LABOR

MINUTES OF THE

SENATE Committee on Commerce and Labor

Seventy-First Session

March 23, 2001

The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 7:16 a.m., on Friday, March 23, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was video conferenced to the Grant Sawyer Office Building, Room 4401, 555 East Washington Avenue, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Mark Amodei

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

COMMITTEE MEMBERS ABSENT:

Senator Dean A. Rhoads (Excused)

GUEST LEGISLATORS PRESENT:

Senator Terry John Care, Clark County Senatorial District No. 7

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

John Meder, Committee Policy Analyst

Laura Adler, Committee Secretary

OTHERS PRESENT:

Brian Wexler, Concerned Citizen

Jeff Rowland, Concerned Citizen

Vince Perry, Concerned Citizen

Frank Bianca, Concerned Citizen

James Henry, Concerned Citizen

Joe Merlino, Concerned Citizen

Christina Schofield, Concerned Citizen

George Lyford, Lobbyist, Director, Special Investigations, State Contractors’ Board

Margi A. Grein, Lobbyist, Executive Officer, State Contractors’ Board

Charlene Westeen, Concerned Citizen

Margaret Lucero, Concerned Citizen

Elias Spozi, Concerned Citizen

Marilyn Skibinski, Regulatory Analyst, Bureau of Consumer Protection, Office of the Attorney General

John C. Heide, Senior Investigator, Investigations Division, Office of the Attorney General

Joseph Long, Deputy Attorney General, Financial Institutions Division, Office of the Attorney General

Alfredo Alonso, Lobbyist, City Bank (Nevada) NA

John M. Vergiels, Lobbyist, Nevada Subcontractors Association

Lawrence J. Semenza, Lobbyist, Anthony and Sylvan Pools

Lin Wippel, President, Desert Springs Pools and Spas Incorporated

Stephen A. Treese, Regional Manager, Blue Haven Pools

Mort Winer, President, Sunbelt 1^st Financial

Leonard V. Nevin, Lobbyist, Nevada Subcontractors Association

R. Scott Rasmussen, Lobbyist, Nevada Subcontractors Association

Robert C. Maddox, Lobbyist, Citizens for Justice

Ronald L. Lynn, Lobbyist, Assistant Director, Inspections Division, Building, Clark County

Senator Townsend opened the hearing on Senate Bill (S.B.) 216.

SENATE BILL 216: Makes changes concerning repair, restoration, improvement or construction of residential swimming pools and spas. (BDR 52-1037)

Brian Wexler, Concerned Citizen, said in 1998 Cascade Pools called to say they would like to build a pool for him. He told them he was not a candidate since his credit was at maximum and he owed $10,000 in income taxes. He said the Cascade Pools representative, Mary Radford, told him they could guarantee financing, including the money for his taxes. They designed a pool and told him the pool and landscaping would be $40,000, and they would inflate the cost another $10,000 that would rebate back to him for his taxes.

Mr. Wexler declared the very next day a crew was at his place to start building the pool. He told the contractor he had not yet signed anything, and the contractor called the owner of Cascade Pools, Greg Majeroff, who told Mr. Wexler not to worry. Mr. Wexler testified Mr. Majeroff guaranteed he would get financing, and if not, Mr. Majeroff said he would pay for the pool out of his own pocket. Mr. Wexler said he told them to start digging. He said a month later after the hole was dug, and plumbing, electrical and rebar were in, the workers stopped.

Mr. Wexler stated by November 15 the pool was not complete, there was no rebate, and he had to pay his income taxes by other means. He said 8 months later, April 1999, Cascade Pools produced a contract with United Federal Financial Corporation (UFFC). Mr. Wexler said Mr. Majeroff told him UFFC was the only lender that would touch him, and if he did not sign he would be left with a big ugly hole in his backyard. Commenting further, Mr. Wexler noted the original cost was $40,000 plus a $10,000 rebate, but the amount of the contract he signed was for $65,318. He said the difference of $14,718 was a loan origination fee. Mr. Wexler said that he now had a $65,000 loan at 30 percent interest for 30 years with payments of $1065, making the total cost of the pool at the end of 30 years $383,400.

Mr. Wexler explained he did not know he could have rejected the loan, but believed, at the time, since the work had been started, he was obligated in order to get the pool finished. He told Mr. Majeroff he was having trouble making his own mortgage payment, because he used everything to pay his taxes. Mr. Majeroff told him the finance company would cut a check for $10,600, once the pool was completed in about 2 weeks, payable to his mortgage company. Further, Mr. Majeroff told him to make the pool payments faithfully or the lender could withhold the rebate.

Continuing, Mr. Wexler stated he made the pool payment like clockwork, by September he was 4 months behind in his mortgage, and the pool was still not completed. He said the State Contractors’ Board told him to send the contractor a certified letter outlining what needed to be done to complete the pool or he would file a formal complaint. He said a few days later work on the pool started again, and was completed in a couple of weeks. But Mr. Majeroff told him the funds could not be released until the landscaping was completed. At this point, Mr. Wexler said he asked if Mr. Majeroff had anything to do with UFFC, and Mr. Majeroff said he did not. Mr. Wexler told Mr. Majeroff to forget the landscaping and just give him the check. He said Mr. Majeroff produced an addendum to the contract with landscaping removed, and told him there will be a check in a few days. Mr. Wexler said he then told his mortgage company he would pay the arrearages in a week.

A month later, Mr. Wexler said he called Mr. Majeroff who told him he was a bad risk and did not think he would be paid. Mr. Wexler said his response was, why should Mr. Majeroff care, he is not the lender and should have already been paid for building the pool. Mr. Wexler then asked Mr. Majeroff, again, if he was UFFC, and Mr. Majeroff admitted that he was. Mr. Wexler stated in November Mr. Majeroff produced a new addendum to the contract taking off the $10,000 rebate, the landscaping, and lowering the interest rate to 17.99 percent, making the monthly payment $670. Mr. Wexler stated the addendum hung on him signing an agreement saying he will release and hold harmless United Federal Financial Company for any alleged wrongdoing, and that he must also refinance his house to roll all the loans into one.

Mr. Wexler stated he saw a contract lawyer who told him it would cost $10,000 and he only had a 50/50 chance of winning. The lawyer’s advice was to file bankruptcy and walk away from his house. He testified that 3 months later he filed bankruptcy and lost his house. He said Mr. Majeroff’s response was, “This is all legal, there’s nothing you can do to me.”

Jeff Rowland, Concerned Citizen, stated he also contracted with Cascade Pools. He said the initial loan offered by a sales representative was that half the loan amount would be at 0 percent interest. The other part of the loan was through an escrow company who did issue checks, which were dispensed as each phase of construction was completed, and regular payments were made. The 0 percent loan was through City Mortgage Corporation who sold the loan to UFFC, and a couple of payments were made. Mr. Rowland said his wife was uncomfortable with not receiving any kind of a statement, they were just told to send payments to a post office box. He explained after research, they found out there was a cease and desist letter issued in 1989 or 1990. He elucidated he sent a copy of the cease and desist letter to UFFC along with a letter in which he questioned the payments, when the second half of the contract stated no money would be released until he signed the certificate of release upon satisfactory completion of the pool. Mr. Rowland stated Mr. Majeroff said he sat on the board of UFFC, and explained a few things which, Mr. Rowland said, made him suspicious. He told Mr. Majeroff he was not going to make any more payments until the pool was completed and the certificate was signed. He said Mr. Majeroff had the funding to do the pool or something was amiss. He explained Bruce Jobelius of Riverside, California, who sent a notice to make all past payments current, bought the loan. The next correspondence from Bruce Jobelius was a foreclosure notice.

