MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-First Session
April 5, 2001
The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 7:04 a.m., on Thursday, April 5, 2001, in Room 2135 of the Legislative Building, Carson City, 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 Dean A. Rhoads
Senator Mark Amodei
Senator Raymond C. Shaffer
Senator Michael A. (Mike) Schneider
Senator Maggie Carlton
STAFF MEMBERS PRESENT:
Scott Young, Committee Policy Analyst
Laura Adler, Committee Secretary
OTHERS PRESENT:
Leo Durant, President, Nevada Subcontractors Association
Scott Rasmussen, Lobbyist, Nevada Subcontractors Association
Margi A. Grein, Lobbyist, Executive Officer, State Contractors’ Board
Leo Durant, President, Nevada Subcontractors Association
James Harris, Harris Insurance Services, and Nevada Subcontractors Association
Doreen Coddington, Vice President, Nevada Subcontractors Association, and President of Cedar Roofing Incorporated
Leonard V. Nevin, Lobbyist, Vice President, Nevada Subcontractors Association
Dick Peck, Lobbyist, Nevada Subcontractors Association
Robert E. Lewis, Lobbyist, Southern Nevada Home Builders Association
Helen A. Foley, Lobbyist, Pardee Construction
Kim W. Gregory, Chairman, State Contractors’ Board
George Lyford, Lobbyist, Director, Special Investigations, Nevada State Contractors’ Board
Shari O’Donnell, Lobbyist
R. Shawn Oliphant, Lawyer
James York, Concerned Citizen
Jack McClary, Concerned Citizen
Robert C. Maddox, Lobbyist, Citizens for Justice
Jorge Gonzalez, Concerned Citizen
Scott K. Canepa, Lobbyist, Nevada Trial Lawyers Association
Curt Liquin, Concerned Citizen
William A.S. Magrath II, Member, Board of Directors, Caughlin Ranch Homeowners Association
Karen D. Dennison, Lobbyist, Lake at Las Vegas Joint Venture
Pamela J. Scott, Lobbyist, Senior Property Manager, Howard Hughes Corporation
Micheline N. Fairbank, Senior Research Analyst, Research Division, Legislative Counsel Bureau,
Karen J. Brigg, Resident Agent, Regional Vice President, Eugene Burger Management Corporation
Randa Steele, Concerned Citizen
Senator Townsend opened the hearing on Senate Bill (S.B.) 516.
SENATE BILL 516: Makes various changes concerning contractors and constructional defects. (BDR 54-1452)
Leo Durant, President, Nevada Subcontractors Association (NSA), stated NSA supports the bill. He added that the NSA would make themselves available to the homeowners to help them with their problems.
Scott Rasmussen, Lobbyist, Nevada Subcontractors Association (NSA), stated the reason for the bill was that contractors and subcontractors may not always do a perfect job. He said contrary to some in opposition to the bill, NSA believes they can immediately repair the houses of homeowners to make them whole, and S.B. 516 would allow them to do that. He emphasized the main purpose of the bill and NSA is to repair any defective condition of a home by those who created the problem. He reviewed the points of the bill that would support repair of construction defects. He stressed the State Contractors’ Board (SCB) is an independent overseer to help guide and enforce repair of defects. He pointed out the bill includes penalties should repairs not be made or not made correctly. He noted the bill gives the SCB the ability to establish the protocol of the process, while also being protected from liability for things that are not construction defects.
Mr. Rasmussen brought attention to section 13 of the bill that requires a list of contractors and subcontractors involved in the construction be provided the homeowner, including how to contact them. He remarked this will allow the homeowner to go direct to the contractor or subcontractor who can fix that particular problem without the homeowner experiencing delays and the expense of litigation. He called attention to section 21 of the bill requiring that experts giving opinions on construction in Nevada must be licensed in Nevada. Further, the expert should also be licensed in the field in which they are giving an opinion. He pointed out that how inspections are conducted and who should conduct the inspections are also defined in the bill, as well as including the contractor and or subcontractor from the beginning, instead of them finding out through a third-party action, often in the form of a lawsuit.
Mr. Rasmussen communicated that section 40 deals with chapter 116 of Nevada Revised Statute (NRS) and property managers. He said one of the provisions is to make sure property managers are not looking, in any way, to make money or increase the value of their own holdings by being a part of, by suggesting or recommending, that the homeowners association or the homeowners get involved in construction defect lawsuits. He noted this was an important part of the bill, because property managers should not be swayed to get involved in lawsuits.
Senator Carlton queried as to how long the procedure would take from the time the homeowner contacted the homeowners board to the time of a repair. Mr. Rasmussen answered after the board has completed its work the contractor would have up to 60 days to complete the repair.
Margi A. Grein, Lobbyist, Executive Officer, State Contractors’ Board (SCB), stated that the SCB is unanimously opposed to S.B. 516.
Leo Durant, President, Nevada Subcontractors Association (NSA), remarked that the timing assumes the homeowner would have to go to the SCB first. But, if the homeowner calls the contractor first, it would take 4 to 5 days to respond because of the paperwork.
James Harris, Harris Insurance Services, and Nevada Subcontractors Association, stated there were three things happening: prices, number of companies remaining in the state, and the amount of exclusions on each policy. He continued that the number of insurance companies remaining in Nevada willing to handle subcontractors that do residential work in Nevada is about 5 or 6. He said only one is an admitted insurance carrier in Nevada still willing to provide insurance. All the rest are surplus-line companies. He explained that when coverage goes to a surplus-line company, the price increases 4 to 5 times, especially for anyone doing exterior work on a home. Mr. Durant testified 95 percent of the policies have exclusions, and most of today’s policies have exclusions that will not provide for defense in case of a construction defect. He conveyed the contractor has no choice but to pay the exorbitant increases, because they must have a certificate of insurance in order to just get on the project.
Senator O'Connell wanted to know how much more a project was costing with the higher rates of insurance. In response, Mr. Rasmussen referred to the bar graphs in (Exhibit C), citing the extreme differences in just 5 years. For example, Willis Roof Consulting had a $240,000 annual fee increase on insurance in 5 years, and that cost is passed on to homeowners.
Senator O'Connell asked for an example of how much of the insurance cost is actually tacked on to a house.