Mr. Rowland emphasized he feels more fortunate than many of the other people testifying because at least he has water in his pool. But, he said, there are still several “punch list” items to be addressed. And the last straw that convinced him to join the class action lawsuit was when he had a pool fence installed. Mr. Rowland stated it was in the contract to install a 6 inch depth pool deck, but after the fence contractor drilled all the core holes for the fence posts, the contractor found the thickness of the concrete was no more than 3¾ inches. Mr. Rowland said when he called Mr. Majeroff, he was told it was for drainage, the deck had to be sloped away from the pool. Mr. Rowland responded to that explanation that he was a contractor and knew there were standard methods that did not require a reduction in the thickness of decking for drainage. He told Mr. Majeroff he would not sign-off on the pool until the thickness of the deck he originally contracted for was negotiated. He mentioned this last part occurred about 7 months after there was water in the pool.

Mr. Rowland pointed out there are many items in S.B. 216 that would greatly help people in a similar situation such as, the pool contractor cannot have anything to do with the financial institution.

Vince Perry, Concerned Citizen, averred he too purchased a Cascade Pool. He stated he has a working pool because he used $15,000 of his own money and financed the rest. He conveyed the finance company was to have paid the contractors for the remaining work, and neither they nor he received any checks. He said as a result numerous contractors are suing him, and that is why he has joined everyone else in the lawsuit. Mr. Perry asked for support of S.B. 216.

Frank Bianca, Concerned Citizen, stated his contract was for split financing. He said they started the project then abandoned it, leaving everything done to that point to the elements. He testified now he is in trouble for being in violation of building codes, and with the homeowners’ association codes. He added the only recourse is to either fill in the hole or pay again for another company to build from scratch. He stated legal fees are out of reach, leaving possible bankruptcy the only recourse. Mr. Bianca noted there were no safeguards anywhere for homeowners and consumers.

James Henry, Concerned Citizen, stated he purchased a pool from Cascade Pools, and has numerous workmanship issues. He opined he could not understand how someone could become a corporation by filing false papers, kept no records, had no business license with any of the cities or the county where he did business, yet be able to use statutes and the courts to help enforce his illegal contracts. He said, from his experience, he wonders why licenses are required and why there are boards, when those entities’ response is that it is not their problem. Mr. Henry asked why not just do a better job of enforcing the laws that already exist.

Joe Merlino, Concerned Citizen, stated he was offered a 50/50 loan of 0 percent on half the amount, and 9 percent on the other half, and no indication that part of the loan was through Greg Majeroff’s company. He was told, in October, the pool would take 7 weeks to complete, and payments would not start until after the pool was completed. He said by the end of December there was only a hole in the ground and payments had started. Mr. Merlino stressed from then on it was a daily battle to get anyone to respond to his request for completion, often not seeing anyone for more than a month. He said he ceased to make any more payments until work was done on the pool.

Commenting further, Mr. Merlino, said he called Contact 13, a local television station in Las Vegas, for some relief. Mr. Majeroff’s response to Contact 13 was the homeowner did not have enough money in the loan for the pool. Mr. Merlino articulated Mr. Majeroff told him he would need another $1400, so he got another loan on top of the $17,000 and $20,000 loans he already had. He said work proceeded sporadically with lots of fixes and corrections, and 5 months later the pool had water. He added there are still fixes to be made, and now he will be out additional money for another pool company to fix the problems. He stated he had been making payments to Bank One, which seemed to be the legitimate lender because they produced checks, but City Mortgage Corporation had not issued any checks, only a notice that his house is on the line if he does not make payments. Mr. Merlino mentioned when he tried to contact Mr. Majeroff in June, the telephone was disconnected. He expounded a few months later he received a foreclosure notice for failure of payment, and the loan had been sold to Bruce Jobelius.

Commenting further, Mr. Merlino stated his biggest problem with S.B. 216 was where were the laws already on the books designed to protect the consumer, and why was no one doing anything about situations like this. He emphasized the district attorney referred him to the attorney general who said it was not their problem and sent him back to the district attorney. The only thing he was offered was that he could write letters, which do not help when he has less than 30 days to move out of his house because of a foreclosure notice. He surmised it may be too late for him, but wondered if there could be any help for others who believe, in good faith, they are signing legitimate contracts with legitimate lenders only to wind up losing their homes.

Senator O'Connell wanted to know if there was any written response from the various offices he contacted. Mr. Merlino responded he was told they were not handling the matter at that time, only that he should write letters himself. He stated he had less than 30 days, leaving no time for correspondence, so he paid Bruce Jobelius $1000 to stop foreclosure on his house.

Senator O'Connell asked Mr. Merlino to survey the people in the room, in Las Vegas, to see if anyone received anything in writing from any of the divisions of government they contacted. Mr. Merlino responded Ms. Schofield seemed to be the only one. He added that most people sought help from government agencies only when they were in dire straights and there really was not time to act. He emphasized none of the agencies even offered to refer him to someone who might be able to help. He commented that is the big problem; there are all kinds of laws but if nobody enforces them, nobody wants to put teeth into the law and set precedents, then all the laws do not matter, and all the people who have been victimized by Cascade Pools have either lost their homes or are about to lose them.

Senator O'Connell remarked she understood their situation, but the legislature is only the policy maker. However, she said they would do everything they could. She requested those in attendance in Las Vegas provide information as to how many contacted the attorney general’s office, how many contacted the Consumer Affairs Division, the financial division and so on, to provide a record of agency contacts and in what time frame.

Christina Schofield, Concerned Citizen, remarked she had a record of the people to whom she had spoken, the agencies she had visited, and the responses she received. Senator O'Connell asked Ms. Schofield if she would collect any information the people present in Las Vegas have with them and forward it to her attention, so the committee could see the trail of agencies, contacts, and responses.

George Lyford, Lobbyist, Director, Special Investigations, State Contractors’ Board, stated their information indicated Mr. Majeroff is now in Texas. He surmised that a Clark County investigator is in touch with an investigator in Houston, Texas, but he was not sure how the service of a subpoena works in Texas, however, there is indication of where to find Mr. Majeroff.

Senator O'Connell said she wanted to know whether there was a report from the office of the Clark County district attorney as to the progress or status of the case. Mr. Lyford answered Mr. Majeroff is starting a new pool business in Houston, Texas. Mr. Lyford acknowledged there is no swimming pool licensing board in Texas.

Margi A. Grein, Lobbyist, Executive Officer, State Contractors’ Board, explained Texas does not license contractors in general; they license plumbing and electrical contractors only. She said Mr. Majeroff was attempting to obtain a plumbers license, but she did not know the outcome. She stated there is no statewide licensing in Texas, and she is still attempting to find out what local licensing there is.