Doreen Coddington, Vice President, Nevada Subcontractors Association, and President, Cedar Roofing Incorporated, stated that Cedar Roofing was not able to pass all the cost on because there are still a lot of roofers that have not been affected by insurance costs, and Cedar Roofing needs to stay competitive. She added it has hurt their bottom line, and benefits and raises for their employees. Responding further, Ms. Coddington stated her business has dropped by 30 percent over the last 2 years, because their insurance rates do not allow them to stay competitive.
Mr. Harris noted one thing missing in the bar graph information is the exclusions that go with the increases because of confidentiality considerations. He explained exclusions include multi-family, townhouses, and condominiums as shown in (Exhibit D). Also prior claims, continuous progressive injury, and Montrose exclusion provides the insurance company a way out of any prior claims that may be presented for that particular policy, and he estimated that 95 percent of policies now have that particular exclusion in it. He continued there is subsidence (earth movement) that is now being put on most policies. He expounded that a small contractor with $50,000 premium payments or less, most likely have all three exclusions on their policy with a non-admitted carrier.
Mr. Rasmussen clarified the first exclusion does not allow a subcontractor to build condominiums, for to do so is at the subcontractor’s own risk, so they do not build condominiums, and there are less and less of them these days. He pointed out condominiums are generally more affordable than a single family dwelling, but the average income worker is now being excluded from owning their own home because of insurance. He asserted the subsidence exclusion means that if the subcontractor touches the dirt in any way, such as, the plumber or electrician who does some underground work, the landscaper or anyone, then the insurance does not apply. He stressed several trades have now been eliminated from building condominiums, townhouses, even single-family houses or putting up a fence because of the exclusions. He said the insurance companies have seen large amounts of money going for lawsuits that involve the soil, and they have to cover themselves, and as a result the exclusions are preventing the construction of dwellings, adding to the housing shortage.
Senator O'Connell asked for clarification as to whether costs were going up because contractors are not fixing the problems, or because they were being carried in a lawsuit. She qualified her question that others have testified they were soon released from a lawsuit if they were not guilty of contributing to the construction problem.
Mr. Harris responded most of the time a contractor is sued for a period of years from the time of the work to the time of the actual suit. He said a reserve is put on for each one of those years, and an insurance company can put a $50,000 or a $100,000 reserve for each of those years. He claimed he was representing a very large concrete contractor who has over $700,000 in reserves per year over the last 3 years, which is why his insurance keeps going up. If that concrete contractor were allowed to just fix the work, then the insurance companies would ease up.
Senator O'Connell clarified her question by asking if a roofing contractor is named in a soils suit, and had nothing to do with the soil, then how long does the roofing contractor remain a part of the suit. She said the committee has heard testimony that anyone not directly involved is released from the suit right away.
Ms. Coddington stated her company has been a part of 56 lawsuits to date. She explained that on one project involving 6 roofs, there were 3 roofing companies. Her company worked on phases 5 and 6, which had no defects, she was bargained with to be released for $14,000. She noted that amount did not include any attorney fees or other costs, and there were no defects in the work. She added her company has yet to be released from any lawsuit without some cost.
Leonard V. Nevin, Lobbyist, Vice President, Nevada Subcontractors Association, referring to section 23 of the bill, stated often the insurance company would assign an attorney with no experience or expertise in civil litigation, and S.B. 516 would require an attorney with at least 5 years of experience in civil litigation. He asserted if the insurance company cannot provide someone with qualifications, then the subcontractor should have the right to hire someone who is and have their insurance pay for it. He submitted copies of a survey conducted February 2001 by the Division of Insurance, Department of Business and Industry (Exhibit E).
Senator Carlton commented, after reviewing the information, it appeared the insurance companies may be making a little more money off this, than they might, by not doing contractors justice in their representation.
Mr. Nevin insisted the problem is the insurance companies settle rather than defend the contractor. He explained even though the contractor had nothing to do with the reason for the lawsuit, a settlement is still extracted from them. He noted this does not bother the insurance companies because they just raise the rates and the contractor has to pay.
Dick Peck, Lobbyist, Nevada Subcontractors Association, stated he has gone through lawsuits in California and now in Nevada, and in 20 years he has never been able to have a say in his defense. He said the insurance companies have always settled, and he has never gone to trial. He expounded he has been involved in 135 lawsuits in California and 7 lawsuits in Nevada. He explained that through the Internet he found out about a attorney who went door-to-door, and now he is involved in 11 more lawsuits regarding a group of houses by a very reputable general contractor, Pardee Construction. He said the settlements are usually around $75,000, and he has never been allowed to have input. He cited he was sued for mold growing on the stucco, when the house was built in a eucalyptus grove, and the insurance company settled for $75,000. He elucidated right now he is fixing hairlines cracks in stucco, and most of the stucco has been out there for 7 to 8 years. He said hairline cracks in stucco is not unusual and cannot keep it from cracking over that period of time. He explained most homeowners look at those hairline cracks as a defect. Mr. Peck opined that an attorney goes out and works the homeowners up over some possible defect and the promise of a lot of money. But the homeowners are never told they cannot get a VA or FHA loan once litigation starts. He claimed many of the projects never get fixed. He averred he knew of 5 homeowners who still do not have their projects fixed after the settlement. He expounded, the attorneys have left with their new cars, the subcontractors are left with higher insurance rates, and the homeowners, if they are lucky, received $.25 to $.35 on the dollar, leaving them able to only afford a contractor who is willing to cut corners. He concluded those on the short end of these litigations are the homeowners, general contractors, and subcontractors. He posited that builders should be allowed to fix the problem first, before going to a lawsuit in which very few win anything.
Robert E. Lewis, Lobbyist, Southern Nevada Home Builders Association (SNHBA), stated the association is in complete support of S.B. 516 or any other bill that would make some sense of the mess. He conveyed the SNHBA needs the Legislature’s help to protect the industry from attorneys who promote and prolong litigation and disputes. He maintained attorneys should be held to the same standards that a doctor is held to, in that, first do no harm. He expounded in the home construction industry, the attorneys are harming the builders, the subcontractors, the consultants, and worst of all the homeowners. He elucidated what they would like is help to let the homebuilders solve the problems, let the subcontractors solve problems when they occur, and let them reconnect with their customers.
Senator O'Connell inquired as to how many homebuilders have been put out of business as a result of lawsuits. Mr. Lewis responded that he did not know the exact figure, but was familiar with a number of companies who have either gone out of business or ceased doing certain types of construction. For example, he said his company has ceased building houses after 35 years in Nevada. He claimed a number of companies have refused to build an attached product or anything that involves a homeowners association, solely out of fear.
Helen A. Foley, Lobbyist, Pardee Construction, called attention to Mr. Peck’s comments regarding himself and many other subcontractors that are currently with Pardee Homes. She continued that Pardee has been in southern Nevada for 49 years, and has built more than 20,000 homes. She pointed out for entire time Pardee was never a party to a construction defect lawsuit until the last year when there were two. She said one suit is in an area known as Crystal Springs, where the attorney was trying for a class action lawsuit, but instead there are 16 different lawsuits. She communicated that Nancy Quon, a construction defects attorney with Maynard & Harris in Las Vegas, sent a brochure to the homeowners claiming there were construction defects in the neighborhood and to come to a neighborhood meeting. She continued the homeowners association had not been informed of the meeting and Nancy Quon paid for the meeting room. She explained some of Pardee’s own people attended the meeting and reported the people in attendance were told now that they have been notified there are construction defect issues in development, it is incumbent upon the association to do something, otherwise the homeowners may have further liability against them for failing to do something. Further, it was suggested to the homeowners to let the attorney’s people come into their homes to see if they also had some similar problems, and that is how the lawsuit occurred. She said similar scenarios are occurring all over southern Nevada, and the committee has been supplied with a current list of attorneys and their clients (Exhibit F).
Senator O'Connell asked for elaboration on the types of defects mentioned. Ms. Foley replied that she personally did not know, but would get that information to the committee.
Continuing, Ms. Foley stated there was not a good mechanism for separating out subcontractors. She pointed out if one subcontractor is sued for a construction defect, then every subcontractor in that field would also be notified. She voiced this method is unfortunate, because Pardee is proud of their product and stand behind it. She said Pardee wants to fix problems and will fix problems brought to their attention.
Ms. Foley expounded that 10 years ago there was a problem with some homes in southern Nevada regarding soil subsidence affecting some homes. She said Pardee was able to fix the problem for some of the homes, and bought back 8 homes where they could not resolve the problem to the satisfaction of the homeowners. She pointed out if the kind of construction litigation going on now went on then, those homes would never have been repaired, the homeowners would have been involved in lengthy litigation, money drained from the whole process, and even if the homeowners would have received some money, there would not have been enough to make the needed repairs. Concluding her remarks, she stated the bill would allow for a quick mechanism needed for homebuilders to address construction defects in a timely manner.
Senator Schneider posited he and his brother are homeowners in Crystal Springs, and they have rental property in that area. He stated they attended the “dog and pony show”, and that is exactly what it was, an all out hustle by attorneys to generate lawsuits. He explained he has a background in construction and can speak to the pictures shown to illustrate the construction defects. He said many of the problems pictured were due to deferred maintenance, and to the angle used to take the picture, which exaggerated something that really was not a problem. He maintained the attorney’s architect spun the situations so that everything was turned into a life-safety issue. He emphasized these presentations were nothing but big tent shows, and stressed that the State Bar of Nevada should be informed about these tactics. He continued he attended Pardee’s response meeting, at which they stated they have had heard no complaints, and if there are any problems to let them know and they will fix them right a way. Senator Schneider stressed he wanted to go on record as saying there is fraud going on; fraud perpetrated on homeowners to get them into construction defect lawsuits. Additionally, he thinks there is insurance fraud, and fraud between homeowners and their insurance companies.
Senator Townsend articulated there are many sides to this issue, and whether it is this bill or another bill, the committee intends to work with all the parties for a resolution. He reiterated he, too, has taken no complaints from constituents in 20 years on Lewis, Pardee and other reputable homebuilders in Nevada. He emphasized all industries have their share of bad people, but he would like to focus on the bill and how it can help remedy the issues of the industry.
Ms. Foley stressed the builders are willing to pay an extra fee for the additional workload that may result from passage of S.B. 516. The builders think it is essential that construction defects are out of the courts, so that both they and the homeowners can have quick resolution to the issues. She pointed out in this suite brought by Nancy Quon, not one of the 16 homeowners put in a complaint or a request to customer service indicating there was a problem. She insisted that with this bill, the homeowner must first notify the State Contractors’ Board to resolve the problem before ever going to court, to give the contractor or the subcontractor a chance to resolve the problem.
Senator Townsend stated he noticed something in this bill that had never been previously addressed, and that was section 13. He said it requires that each new homeowner be supplied a list of contractors that worked on the house to include license number, telephone numbers, addresses, and a brief description. He articulated section 13 was about the line of communication that could fix so many of the problems. He encouraged all parties to make a concerted effort to find those things in S.B. 516 that work.
Answering a question, Mr. Rasmussen voiced section 22 deals with an attorney representing a person in matters governed by this provision. In other words, someone who is representing a homeowner should not employ expert witnesses or other people who are relatives, which implies they could gain something, whether it was money or other value, by being retained as an expert. This section is to guarantee the outside expert is as independent as possible, and applies to all sides of an issue.
Mr. Rasmussen expounded on section 13 that it was a much needed provision for a homeowner to not only know who the builder was, but also who were the contractors and subcontractors. He said a homeowner with a roof problem could now go directly to the roofing company who did the original work to get the problem fixed, and if the roofer did not fix it or respond, then the homeowner can go directly to the SCB with the roofer’s name, and the SCB can pursue that subcontractor to fix the problem. He emphasized half of the job he does for the NSA is to educate the subcontractors in customer service.
Senator Townsend told everyone of a lobbyist who moved into a new house, just 6 months ago, located in one of the better developments in southern Nevada. Returning home one weekend he discovered a golf ball had broken a window, and called the Senator to find someone to fix the broken window. Senator Townsend said the homeowner should have been able to consult the list of businesses that worked on his home and called the subcontractor who originally installed the windows. He commented that section 13 offers many solutions to many situations.
Mr. Durant emphasized the members of NSA are all professionals who take pride in their work, and support having their names listed as doing the work on a home. He remarked they are conscientious subcontractors who would take care of the problem to the homeowner’s satisfaction.
Mr. Peck referenced section 21 that requires a contractor who testifies about the builder’s work to be licensed in Nevada. He explained in a recent lawsuit the expert witness was from California who testified on everything from the roof to the slab and everything in between. The expert witness testified the wire mesh put on the outside of the building was not correct. Mr. Peck stated the wire mesh used in Nevada is not the same as required in California, and also requires a different flashing method be used according to the manufacturer. He stated the expert witness testified on areas he really did not know anything about. Mr. Peck stressed a plasterer should testify about a plasterer, and a roofer about a roofer.