Senator Townsend commented he was just given a copy of a letter from Robert Lacombe, an attorney in Las Vegas representing Mary Radford, to the attorney general’s office on March 19, 2001, regarding Greg Majeroff and Cascade Pools. He read the letter for all to hear.

Dear Attorney General: Please be advised that I represent Mary Radford. Ms. Radford has obtained a no bail warrant for arrest for Mr. Majeroff, a copy of which is attached hereto. On having Mr. Majeroff in custody we will notify you so that you may proceed with your legislative subpoena. Very truly yours, Robert Lacombe, Esquire.

Senator Townsend surmised the no-bail warrant for Mr. Majeroff’s arrest is where this situation currently stands.

Senator O'Connell clarified the letter was addressed to the attorney general in Texas. She wanted to know if it would be helpful for the committee to write a letter to the Texas attorney general regarding the situation and the number of people in Nevada who have been defrauded by Mr. Majeroff, especially since he appears to be trying to set up a similar business operation in Houston.

Scott Young, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, responded it would be appropriate to send a letter, and offered to draft the letter for the senator’s review.

Mr. Merlino communicated he wondered why Mary Radford has not been subpoenaed to testify. He surmised she should know something about the how and why of the operation, as she was the sales representative for Cascade Pools. He acknowledged she is not the one ultimately responsible, but she should have some information about what was happening.

Senator O'Connell conveyed she would most likely be a witness to the proceedings once Mr. Majeroff was located. She added the committee does have a letter from Ms. Radford’s attorney in order to contact her.

Senator Townsend asked Mr. Young to contact Ms. Radford to testify before the committee next week. He stated to also let the attorney know there is a subpoena, and their cooperation is expected.

Ms. Schofield stated contact with several agencies and individuals in Texas has been made by Nevada’s attorney general’s office, and she said she thinks they are only awaiting permission to proceed in the investigation.

Senator O'Connell asked if the Texas attorney general has been contacted. Ms. Schofield answered she did not know, but other law enforcement in Texas have been contacted. Senator O'Connell commented Nevada should contact the fraud unit of the Texas attorney general’s office to let them know of this situation.

Senator Townsend stated a request has already been made for representatives from the Nevada attorney general’s office, also for someone from the Clark County district attorney’s office to speak to the committee today. He stressed that it was important to also get legal verification on the issues of fraud with regard to the state’s role in this matter.

Charlene Westeen, Concerned Citizen, mentioned along with Mr. Majeroff and the fraudulent loans, another person to contact was Paul Grady. She contended that Mr. Grady had told her during the 5-month period that City Mortgage was in business, he made Mr. Majeroff loans of $1.6 million. She opined it seemed coincidental that City Mortgage surrendered their license around the same time the heat was being turned up by the contractors’ board as well as lawsuits being filed against Mr. Majeroff and City Mortgage.

Margaret Lucero, Concerned Citizen, reiterated the testimony of others. She added she came to Las Vegas for her health, but by the time her pool was started in September and finished in April, her health had deteriorated to a heart attack from the stress of the experience.

Elias Spozi, Concerned Citizen, averred after he had paid all the money, they asked him for an additional $1300. He said there is a crack around the collar of the pool, and would cost $8000 to have another company fix it.

Senator Townsend stated the committee wanted to work with everyone who was affected by dealing with Cascade Pools and Mr. Majeroff. He added they would focus on any potential restitution, the legal ramifications in removing their homes from jeopardy, and stopping Mr. Majeroff from further harm to others, even if in another state.

Marilyn Skibinski, Regulatory Analyst, Bureau of Consumer Protection, Office of the Attorney General, stated she reached John C. Heide, Senior Investigator, Investigations Division, Office of the Attorney General, who is the most familiar with the case, and he is on his way to the hearing room in Las Vegas. Senator Townsend asked who the attorney general was who is representing the financial institutions. Ms. Skibinski answered that would be Joseph Long, and said she would try to locate him.

John C. Heide, Senior Investigator, Investigations Division, Office of the Attorney General, introduced himself, and said he would answer any questions.

Senator Townsend said he wanted to know, regarding a cease and desist letter to one of the mortgage companies involved, because they were not licensed and who transferred or sold the paper to an out-of-state organization, what the legal analysis of a fraudulent contract and the responsibility of the individuals who believed they entered into good-faith contracts, and found the only recourse was to stop payment, and now are in jeopardy of losing their homes.

Joseph Long, Deputy Attorney General, Financial Institutions Division, Office of the Attorney General, stated he hesitates to provide any legal analysis without knowing all the facts. He voiced he is aware of the cease and desist order issued to United Federal Financial Company (UFFC) that was issued before he joined the attorney general’s office. He conveyed when UFFC stopped issuing loans, per an apparent agreement, City Mortgage began originating those loans and assigning them to UFFC who ultimately assigned them, reportedly for consideration, to Bruce Jobelius, Mr. Majeroff’s brother-in-law. He said the issue of fraud is not apparent on those facts. As he understands the case, he conveyed the issue of fraud would be founded on the allegation the loans were unfunded and, therefore, necessarily fraudulent. He said he has spoken with representatives of parties on both sides, and financial institutions have been cooperative with anyone interested in reviewing those records. He mentioned the case is now in court, and attorney Robert Kurth represents the homeowner’s class action lawsuit, and an injunction has been granted which stays any foreclosure proceedings.

Mr. Long continued Mr. Kurth has contacted him, and attorney Nelson Segel, who represents Bruce Jobelius, one of the defendants in the case, has also contacted him. He surmised this is a classic case of needing to be before the court to determine the facts. He said Mr. Segel’s position is that loans do not necessarily have to be funded, if they are backed by consideration, which is that pools were built. He voiced Mr. Segel claims that most of the pools were completed. He communicated on the other side the homeowners are alleging fraud, and that needs to be determined by the district court. Mr. Long maintained, contrary to some testimony, the district attorney’s office in Clark County has been very involved in the investigation of Cascade Pools and Mr. Majeroff. Mr. Long stated he was not in a position to give an ultimate determination on whether fraud has occurred.

Ms. Schofield declared it is obvious fraud has occurred, beginning with the fact that UFFC never obtained a lending license. She insisted there have been numerous communications between Mr. Majeroff, UFFC, and the state’s financial division going back to 1998. She said when Mr. Majeroff received a cease and desist order in August 1999, he did not cease nor desist. She continued that is when he went into business with City Mortgage, and the permit from the state’s financial division to conduct this business is extremely conflicting. She pointed out letters from the financial division give permission, and then rescind permission, and then a “not sure” letter. She averred there are definite issues with the state’s financial division who is supposed to regulate lenders and financial institutions in Nevada. Ms. Schofield asserted the issue of fraud should not have to be represented in civil and district courts. She stated the issues of mortgage fraud, fraud, collusion, misconduct, et cetera, should be taken up by Nevada’s representatives against the criminals operating within its borders, to not allow them to go to other states to continue the same actions.

Senator Townsend suggested there may be others outside the class action suit that should be notified and given the opportunity to join in the suit for redress. Senator Townsend asked Senator Care to give his insight into the situation and the fraudulent contracts.