Mr. Rasmussen commented section 21 should provide a district court with the information about how to qualify experts before they testify in court. He emphasized only those people familiar with Nevada construction guidelines and approved materials should be testifying. He averred there is no reason to go to outside sources when there are plenty of qualified people in Nevada willing to testify.
Senator Carlton wanted to know when a contractor was pulled into a lawsuit, was it by the homeowner, the insurance company, the general contractor, or a combination thereof.
Mr. Rasmussen replied his firm was presently dealing with over 100 construction defects lawsuits. He said the majority of them are due to the filing of a complaint by the homeowner or a group of homeowners to sue the builder. However, lately it has been homeowners suing subcontractors directly. He surmised that trend was because the general contractor does not have enough money or that more people are needed to maximize the potential amount, thus the shotgun method of bringing in more subcontractors.
Mr. Peck drew attention to the Pardee houses of 10 years ago that were mentioned earlier, as he was involved with those houses. He stated his secretary owned one of the houses on which Pardee tried many fixes to resolve the problem. He said Pardee finally said they could not fix the problem and offered to buy the house back for an addition $5000 above the selling price. He added this incident was in the days before the promotional marketing of litigation, otherwise Pardee would have been in a lawsuit.
Mr. Rasmussen noted section 40 is one of the unique sections in the bill, because it addresses association property managers and what they do. He expressed his concern that those using marketing tactics to persuade the managers to become an ally in bringing construction defects lawsuits put property managers in a difficult situation. He pointed out managers should not be allies, they should remain neutral. He elucidated it is the homeowners who have the losses to their houses, who have the defects. It is the homeowners who will have to have it all recorded on their titles, it is their homes that become in jeopardy, and it is their problem to make sure the work gets done. He insisted this should not be something where an outside person comes in to convince the homeowner the first course of action is to file a lawsuit, and this provision in the bill is designed to eliminate that scenario. He emphasized an independent entity who can remain neutral is exactly the role of the State Contractors’ Board.
Senator Townsend disclosed that his wife is a property manager. He then wanted to know what happens to a contractor who does not meet all the provisions in the bill.
Mr. Rasmussen responded if a contractor fails to meet his obligation, then they eat the whole thing. He pointed out the failure of a contractor to respond was covered in section 11 of S.B. 516.
Senator Shaffer commented he was a building official in southern Nevada for 14 years and he was called many times as an expert witness. He wanted to know if there was any reason why the certified inspectors in building departments were not being called as expert witnesses.
Mr. Rasmussen responded it was considered and is addressed in the bill by giving the SCB the right and power to investigate. He said that includes calling on the building inspectors to provide the needed information to make a decision. He insisted the SCB was being given very broad discretion to conduct adequate investigations. He recognized many inspectors, and even the SCB, have responded to complaints from homeowners that turn out to be strictly a maintenance problem. He explained this type of complaint happens because many new homeowners are of the “microwave generation,” that the house should be maintenance free. He added it is a matter of education for everyone involved from contractors and inspectors, to sales and homeowners, to associations, and others.
Kim W. Gregory, Chairman, State Contractors’ Board, stated the board is aware of construction defects lawsuits, and sympathizes with the industry. He also agreed, for the most part, with the testimony he heard today. He stressed if things continue at the present rate, there would not be any more multi-family housing in southern Nevada. However, he said he thinks some things need to be clarified regarding the SCB and its role in the bill as it is written. He stated the SCB already has, at their disposal, the items covered by S.B. 516. He pointed out that testimony indicated just one attorney has over 100 construction defects lawsuits, yet the SCB has received none of those as a complaint. He posited that he takes umbrage with the term “defect.” He said the proper term should be “workmanship,” because a defect deals with structural integrity, and health and safety issues, which should be addressed right away, not left unattended in the courts for years. He added inspectors of the various building departments should have addressed defects. He emphasized the SCB does not see any workmanship complaints because most people do not want the workmanship problem resolved, they just want to collect money. He recognized the noticing of subcontractors as a good idea, but it is the general contractor that is held responsible for the whole project. He pointed out all general contractors have the right to file complaints against their subcontractors, if the subcontractors fail to complete workmanship issues, address complaints, et cetera.
Responding to Senator Carlton’s comment about time, Ms. Grein stated that there are certain sections that do not define the time. She said, for instance, section 7 does not state what the contractor’s response time is. Section 7, line 20, subsection (3) uses the term “immediately,” but does not define what the time frame of immediately is to be. She continued that section 7, subsection 4, lines 32 to 36 states the SCB has 30 days to respond to a complaint. She stated it must first be determined if the complaint is about a defect or workmanship, which would determine how it is handled. She testified 4903 cases were filed with the SCB in 2000. She said approximately 58 percent of the cases are deemed valid, the rest were determined that no violation occurred or the case was not within the jurisdiction of the board. Ms. Grein declared the SCB is successfully resolving a majority of cases. She maintained disciplinary actions have risen to over an 800 percent increase compared to 1996. She explained the cases become more complex as the SCB becomes more effective, and they are dealing with them.
Ms. Grein emphasized the bill would undo everything that has been accomplished over the past 5 years. She remarked to effectively administer the items in the bill, the fiscal note would be around $5 million, because the current budget is $6 million, and the proposed process is much more detailed. She opined the SCB is not qualified to determine what the courts should do, and have done, because the SCB is a licensing board, and most of the items in the bill are judicial functions. For example, she said the definitions for contractor and subcontractor in sections 4 to 6 are completely opposite of the definitions contained in NRS 624.
Ms. Grein said all construction issues are treated as workmanship issues, and for litigation purposes, the SCB lets the courts define the issue. She added a clear definition of a construction defect is not found anywhere.
Mr. Rasmussen explained S.B. 516 was going for consistency between chapter 624 of NRS and NRS 40.600. He noted the SCB is in Chapter 40, and with the bill it will also be included in chapter 624 of NRS for consistency. He pointed out the SCB can say exactly what the problem is to be repaired. He commented if the SCB has 4903 cases now, and he has 100, then how much more would it be to look at an additional 100 cases. He pointed out the SCB is the oversight of the building contractors, and the bill gives the SCB the right to discipline every contractor, licensed or not.
Senator O'Connell queried that she thinks the Calloway v. City of Reno court case defined defects. Ms. Grein acknowledged the case did define defects, however, it was on judicial grounds. She stated although the SCB can take a contractor’s license, it is still separate from litigation. She asserted she understands there are bad apples in every industry that need to be addressed, but the way this bill is designed; it would not help the SCB achieve that goal. She suggested all parties get together to make the various elements of the bill work better.
Senator O'Connell averred the court definition could be used in the bill. She wanted to confirm the contractors’ willingness to pay for the additional costs as previously indicated.
Mr. Rasmussen confirmed per others testimony, there is a willingness to pay to get the independent board needed to get the repairs made, and to discipline the industry if it does not respond.
Mr. Gregory stressed it must be made clear that the important thing is to force the issue and file complaints at the SCB level. He explained the SCB has some issues to deal with in timing, notification, due process, and so on that are in conflict with S.B. 516. But as far as the ability to do everything that everybody has been talking about, the SCB has that ability right now; what we do not have are the complaints being filed. He surmised there would be a significant reduction in construction defect lawsuits, if every complaint first had to go to the SCB. He acknowledged in the beginning, until a pattern can be established, there would be an excess workload, primarily because the board only meets twice a month.
Senator Schneider pointed out that some testimony was about after trying for 4 to 5 years to get a construction problem fixed, they were forced to resolve it through a lawsuit. He said many of his constituents tell him they do not want to go to court; they want a house that works properly and is well constructed. He concluded a strong SCB is needed, and that is the purpose of the bill.
Senator O'Connell commented she serves on an interim board. She said there is an advisory board that does most of the work to gather and provide the information needed by the board she serves on. She suggested that seems to be what is needed in this case. She clarified the commission could consist of experts in their fields to investigate, gather and provide the information needed by the State Contractors Board in order to better do their job.
Senator Townsend questioned whether the homeowner might get the runaround by calling the subcontractor on the list, who could say they work for the general contractor who would have to be called first before anything could be done, and so on.
Mr. Gregory remarked that providing a list of subcontractors who did work on a home sounds like a good idea, but, he said, from experience, it is not that simple. He pointed out the subcontractor may find an associated problem involving another subcontractor, or the general contractor did not pay the subcontractor so the subcontractor is not going back. He outlined that the general contractor/developer down to the subcontractor is the better way to approach resolution after a course of hearings to accurately determine the problem. He noted subcontractors usually provide the warranties, if that is the issue, and not the general contractor. Mr. Gregory contented a warranty issue is entirely different from a defect issue, and the two should not be joined. He said differentiating between a warranty, a defect or a workmanship issue is a big part of the problem, and not always easy to untangle.
Senator Townsend recognized that Senator O'Connell’s suggestion of an advisory commission of experts is important, because to get too specific in the law would cause more problems than it would solve. He articulated whether contacting the subcontractor first would work.
Ms. Grein responded the homeowner contracted with the general contractor not with the subcontractor, so it is the general contractor’s responsibility to make sure the subcontractor fixes the problem. She contended the SCB’s point of view is the general contractor hired the subcontractors, so it is the general contractor who should oversee the resolution of the problem, even if it means the general contractor has to hire another subcontractor to get the job done.
Mr. Lewis elucidated the typical homebuilder usually has first contact with the buyer. He said the warranty department would investigate to determine who is responsible, then contact the subcontractor involved to make the repairs. If that subcontractor does not make the repairs, then the warranty department would make other arrangements for the repairs. He said his relationship is with the homeowner first, so Lewis Homes would work out the differences there, then work on the differences with the subcontractor. He pointed out the confusion arising from trying to deal with the exceptions. He posited what was really wanted was the opportunity to first deal with the complaint prior to a lawsuit, and that is the reason for the SCB to re-establish the connection with the homeowner and avoid surprises.
Mr. Rasmussen commented that in section 7, page 2, subsection (3), line 19, in essence covers the part about the contractor immediately contacting the subcontractors to bring them back into the process. He called attention to section 8, subsection (1), page 2, lines 44 to 48, which states the claimants, contractors, or subcontractors can each request to be part of the SCB hearing. He contended that would allow for the board to hear everything at once and act accordingly.
Ms. Grein stated under NRS 624.600, it is already in statute for the contractor to contact the subcontractors, to acquire the necessary information, and to inform all parties involved. She added lien laws and mechanics’ liens are also covered, and the Nevada Administrative Codes (NAC) spells out the requirements for the information to be obtained. If they have not performed as required by statute, then the provision is there for disciplinary action. She claimed that sections 7 and 8 of S.B. 516 are already covered in statute with some variations on the language.
Mr. Gregory averred that although redress for homeowners already exists in statute, the homeowners do not bother with the SCB, but go directly to litigation. This action completely bypasses the SCB process making anything anyone could do for the homeowner void.
Senator Townsend conveyed everyone is dealing with the front issue of homeowner satisfaction, and to get the best contractors to do their best work at a price the public can deal with. He communicated the committee spent hundreds of hours on the front-end problems of safety and workers’ compensation, and got laughed at and yelled out from all sides, but it turned out to be the right thing to do because it worked, because they seldom get those types of calls anymore. He emphasized the goal was to reduce injuries and it worked. He claimed that is the same goal with the construction defects issue is to get the homes built right, have a chance to make repairs, and still have the right to seek resolution against the nonperforming contractors. He noted that the devil is in the details.
Ms. Grein stated there have been situations where the homeowner has denied access to the property for repairs, because a few contractors have behaved in a belligerent manner, causing the homeowners to withdraw their complaints. She insisted the SCB would not want those particular contractors going back to a job site to fix a problem. She pointed out another developing trend is the contractor suing the homeowner, as soon as they find out the homeowner has filed a complaint, to stop any action by the SCB for a while, and the SCB has not lost any of those lawsuits, but it costs to defend them. She added there are many other derogatory actions unscrupulous contractors have taken against homeowners who filed with the SCB just because they want the problem fixed. She claimed the consumer should have the right to repair, but there were times when it was not appropriate.
Senator Townsend remarked that Ms. Grein’s comments points to the education system and a knowledgeable consumer. He said, because of the Internet, today’s car buyer is better off than 10 years ago with better prices, better product, and better service, because they are a more informed consumer.