Senator Terry John Care, Clark County Senatorial District No. 7, stated he has already talked to many of the people involved, and each case is different. He clarified in contract law, generally, two parties enter into a contract, and if one party breaches, in this case the pool is not constructed, then one party can sue, and there is usually a counter claim. He said nonperformance can be raised as an affirmative defense in a suit. For example, he said often in landlord/tenant contracts it says that even though the landlord has breached, the tenant must continue to pay rent.

Commenting further, Senator Care said one of the things to look into is, legislatively, we could just grant these people who did business with Cascade a form of post-contractual relief.

Senator O'Connell requested information regarding the verbal agreements that were made between the parties and how much weight that would have in court, since the homeowners’ experiences are so similar.

Senator Care responded he did not want to say anything inconsistent with Mr. Kurth, since he has not discussed the lawsuit with the attorney. He said, generally, there could still be a contract based on oral communications and conduct of the parties. He said it does not necessarily have to be in writing unless it is about real property, then that gets into the statutes on fraud, which is also a defense. He surmised, maybe, an attorney would make that argument that since the pool was located in the backyard the statute on fraud kicks in. He concluded he wants to see what the court decides, and then, perhaps, additional relief could be worked out if needed.

Senator Townsend queried as to whether there is any information on Mr. Majeroff conducting this type of business in any other states.

Ms. Grein conveyed with the disciplinary reciprocity between the states, Arizona was notified and Mr. Majeroff’s license was revoked. She stated he had previously lived in California where his father was a pool contractor, but Greg Majeroff was not licensed there. She added all the states that do license contractors have been notified should Mr. Majeroff apply in any of them.

Senator O'Connell stated since Mr. Majeroff seemed to handle his activities so aptly, she wanted to know if there were any records of misconduct by Mr. Majeroff in any other state.

Mr. Lyford communicated that Mr. Majeroff learned the pool contracting trade from his father, who has passed away. Mr. Majeroff then got in the pool business in Oregon, and then came to Nevada where he went solo. Mr. Majeroff then went to Arizona and was getting the business going there until Arizona suspended his license, and he moved on to Texas. Mr. Lyford voiced that until this investigation, the State Contractors’ Board was unaware that it is a common practice for pool companies to hold some of the finance paper themselves. He added there are no usury laws in Nevada, so they could charge whatever they want.

Senator Townsend suggested Senator Care contact the attorney who is representing the class-action lawsuit to find out what he thinks some of the available remedies might be. He added the Legislative Counsel Bureau should be notified immediately as to all the legal options that are available to Senator Care so everyone can proceed in a judicious manner.

Alfredo Alonso, Lobbyist, City Bank (Nevada) NA, stated Senator Care has already addressed his concerns.

Senator Shaffer remarked there should be some way to prosecute Mr. Majeroff for criminal action, because to just fine him could still put him back out there to do something else. Senator Care responded there is the constitutional concept of ex post facto, where the law today cannot be changed to address a violation of conduct from a year ago. Senator Care added knowing what we know today about Mr. Majeroff’s conduct, it is quite possible there is a history, and we just have to ferret out the facts.

Senator Care testified on his bill that he was prompted by the stories told to him by a couple of his constituents. He said this led him to discover dozens of people, and perhaps hundreds, that were taken in the case of Cascade Pools. He said research led him to see there have been scandals in the past and each time the Legislature attempted to remedy the situation, and this is a new problem not previously contemplated. Senator Care told the committee there are in excess of 120 pool companies in southern Nevada, where there is a big demand for pools. He conveyed, generally, business should regulate itself and have the government stay out of it, but after talking with the victims of Cascade Pools, and others and their experiences with other pool companies in southern Nevada, he thinks the bill is necessary. He stated there is a concept in the law known as special relationships where one party in a contract holds all the cards, and when there is a breach of contract there may be punitive damages. For example, franchiser and franchisee, and insurer and insuree, and it is this type of relationship that homeowners have with a pool company. He explained the amendments to S.B. 216 should not only remedy problems with Cascade, but also prevent future problems with other pool companies.

Senator Care reviewed the proposed conceptual amendments to S.B. 216 (Exhibit C). He commented the amendments are in addition to the bill where a contractor cannot be in the business of financing, nor contract from an affiliated or associated company. Additionally, he said there is supplemental language to Nevada Revised Statutes (NRS) 648.100, sections 2, 3, and 4, regarding private investigators. He also pointed out the strengthening of contracts with pool companies would be required to be on a form provided by the state. He said the amendments also address truth in advertising, and a Category D felony provision that carries from 1 up to 4 years imprisonment, and a fine up to $5000.

Concluding his remarks, Senator Care stated the proposed amendments are a compilation from discussions with various concerned parties and representatives of the industry. He added the proposed amendments should also alleviate the concerns expressed by the various lending institutions.

Senator Townsend commented, unfortunately, things like the swimming pool situation have happened before, and the legitimate businessperson does not like all the regulations, however, he said, whatever is ultimately in the best interest of the consumer are the rules he would go by.

John M. Vergiels, Lobbyist, Nevada Subcontractors Association, stated the proposed amendments to S.B. 216 were put together quickly, and he would like to work with Senator Care on the language. For example, he said number 5 put both financing and construction in the same contract. He pointed out that each is entirely separate and should be in separate contracts.

Lawrence J. Semenza, Lobbyist, Anthony and Sylvan Pools, stated his client has concerns about section 1, subsection 4, paragraph (b) of the bill where the contractor provides financing or assistance to the owner. He stated Anthony Pools does not provide any financing for any prospective customer, but it does provide assistance in the form of names of companies willing to finance individuals for pool construction. He raised the issue of the $100,000 cash bond in item 2 of the proposed conceptual amendments. He said he would like a modification so that a performance bond, as proposed in item 1 of the proposed amendments, is sufficient. Otherwise, capital is tied up, cost is more for some pool companies, and would seriously affect the smaller, but reputable pool companies. He pointed out corporations are not usually licensed, individuals are licensed, who then become qualified employees of corporations. He claimed he was not sure of the intent behind the proposed amendment, but qualified employees are usually not employees of the pool companies, but subcontractors or have a financial arrangement.

Ms. Grein remarked corporations are, in fact, licensed. She said the State Contractors’ Board has also licensed individuals, sole proprietors, partnerships, limited liability corporations, et cetera. She pointed out it is the entity that is licensed, and each entity has a qualified employee. She added that has been the law in Nevada since 1941.

Lin Wippel, President, Desert Springs Pools and Spas Incorporated, stated, currently, in southern Nevada, 5000 pools are being built a year. He said that represents approximately $175 million in business, and affects hundreds, even thousands of families in that area, excluding the northern Nevada area. He emphasized he and other pool companies have worked with legislators and subcommittees over issues in the past, and looked forward to working on this issue as well. He noted the current circumstances arose from one individual who had the competency to commit fraud, and the intent to commit fraud. And no matter what bills and laws there are, these individuals will continue to deceive the public by committing fraud. He added that fraud also happens in landscaping, roofing, and other industries. He insisted they would hate to be subject to laws that would decimate their industry, because of one individual. He offered to work with Senator Care and others on these matters to prevent any undue hardship on the families and contractors who do provide what is considered the “American Dream” in southern Nevada.