Senator O'Connell wanted to know what percentage of the 4903 cases the SCB handled in 2000 represents the negative examples Ms. Grein cited.
George Lyford, Lobbyist, Director, Special Investigations, Nevada State Contractors’ Board, responded they are seeing more and more cases like those. Ms. Grein stated of those they know about that have resulted in some kind of actual harm, it would be about 1 percent.
Mr. Gregory interjected the cases described are minor in terms of the number of them. He said he is the chairman for most of those types of cases, and guesses about 50 cases a year actually experience harm. He elaborated these are the more difficult cases the SCB hears; most of the other cases are resolved administratively.
Senator O'Connell inquired of those cases how many of them represent individual contractors. Mr. Gregory answered usually they are one-on-one major disagreements. He added they are usually situations that have built up over time to the point the people need to be separated. At that point, he said, they counsel to hire another contractor to fix the problem so there is a barrier to put the emotions aside. He claimed typically it is a different contractor each time.
Ms. Grein clarified her earlier comments about the number of complaints and said, “Complaints filed by homeowners for fiscal year 1999-2000, were 2064. Of those cases where violations were substantiated, there were 1093. Of the 1093 cases, 200 went to the board, the rest were resolved at staff level, and with rare exception the 200 cases were taken care of by the contractors involved. She added everybody, including other contractors, should be actively involved in helping to weed out the bad contractors from the industry.
Responding to Senator Shaffer’s inquiry, Ms. Grein stated the complaints are run by licensees to check for possible trends developing. She said if a contractor has three or more complaints within 90 days, then they are tagged as a high priority for the SCB to act quickly to prevent further problems from occurring. She added their files show only one subdivision that has had a slightly higher share of complaints.
Senator Townsend wanted to know if there was a way to categorize new construction versus out-of-warranty construction. Ms. Grein commented warranty is generally 1 year, and it is 4 years on workmanship. She responded after researching, the majority of cases were homeowner association claims. She elucidated the average case involves houses that are 2 years old and under. Answering a question, Ms. Grein stated there are about 14,500 licensees, and right now the SCB is receiving 170 new applications a month.
Mr. Gregory remarked there is a high turnover rate, particularly with out-of-state contractors. He explained new contractors are typically replacing ones leaving because they went broke, they retired, Nevada is not for them, and other reasons. He said a large number are what is called “national contractors,” they are licensed in 15 or 20 states, and are typically commercial contractors. He added there is also a lot of turnover among the smaller specialty contractors, in addition to the normal attrition.
Shari O’Donnell, Lobbyist, Representing Plaster Development Company Incorporated, stated that Plaster is a residential builder in southern Nevada, better known as Signature Homes. She said Plaster has been building multi-family, apartments, single family, and custom homes in southern Nevada for over 23 years. She said the philosophy is they are not just building homes, but building communities, and Plaster tries to maintain a relationship with the purchasers. Ms. O’Donnell stated her position with Plaster is that of community relations director, which is a unique role for a developer. She expounded she works with attorneys in the beginning to set up governing documents and homeowner associations, and serves on the board during declarant control. After control has been turned over to the homeowners, she said she continues to attend homeowner meetings for up to 10 years. She explained how lawsuits continue even with Plaster’s level of dedication to homeowners.
Ms. O’Donnell said she has been with Plaster for 6˝ years and during this time she has attended the board meetings of a 230-unit condominiums who last unit sold in 1992 making the project 8 to 9 years old. She expounded suddenly there were no monthly board meetings, and she surmised it was because of a change in property managers. Eventually, she said, a board member called to say they were not happy with the property management services, they were down to only 2 board members, so they cannot take any action, and they will have to wait until the elections in September 2000. Ms. O’Donnell stated she was contacted by a homeowner who said there was to be a board meeting in September, and an attorney was scheduled to meet with the board in executive session. She claimed the homeowner expressed concern the person was a construction defect attorney, because the new property manager, on his own, had someone inspect the property, and then contact the residents suggesting they entertain litigation because the inspector thinks there may be construction defects and the 10-year window was about to close. The board, at the time, responded that if there are any problems, the builder was very responsive, and the issue was dropped.
At the September meeting, Ms. O’Donnell said she did not recognize anyone present and introduced herself, stated her position with Plaster, and offered her services regarding any concerns about the building. The board’s response was to say they would contact her about a walk-through, which never happened, because a few weeks later a lawsuit was filed without homeowner approval. She expounded the company attorney, realtor, and others protested that they had no idea about any problems to cause a lawsuit.
Ms. O’Donnell said the attorney responded with a letter saying there would be a meeting with an opportunity to ratify the lawsuit, but the meeting notice contained no ballot or proxy. Prior to the meeting, the attorney along with others put on a slide show. Fortunately, she maintained, there were some educated homeowners who noted they were not in compliance with chapter 116 of NRS and the covenants, conditions, and restrictions (CC&Rs), which required ballots and proxies for a vote. When the attorney was unresponsive to the voting requirements, she said some homeowners took it upon themselves to prepare ballots and proxies, and mailing them to absentee owners, and going door-to-door to distribute the information, and suddenly, the attorney produced the voting information. She noted that the proxies were dated January 17, 2000, and the meeting was schedule for January 17, 2001, and a proxy is void after 1 year. She stated the homeowners caught the incongruity and corrected the ballots.
Continuing, Ms. O’Donnell remarked on January 11, 2001, she received a telephone call from a homeowner stating her next-door neighbor is upset because two men, claiming to be inspectors, have torn out two walls in the neighbor’s unit. Ms. O’Donnell asked a member of the staff to check those people out, who then reported back that the men were pulling tiles off the roof, and punching holes in balcony and patio exterior walls in pouring rain. She sought and received permission to have Plaster representatives on site for the rest of the inspections, and by day 2 were told the inspections were done, but unknown to anyone, the construction defect inspectors returned on the weekend. If it was not for a neighbor’s concern, she would never had known that either. Ms. O’Donnell continued that on January 17, 2001, the attorney had tried for one more slide show before the vote, but the homeowners insisted on voting and on knowing the results before leaving. Of the 230 units, 151 people voted against the lawsuit, and only 16 voted for it. She insisted the builder assured the homeowners they would address every issue the attorney’s construction defects inspectors uncovered, if the attorney would supply the information. The attorney supplied a “laundry list”, which did not identify a specific defect, location, unit, or other specific, but it did name every item from windows to stucco, to plumbing, to tile, that would involve every contractor and subcontractor who ever worked on the building, in order to access as much insurance money as possible. She said the attorney insisted the association owed him $10,000 for the cost of inspection, which he did not get. Ms. O’Donnell concluded the new board worked with the builder to address the homeowners’ concerns and got everything fixed.
Ms. O’Donnell justified that this example directly addresses sections 40 to 44 of S.B. 516. She added the statutes do not require attorneys to put in writing the potential costs of experts’ fees, the cost of potential litigation that may result, and what additional costs would be added to homeowner association fees to pay for just this investigative portion of a possible lawsuit. Nor do the statutes require the builder be given reasonable notice of preliminary inspection, and be allowed to have their own representative present at these preliminary construction defects inspections before a lawsuit is filed.
Shawn Oliphant, representing homeowners, stated he is a construction attorney for the defense, and sees what drives the lawsuits, and it is not repair of the buildings. He pointed out in all the lawsuits he has defended, he has never seen a request for specific performance to repair the defect. He noted the bill would help to reduce the driving force of attorney fees from where they are now. He emphasized the importance of allowing contractors to fix proven allegations, thus reducing the millions of dollars now being spent solely on lawsuits. He urged the committee to adopt a process where the contractors, the subcontractors, and the homeowners come together, without the influence of the legal profession; it would be a lot easier to get the defects fixed. He expounded on how defects are calculated, in that a representative sample of 5 homes tested out of 200, then the numbers are extrapolated. For example, he said, if 1 house out of the 5 had a roof leak, then those numbers would be extrapolated out of the 200, even though none of the other houses had that type of defect. But, he said, because the attorney fees are based on a percentage of the contingency of the total cost of repair, that number is driven as high as possible. Mr. Oliphant remarked that is why this issue, and why the insurance companies are demanding that the number be lower. He pointed out S.B. 516 is not going to fix these types of problems. He averred what would fix the problem is to get to the heart of the construction issues.
James York, Concerned Citizen, said he was an insurance broker, and has been involved with various construction trade organizations and insurance organizations. He stated he was in support of the bill. He indicated Nevada’s rapid growth was influencing the reduction of the financial resources of insurance companies. He elucidated that increased growth has brought increased litigation, and increased litigation has brought an increase in attorneys, primarily from Nevada’s neighbor to the west, where attorneys learned the trade of squeezing the general public. He said, for example, a roofing contractor would bid a job at its beginning, but by the time it is their turn to work on the structure, quite a bit of time has elapse in which their insurance renewal premium has gone up, and the roofing contractor might only break even, if they are lucky, and then they may be named in a lawsuit in which their work is not at question. Mr. York stressed the main problem is the contractor or subcontractor is not being given the opportunity to fix the problem. He declared it is unconscionable for a professional, at any level, to find out there is a problem only after being served with a lawsuit. He asserted at that point the damage has been done and the adversarial relationship has started.
Senator Townsend queried how much more resources and productivity would be gained in Nevada by attempting to remedy the problems through legislation. Mr. York replied it is more of time-will-tell. However, looking back 3 to 5 years in the insurance market at what was available before the proliferation of litigation, he surmised that would be closer to the type of market potential. He pointed out the tendency to sue, at any time, for anything, is causing the product to dry up. He noted although Nevada is the fastest growing state, it is not yet large enough for the insurance industry to take that much risk.
Jack McClary, Concerned Citizen, representing Leavitt Insurance Agency, said as an insurance agent, he can definitely state lawsuits are a serious issue. He remarked one of his clients is a materials supplier, who has been drawn into two lawsuits in the last 6 months. He continued, as a materials supplier, the client had no impact on construction or workmanship issues, but it cost the insurance company $5000 and $7000, respectively, to just release the client from a “laundry list” lawsuit. He added, as a result of that lawsuit, the materials supplier’s insurance went up 30 percent. Mr. McClary expounded that a contractor who recently renewed their policy was able to get 17 quotes on insurance coverage just 6 years ago. Today that contractor could only get 2 quotes, and the lowest was a 70 percent increase over the previous year, just because of construction defects litigation. He urged the committee to vote for S.B. 516 to reduce the insurance and litigation problem for the construction industry.
Mr. York mentioned he received a letter from a Las Vegas agent who put together an insurance program for a large condominium project. The agent’s estimate was the increased cost to the buyer of a unit, because of the insurance alone, is between $5000 and $10,000.
Senator Townsend explained to the committee and those in attendance that testimony would continue until the committee had to leave for the Senate Floor Session, at which time the committee room and the video conference hookup would be made available for all the interested parties to continue to work on the bills in question.
Robert C. Maddox, Lobbyist, Citizens for Justice, stated he has represented thousands of homeowners in construction defects cases for 25 years, and in no case, before filing the lawsuit, had their not been serious efforts on the part of the homeowners or the homeowners association to get the defects taken care of by the contractors. He conveyed those homeowners were stonewalled, turned down, or given a band-aid fix that did not work. He emphasized the builders in question are not the Lewis, Pardee, K&B Homes, and others like them; these other builders set up subsidiaries for a project, then dissolve that corporation as soon as the project is completed, and deny any responsibility, leaving no one to go after.
Mr. Maddox introduced a homeowner in Carson City who resides in a subdivision where there is presently a class action lawsuit involving 380 homes with a multitude of serious problems. He said the homeowner has a video (Exhibit G. Original is on file in the Research Library.) which demonstrates the problems with his home and the builder.
Jorge Gonzalez, Concerned Citizen, stated he purchased his home in 1993, and during the winter of 1995 he noticed water under the house when he was running cable for his satellite dish. Since then, he averred he has had to pump out water every year. In the winter of 2000, he said he ran more cable under the house, and discovered a lot of water under the house. He said he also noticed big separations of the foundation that was changing the levels of the concrete flooring, and it took him 3 days to pump all the water out. He stated that in 1998 he installed drainage to the street to carry water away from the house, but it made no difference, and he continues to have to pump out water from under his house.
Responding to a question Mr. Maddox said some of the homeowners in the subdivision did go to the State Contractors’ Board, but he did not know if any of those cases were pending.