Ms. Grein stated Cascade Pools is not an isolated case. She said the State Contractors’ Board has been dealing with pool contractor issues for years, and it is not getting any better. She explained recently Aqua Blue Pools in Las Vegas had their license revoked and there were over 58 victims and over $1.4 million in losses, not necessarily through financing, but through other fraudulent acts. She expounded most of the contracts reviewed from reputable pool contractors, and not so reputable pool contractors, do not meet the existing requirements of the law. She stressed they are still taking money up front, and the contracts are front-loaded. She said many of them get 98 percent of the money before 60 percent of the work is done. She agreed with Mr. Wippel that it is not appropriate to enact laws based on one contractor. She stated it is much more than that, and she would provide more details if needed.

Stephen A. Treese, Regional Manager, Blue Haven Pools, stated their opposition to the bill does not mean they condone anything this individual or anyone else like him has done. He stated he has been working with his chamber of commerce in Henderson, in cooperation with Senator Care, for legislation to correct this situation without putting those in the swimming pool industry, who are trying to do the right thing, out of business. He elucidated, nationally, Blue Haven Pools did about $200 million worth of business, of which about $175 million was done through assisting customers with their financing. He noted Blue Haven does not do their own financing. He opined any business dealing directly with the consumer in a high-ticket item considers financing a very important part of their business, and the ability to assist in financing is important to the success of that business. Mr. Treese pointed out it is already required by legislation to have reference to a bond in their contracts.

Further, Mr. Treese clarified how Blue Haven Pools handles financing. He said most customers are referred to a lender, and no construction on a swimming pool is done until a loan is funded. He stated in every case the customer receives joint checks made payable to the contractor and the homeowner, and are endorsed by the homeowner to the contractor as work is completed. He said most lenders in Nevada used for remodeling are out-of-state lenders, because most Nevada lending institutions are in competition for lending on casinos. He explained because of the out-of-state lending they are subject to a federal law called “holder-in-due-course,” which means if he had a relationship with the lender and he defaulted in construction performance, the lender would be responsible for the completion of the swimming pool, which has been acted on in the past with other contractors. He pointed out this proposed legislation would prevent them from assisting or having any kind of relationship with the lenders, and would preclude homeowners from having any recourse whatsoever to the lender, because they would all be considered direct loans. Mr. Treese concluded he would work with the various parties on this legislation, but also stressed better enforcement on existing laws.

Senator O'Connell stated the Legislative Counsel Bureau is only the policy maker and has no enforcement powers, except to assist consumers to the right agencies set up to help. She agreed that boosting enforcement of existing laws is needed, because we do not need more laws. She noted Ms. Grein has spent the last 2 years trying to identify who is responsible for the enforcement of these laws, and that is part of this process now, to identify the contacts made by the consumers, and who, indeed, has the responsibility for the enforcement. She said if it is not a high priority for those agencies, then we need to find who will treat them as a high priority, especially when people are losing their homes.

Ms. Grein commented she happened to have a Blue Haven Pool contract from last year where the first payment was $10,800 after plumbing on a $36,000 contract. She said the second payment of $10,800 was after gunite, another 30 percent, and $10,800 after the deck, another 30 percent, and after plaster 3 percent, and after startup $200. She stated that does not comply with Nevada Administrative Code (NAC) 624.6964, nor does it comply with chapter 597 of NRS, which states the schedule of payments must be stated in dollars and cents, and must be specifically referenced for the amount of the worker services. The schedule of payments must not set a timetable for the completion of any stage or phase of the project that exceeds 30 days. She said it goes on to say the schedule of payments must not provide for the contractor to receive nor may the contractor actually receive payments in excess of 100 percent of the contracted amount for any stage or phase of the work performed. Clearly, she said, when she looks at a non-reputable contractor’s pool, his are also in percentages even though the percentage is not listed to $6200 of a $25,000 contract, 25 percent, 25 percent, 25 percent, and 24 percent, and 1 percent. She declared there could be all the laws necessary on the books, but it is difficult when the State Contractors’ Board gets involved after the fact, the damage has been done. She said the pool industry has not taken it upon themselves to comply with the laws that are already on the books.

Mr. Treese remarked the interpretation of the percentage of the pool that is complete versus the amount of money listed for that particular phase is not listed in the original bill by Senator Porter. He said they could only go by what they consider an industry standard. They think a pool that is gunited is 60 percent complete, and it is in their contract they will collect 60 percent of the money at that phase. He added Nevada does not have any set standards in writing for swimming pools. He averred Arizona publishes a book for contractors and consumers that sets standards for swimming pools. He surmised the best they can do is interpret what they think is the percentage of completion on the pool versus what is asked for in payment. He said his contract does not call for 100 percent payment prior to completion of the pool. He maintained he would compare the percentages in his contract with any other pool contract in Clark County as the norm.

Senator O'Connell requested obtaining a copy of the Arizona pool construction booklet.

Ms. Grein commented she has information from Arizona regarding workmanship standards, but anything about financing or payment schedule, she did not. She voiced since Mr. Treese mentioned that just about every pool contractor in southern Nevada has the same schedule of payments, then there is definitely a problem, because the law clearly does not allow for that. She said, based on the testimony in 1997 from the pool industry, she was able to develop a spread sheet to figure out how much the excavation should be, the plumbing should be, and that is what the State Contractors’ Board uses to compare what is in their contracts. She pointed out the exact work should not equal exact dollar amounts throughout the payment schedule. She said she thinks digging a hole and plumbing it for a pool would cost $10,000 only if it were at the Mirage Hotel and Casino.

Mort Winer, President, Sunbelt 1^st Financial, said Sunbelt is a local pool lender. He said pool financing is a highly specialized industry in and of itself. In most cases as a lender, he explained, their decision is based purely upon the ability of the client to repay the loan, meeting certain debt ratio requirements as opposed to equity. For example, in Las Vegas very few loans are made based on the equity in a person’s home. He voiced usually a pool customer has an “A” or “A+” credit rating. Usually they have a lot of disposable income, they have been on the job 5 or more years, and in most cases, they have recently moved into a new home, maybe an upgrade. Mr. Winer maintained there are a lot of things that could be done without destroying the pool industry. He opined some of it could be done at the State Contractors’ Board. He stated Sunbelt thinks they are one of the few lenders that do a thorough do-diligence on the contractors they do business with. He expounded even though the loan is made to the consumer, Sunbelt wants to make sure the pool contractor they are doing business with has the financial net worth to complete the transaction, therefore Sunbelt requires financials from the pool companies twice a year, Dun & Bradstreet Corporation reports, three bureau mergers on the owners of the company and the like. However, he said, they still see pool contractors issued licenses with a $25,000 bid limit, when most pools cost in excess of the $25,000. Concluding his remarks, Mr. Winer expressed concern for people who had bad experiences with their pools, and offered to work with all concerned for a good consumer protection bill without abolishing the swimming pool industry.

Mr. Merlino commented although many people had a bad experience with one bad apple, he stressed he wanted to assure everyone that it is no one’s intent to put pool people out of business. He mentioned there are inspectors for the pool plans and construction, but he said he wanted to know if there was anyone who inspects contracts to see that they meet the qualifications set forth by the State Contractors’ Board and the statutes.

Ms. Grein responded there are brochures, and their Website has consumer information about what pool contracts should contain, what are the requirements, and, of course, the first thing they do with a complaint is to check the contract for compliance. She said if a contract is not in compliance, then by statute, it is void and unenforceable. But, as for Cascade Pools, she said, that did not matter, because the people still had to pay the loans. She added starting next month the State Contractors’ Board would be subpoenaing contracts from swimming pool contractors to see that the contracts comply with the statutes, and stated the State Contractors’ Board would take the most severe action against the pool companies whose contracts do not comply.

Mr. Merlino elucidated when he first considered a pool, he contacted the contractors’ board to see if there were any complaints, and almost all of the pool companies had at least one or two. The pool companies’ response was that they were working on it, and it is just the customer. He stated he was never told there was a Website or brochures or other information available to him. He also wanted to know if a contract could be examined before construction, because that was where a lot of the problems start.

Ms. Grein acknowledged Mr. Merlino had some good points. She remarked even with all the laws in the world, the one thing no one can regulate is ethics, and that is what this situation with Cascade Pools is about. It is about people doing the right thing, it is about customer service, and it is about caring about the community. She insisted the contractors’ board could look at every contract, but that would not stop what happened in the Cascade Pools cases. She conveyed the contractors’ board would continue to work with everyone on the legislation and to find an answer.

Mr. Treese communicated he was glad to see the inclusion of an ombudsman in the bill to act between the consumer, the contractor and the lender. He noted the division of real estate now has an ombudsman to act between homeowners associations and the homeowners. He suggested it would be helpful if the contractors’ board could review the base contracts used by the industry to see if they comply with statute, and where to change them so they do comply.

Senator O'Connell closed the hearing on S.B. 216.

Senator Townsend opened the hearing on Senate Bill (S.B.) 274.

SENATE BILL 274: Makes provisions governing rights and duties of contractors and subcontractors under contracts or subcontracts. (BDR 54-593)

Senator Townsend noted there are a number of bills from both houses regarding construction defects, and pointed out that in making comparisons, they deal with definitions and presumptions, right to repairs, repairs and warranties, notice requirements, claims and procedures, attorneys and experts, damages, fees and costs, claims by associations and some other things.

Leonard V. Nevin, Lobbyist, Nevada Subcontractors Association, stated he was in attendance to discuss any of the bills regarding construction defects. He said the association’s attorney is also present in Las Vegas.

R. Scott Rasmussen, Lobbyist, Nevada Subcontractors Association, said he had before him the comparison packet referred to earlier. He said he did not have a copy of S.B. 274 in Las Vegas, nor did anyone else there. Senator Townsend said any bills associated with the subject would be made available to those in Las Vegas by the next meeting.

Robert C. Maddox, Lobbyist, Citizens for Justice, stated Assembly Bill (A.B.) 498 was introduced a few days ago by Assemblyman Mark A. Manendo, Clark County Assembly District No. 18, which addresses the problem on the front end. He added Assembly Bill (A.B.) 366 was introduced by Assemblyman Douglas A. Bache, Clark County Assembly District No. 11, and addresses a developer/contractor’s duty to disclose information about that contractor to a prospective purchaser.

ASSEMBLY BILL 498: Makes various changes to provisions governing construction of residential dwellings and actions for constructional deficiencies and defects. (BDR 22-926)

ASSEMBLY BILL 366: Revises various provisions governing claims and transactions relating to real property. (BDR 10-911)

Senator Townsend stated it is important to start at the front end, and he would like specific recommendations regarding changes that should be made regarding permits, soils, and codes.

Ronald L. Lynn, Lobbyist, Assistant Director, Inspections Division, Building, Clark County, stated the soil issue is highly complex. He said there are areas in southern Nevada, as well as northern Nevada, that he thinks are suspect and should never be built on, contrary to the opinion of others. He stated he has had landowners say that with the right engineering anything can be built. He agreed in some cases that was true, but the costs become so high that buyers usually go elsewhere.

Mr. Lynn said on at least three separate occasions he has recommended non-construction in areas. Each time it was deemed inappropriate action for the county commission, because it was seen as inverse condemnation of taking away. He said, at the advice of attorneys, there were special conditions placed upon them, for example, there was an area of high fissure zones. He said there are areas of groundwater such as, the recent situation in Reno. He noted if you are only digging down 10 feet and your groundwater is down 15 feet, he thinks that 10 feet is too shallow a standard, but if the engineers and design professionals are adhering to the standard, and suddenly water is intruding, unfortunately, it is no one’s problem. He pointed out that had they drilled down 15 feet and found groundwater, and had a history of where groundwater fluctuates, either through irrigation or snowmelt, then that is another area in which the type of building should be strictly limited. He said the bearing capacity of the soil might not handle a home or may have to go on caissons.

Senator Townsend reiterated that Mr. Lynn makes a recommendation as an official that an area should not be built on. The county commission does not want to get involved in an issue of taking, therefore, issues a permit. Accordingly, the permits have conditions. He queried who sets the conditions and makes sure the conditions are met.

Mr. Lynn answered, typically, building departments make recommendations to the planning departments that bring them forth. He said examples of some conditions would be to address the groundwater issue, and the fissuring issue. These are very conceptual in nature and nonspecific. He emphasized the problem is coming back to a design professional, who is a registered engineer in Nevada, who says this is how they are going to design the structure, this is his stamp, and how dare the building department overrule him. He added many are rejected, but the designer comes back again with compromises. He pointed out that issuing permits is not a discretionary duty, so if all the things are done that are identified in the statutes, then a permit must be issued.

Senator Townsend noted the word statutes, and surmised based on everything the Legislature sets, then a permit must be issued. Mr. Lynn affirmed that was correct. Senator Townsend asked for recommendations to include in the statutes that would help eliminate giving a permit to every single person who wanted one.

Mr. Lynn opined there should be minimum exploration standards, minimum borings in hazardous areas, minimum depth, minimum tests, and as in California, there should be minimum setbacks from faults of more than the current 5 feet. He acknowledged there would be a tremendous economic impact on these higher standards.

Senator Townsend stated the economic impact is understood, but there is also an economic impact at the other end, which is often greater, including the stress as the people go through the problems. Mr. Lynn responded there is nothing more important than the subsurface environment, although most of that can be fixed.

Continuing, Mr. Lynn expounded there should be minimum standards for exploration, that means number of depth and types of tests. He offered he could put forth language modeled after California, Colorado, and Utah to go into the bill. He added the weakness and the strength of Nevada is the home rule where each jurisdiction puts forth their own language, and some of them do not want to get that involved.

Senator Townsend commented the best way to find out who does and does not want to do this is to put forth language and see who appears.

Senator Schneider remarked it is hard in the Las Vegas area where the groundwater is being pumped out creating caverns under the surface. He thinks that is what happened in North Las Vegas near the golf course and south of that location where homes were sinking and had to be moved.