Mr. Gonzalez stated he had been visiting relatives once a year in Carson City, and decided it would be a good place to raise his family, and used all his savings to buy the house. He maintained the developer never disclosed the house was built on a wetlands that used to be a lake many years ago. He expounded, after moving in, he began finding cracks and leaks around windows. The contractor made cosmetic repairs to the problems, but more things showed up, more cracks in the walls, and water under the house. He asked the contractor to install a sump pump under his house, and the contractor said he would think about it. He conveyed that when he asked the contractor when he would do it, the contractor told him he did not have to do anything, and told him to do whatever he felt like. Mr. Gonzales emphasized that is when he decided to join the class action lawsuit. He added that not even the subcontractors would respond. He concluded the house represents everything he owns in the world, and he feels he is losing that.
Senator Townsend inquired of Mr. Maddox if the house is repairable and inhabitable enough, after the repairs, to meet the reasonable requirements of the homeowner.
Mr. Maddox responded that every problem with the home can be addressed satisfactorily, but because the lawsuit is in litigation now, it is difficult to determine the cost of repair. Mr. Maddox stressed situations between developers and homeowners, such as in this example, are what drives construction defects lawsuits. He stated he is concerned with getting problems fixed for the health, safety and well being of homeowners. He maintained if attorneys misbehave, then they should be taken to the state bar. They are a regulatory agency dealing with attorneys. He emphasized homeowners should not lose any rights because of the misconduct of an attorney.
Mr. Maddox said he would like to explain why he is opposed to S.B. 516. He stated compared to a few years ago, the SCB has done a complete turnaround and is now a true consumer protection agency. As a result, he said, he now refers most cases involving workmanship issues to the board. He clarified he also represents homeowners before the contractor’s board to utilize the expertise of the SCB, and it does help in many cases to get the problems fixed quickly. He pointed out the bill would require all construction defects cases to first go to the SCB, and that was not a good idea. He said it should be a matter of choice for the homeowner. He explained when it is a workmanship issue, the SCB works, but when it is a complex construction defects issue, it does not work well. He expounded the board's makeup does not cover the expertise needed when dealing with major issues, such as, soils, mold, and design. He clarified the SCB telling a contractor to fix a major problem, and the contractor doing it, are two different things. He expounded in multi-million dollar fixes, the contractors usually turn it over to their insurance companies, and the SCB does not have any control over the insurance companies. He averred insurance company involvement is what controls and moves the lawsuits. He claimed many times it is the developer that brings in all the subcontractors in order to reduce the developer’s individual cost of litigation and repair.
Commenting further, Mr. Maddox stated the idea that expert witnesses must be licensed in Nevada is wrong. He pointed out that the Nevada Supreme Court has said on multiple occasions that a license is not a requirement. He noted that NRS 50.275 says any qualified person that can shed light on a subject can present testimony. He commented it would be bad public policy to say only people licensed in Nevada can be experts. He elucidated that out-of-state manufacturers are often called upon to explain how their product should be applied, used or installed. He noted even with listing all the subcontractors, it is still not easy to find the persons involved in a defect issue, and that subject is being addressed in S.B. 89.
SENATE BILL 89: Revises provisions governing claims for constructional defects, dissolution of corporations and limited-liability companies and common-interest community associations. (BDR 3-940)
Referring to section 40, Mr. Maddox stated there are already regulations dealing with property managers. He voiced NRS 116.300 states community managers should not solicit or accept any compensation in any form. He pointed out attorneys are prohibited from making any kind of compensation offer by supreme court rules of professional practice.
Scott K. Canepa, Lobbyist, Nevada Trial Lawyers Association, insisted the committee needed to hear testimony from concerned citizen, Curt Liquin. Mr. Canepa offered his services in working on S.B. 516.
Curt Liquin, Concerned Citizen, stated he is president of a 162-unit association. He said the association did the litigation, settled, and currently the project is being rebuilt. He expounded in the beginning the association tried to work with the builder, but could not get him to come back. The association went to the SCB, who showed up with the builder, and all acted like they were old friends. He said the SCB told the association there was nothing they could do because the warranty was up. He then interviewed 4 attorneys, and presented the attorney’s credentials to the board, and the membership voted to pursue a lawsuit with that attorney. He explained the builder’s insurance company expert looked at the decks that were rotting from the inside and ascertained the decks were a health and safety issue, but rather than do something under the chapter 40 process, the insurance company chose to wait until the lawsuit was filed and settled. He surmised the insurance company was playing the stalling game, because it benefited no one other than the insurer who could prolong paying the claim. He insisted the consumer wants protection so they do not have to worry that every 2 years a bill may take away consumer rights in favor of building contractors. He said section 13 about disclosing the subcontractors was a good idea, but it would be better to provide that list to the serious buyer before they purchase, so the buyers can inform themselves, otherwise, all they have to go on are billboards and developer’s brochures. He expressed it is naive to think all subcontractors in all circumstances would come back to fix or repair, and if they do return, then there should be an expert on site to say the repairs meet or exceed code. He also noted some contractors might not return because the repair could cost 10 times more than the original work. He averred from talking to attorneys and builders for their points of view, that each admitted the quality of construction is improving because of the lawsuits. He stressed the homeowners should be on a level playing field with the builders, and not have to fight with them as they are doing now.
Responding to a question, Mr. Liquin stated the development is at Eastern and Windmill, northwest of Bluegrass in Henderson, and is known as Eastridge Gardens.
In response to Senator Townsend’s request, Ms. Grein said she would research the SCB files for the information on the association’s complaint. She added that the association may still be within the timeframe to have rights, and she would be in touch with Mr. Liquin.
William A.S. Magrath II, Member, Board of Directors, Caughlin Ranch Homeowners Association, stated in section 13, line 12, page 25 it says that before a lawsuit can commence, a notice must be sent to homeowners by certified mail with return receipt requested. He pointed out right now the cost of certified mail with return receipt requested is $3.74, plus the cost of preparation and handling. He noted meeting that requirement for the 2000 members, soon to be 2400, for Caughlin Ranch would cost the association $8228, every time the association has a meeting under the statute proposed in the bill. He asked the committee to not pass the cost of certified mail with return receipt requested on to associations, which would add an estimated $18- $20 more a year per member and would be a burden to some of the members.
Senator Townsend closed the hearing on S.B. 516 and opened the hearing on S.B. 421.
SENATE BILL 421: Makes various changes to provisions governing common-interest communities. (BDR 10-446)
Senator Townsend disclosed that he is a personal friend and client of Ms. Dennison and her law firm.
Karen D