Mr. Lynn responded in North Las Vegas it was groundwater withdrawal that caused the problem, however, the Mandelay Bay problem was due to deep-seated consolidation. He said in other areas the groundwater comes up to the surface and compromises foundations that were never designed to handle groundwater. So there is withdrawal, changing levels that move the materials, and then there are rising levels.

Senator Schneider commented the Sahara Hotel and Casino, and the Sunrise Hospital and Medical Center, and others have pumps going all the time to pump water out of the basements because of an underground river in the area. Mr. Lynn said that was correct. Senator Schneider continued that North Las Vegas and some areas in the southern part of the Las Vegas Valley have problems with fissures because water has been pumped out of them, and some fissures are as much as 150 feet deep, especially by Craig Ranch. Mr. Lynn concurred, and said there are some critical fissures in North Las Vegas and in the southeast portion of the valley, as well as faults running throughout the Clark County area.

Senator Townsend voiced concern about how to work with the soil problem, because what is done today could mean that in 8 or 9 years from now there goes the ground, because more water is removed and the ground sinks.

Mr. Lynn conveyed there are a number of things that can be done, but any one of them will not solve the problem alone. He said one solution is to change the style of foundation systems from a stick-built-slab-on-grade-type construction to deeper foundations with more resistance. Another element is to put piezometers throughout the valley to monitor the ground levels accurately, to see when there are changes; when they change on either side of the fault there are differential movements. Mr. Lynn stated, finally, control landscape irrigation. He averred springtime comes and the more people water, the more the water rises up in the near surface aquifer. He pointed out every credible soils report he has ever seen says there will not be flower beds, agriculture or sprinkler systems within 5 feet of a foundation, and, yet, there are very few model homes that do not adhere to the recommendation, and this encourages people to do that which is contrary to the best scientific evidence.

In response to several questions from the committee, Mr. Lynn explained there are standards within the building codes that if a builder does certain prescribed elements, that plans are submitted, that there is zoning, water, health and other approvals, then it is required that a permit be issued. He clarified typically all those permits are regulated on the local level, not state level. Mr. Lynn said other states have established minimum standards, but he cautioned not to take away engineering judgment, so if there is something they do not like, then they should at least be able to do additional testing and exploration.

Senator Townsend pointed out there are a lot of people coming to the state for answers, because they are not getting them at the local level, because no one wants to be responsible. He surmised the answer may be for the state to set the minimum standards and let the local level take it from there, and when there are problems let the people go to their local councils who have set the local standards.

Senator Shaffer posited that southern Nevada, and most of the area available to build on in southern Nevada, has been pretty well engineered to the point that it is known where the expansive soils are, where the fissures are, and most of the badlands. But in northern Nevada, he said, it is different because growth has not accelerated as fast and the weather conditions are more severe.

Mr. Lynn expounded Clark County is doing some significant things, but every jurisdiction within the county has its own adopted laws and minimum standards. He said the department has put together a soils map; contracted with the University of Nevada, in Reno and Las Vegas, as well as private firms to establish a data base, as all soils reports will be required to go into that data base to upgrade the map. But, he said, some of the problems do not show up until 8 or 10 years later, which means issues already in place will have to be dealt with over the next decade, and he expects to be back explaining what occurred and why it occurred.

Senator Schneider commented he has seen houses where the proper landscaping was put in away from the buildings. Then the new owners moved in from Omaha, Nebraska, or Santa Monica, California, and want the flowers up against the house, and replace the rock scape with lawns and start pouring water all over. He mentioned a particular house that was built for the 1993-94 National Home Builders convention that won the Aqua-Vision Award, because the builders did the house. He said one of the first things the buyer did to the house was rip out the award-winning landscaping and replaced it with Kentucky Blue Grass and pine trees, and had water running all over and could not figure out why.

Mr. Nevin mentioned there might be some subcontractors that would want to point out a few things. He stated soils are always a problem, and that is where problems exacerbate themselves, because as a home shifts, then eventually the plumbing will start to leak, but the plumber is not responsible for the house shifting, but everybody usually gets sued because the homeowner wants somebody to pay for the damage. He elucidated the responsibility really should be placed where the problem started in the first place and who is the responsible party in the beginning.

Senator Schneider conveyed a year-and-a-half ago he met with a builder, Torino, in Las Vegas, who was building low-cost housing “stack-flat” units (condominiums), which he has stopped building. These were $75,000 to $80,000 units, and he brought in film crews to film each unit all the way through construction, so anyone could see exactly what was done and how it was done. He said the man had added an additional $2500 to $3000 to each unit to cover costs, and he is getting sued on all of them and still losing. Senator Schneider wanted to know if legislation is passed, would it reduce the lawsuits, and would the consumers be protected.

Mr. Lynn commented the department of building is often named in lawsuits, but mostly it has to do with the actual testimony. He added independent of the quality of construction, minimum standards are minimum standards, and society determines what those minimum standards are to be. He stated he has a duty to see that the structures are as sound as possible, but he cannot preclude anybody’s right to seek legal redress nor determine how the courts will rule.

Senator Townsend remarked the goal of the codes and soil issues is to reduce massive construction problems.

Mr. Maddox affirmed codes and soil are definitely the most important considerations. He stressed the most serious problems dealt with all over the state are soil-related problems. He noted a major portion of Clark County has expansive soils, in addition to collapsing soils. He continued when a home is built on expansive soil without proper mitigating measures, the foundation begins to crack and come apart. He explained soil engineering is a difficult science, it is not that exact. Although borings and samples are taken and measured, the soil can vary just a few feet away. He surmised more testing might need to be done than is presently required. He said Las Vegas has hired their own geotechnical engineer (geotech) to help develop standards, because there is so much expansive soil in the area. The results, he said, are that Las Vegas is now providing guidelines to soil engineers relative to potential uplift of a concrete slab. He added Las Vegas has discovered that the new standards are now going to have to be raised.

Mr. Maddox stated he is proposing in A.B. 498 that the developer of a subdivision, where a soils report is required, would have to contribute to the cost of a soils engineer for the local government entity, to help the city or county evaluate those soils conditions independent of the developer’s soils engineer. He emphasized there is so much competitive pressure on soils engineers that they have to keep it close to the line for cost considerations. He opined government needs to have a role in where that line is drawn in order to protect the ultimate consumers who occupy the homes.

Mr. Lynn concurred with most of what was said, and added that North Las Vegas does have a geotech, and Clark County has three geotechs, but said he thinks no other area of the state has a geotech on staff. He claimed that outside of California, he thinks only 1 percent of local governments in the nation have a geotech on staff.

Mr. Maddox stated the building inspection fees that are now being paid typically go into the general fund of local governments, and the remaining funds for the building departments are not sufficient for them to perform adequately. He said that is why he is suggesting that rather than take money out of a general fund that a developer of a project contribute to funding a staff geotech.

Mr. Lynn clarified Clark County requires the contractor hire a geotech for the construction. He expounded what is being proposed is a peer review situation.

Senator Townsend reviewed the process that the applicant’s geotech has his soils report in the filing, the building department geotech reviews and either accepts or rejects the report. Then the report goes to the appropriate regulatory authority, which thinks it might be construed as a taking, so they give it to the developer anyway.

Mr. Lynn clarified the scenario the senator described happens after the regulatory authority already approves the project. That means the developer is allowed in the building area, and then the soils testing and reports are done and turned in, and then the details are worked out.

Senator Townsend surmised now there is a political problem, because the developer is a landowner who has, initially, been granted the right to build.

Mr. Lynn elucidated it is only in known areas, already developed, that have historical problems, which are the ones he has challenged in the past. He added there are many more that come in with results that make things more complex.

Mr. Maddox remarked there would not be a taking problem if the standards were elevated for foundation design.

Senator Townsend suggested contemplating a legal opinion regarding the protection of a local regulatory authority on a takings issue, based on raising the standards so that everyone is protected, that, perhaps, would come after there is some language. He stated it is frustrating to do the same thing over and over again, where everyone keeps coming back to wrestle with the same issues. He said the elected officials of the local governments need to be more involved to make sure issues such as these are not revisited every session.

Mr. Maddox showed a video of a homeowner’s residence with structural problems resulting from the soil (Exhibit D. Original is on file in the Research Library.).

Senator Townsend clarified the video is showing there is a soils issue involving 40 homes in a subdivision that is creating a separation of the roof from the load-bearing walls. He wanted to know whether a condition such as that would less likely occur if there were better codes and surveys.

Mr. Lynn responded if it were surface clays, then it would help.

Mr. Maddox remarked structural problems resulting from soil conditions are indicative of what is happening in large areas of Clark County, in North Las Vegas and especially in the northwest portion of North Las Vegas, and a few other areas. He mentioned in northern Nevada it is required that foundations have to be at 2 feet below grade, and typically, builders will support a wood floor rather than a slab on grade, and then the problem could become water getting into that sump under the house. He continued in southern Nevada water gets underneath the foundation and lifts it up at the edges, which lifts the perimeter walls of the house, which in turn lifts up the roof trusses, thus separating the ceiling from the walls. He communicated this condition is a very common problem with expansive soils where an inadequate foundation was installed.

Senator Townsend wanted to know if all the subcontractors on a project who have nothing to do with the soil, meet all the standards, would the roof still lift. Mr. Levin confirmed the roof could still lift. He explained the process is to do the underground (put in the pipes), the finish, the top-out, and so on, to code the way it should be done.

Senator Townsend stated it does not make any difference how the work is done, if the soil is unstable, then everyone is affected when the soil shifts. He queried about the process when it comes time for inspections.

Mr. Lynn surmised Clark Country probably has the only organization that argues with their guy. He explained what happens is there is grading, and a soils report. The first time a building inspector sees the site is when the foundation is excavated and ready for the concrete to be poured. He said everything else prior to that is supposed to be signed off by the geotech of record and his people. He stated Clark County has a program, of which most of the technical components have been adopted by North Las Vegas and Henderson, which require certain specific criteria for the inspectors regarding inspections, and so on. He added the rest of the local governments have not adopted those standards.

Senator Townsend inquired once the developer’s geotech has submitted his findings, and the county geotech thinks the findings are not sufficient to issue further permits, can this person stop the process?

Mr. Lynn claimed it was very difficult for the county’s geotech to stop the issuance of a permit, because they are dealing with engineering judgment. He stated the county is not on-site to observe, and has to rely on the report, unless there is strong reason to think the numbers have been falsified, and the county would have to prove that, so there is a reliance on the engineer’s professional judgment. He noted in the Clark County area a sulfate test is required, and if none is done, then the report is rejected. However, if the sulfate test was done and the numbers meet the standard, then the report has to be accepted.

Senator Townsend wanted to know whether any soils engineer has lost his license because of an inappropriate job. Mr. Lynn answered he is aware of engineers that have had their license sanctioned for not doing their job.

Mr. Lynn commented the beginning of the process is obtaining approval to pull the permit. He said prior to the permit information is required, such as, the soil analysis, and borings to be included in the permit request package, and reviewed before the permit is issued, because the foundation system of the structure is predicated upon the existing soils. He said in reality the building department may receive multiple options, for example, do nothing to the soils but put in deep caissons that are 3 feet wide and add a grade beam for the house, and that is decided to be too expensive. An alternative is to “over X” 5 feet (construction term), recompact the soil, put in a 2-foot deep foundation with a structural post and slab on grade, but that is still too expensive. Another possibility is to “over X” (construction term) it, blend it with other material or remove it completely and then do a simple slab on grade with a 12-inch foundation. He continued the structural engineer picks the option that is in conjunction with the property owner, and communicates with the grading professional. The geotech on-site ascertains the work was done in compliance with that portion of the report, and the building department does not know for a fact, but has to depend on the professionals.

Mr. Rasmussen expounded the permit point is passed and the house has been built. The homeowner sees cracks in the stucco other than the normal fine line, and his house has some geotechnical problems. He said experts and other people would opine the reasons for the cracks have to do more with architectural issues or issues that combine architectural and geotechnical, but not necessarily the responsibility of the stucco contractor, nor for the framing contractor who builds the house skeleton on the foundation. He said these people are being held to the standard of knowing what is contained in the soils report and to know the minds of the owner, the geotechnical engineer, the concrete mixture, in other words, being held to the same standards as the professionals just described. The subcontractors are brought into the mix that their work is now substandard, and somehow are involved in the soils. He posited if there were more standards regarding the building of foundations, now it could open up for additional experts to look at additional higher standards to bring their cases against concrete and foundation companies who completely relied on supposed competent design professionals who were to make sure all was done in accordance with the guidelines. He surmised the only way to avoid that situation is to declare the minimum standard required no matter what in all circumstances; i.e., eliminate choices. He emphasized the shotgun approach exacerbates the situation of suing everybody.

Senator Townsend stated the fundamental problem is the soils issue, and what can be done to reduce the resulting problems.

Senator Shaffer communicated economics come into play when houses are so defect-free as to price them entirely out of the market for the average potential homeowner. Senator Townsend commented the primary concern is the soil on which structures are built, because that seems to be the primary cause of most of the other problems that arise with a house. He said the problem is how to balance economics, local control, and at the same time not create a situation that pits experts against each other. Everyone needs to stay focused on the basics.

Mr. Lynn suggested a larger approach might work in that the professionals such as the geotechs, engineers, structural engineers, et cetera, should be involved to establish the minimum standards. He pointed out without their involvement it would still be an endless cycle. He supported having some flexibility, allowance for innovative new technology, and more cost-effective construction methods.

Senator Townsend agreed to notify the industry professionals and representatives for another hearing next week.

Senator Schneider requested a copy of the lawsuit and resulting judgment of the case depicted in the video. Mr. Maddox said he would make that request of the attorney who handled the lawsuit. Mr. Maddox added he agreed with Mr. Lynn that it is the geotechnical and structural engineers that have to come together and talk about the issue of standards.

There being no further testimony on S. B. 380, the meeting was adjourned at 10:24 a.m.

RESPECTFULLY SUBMITTED:

Laura Adler,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

DATE: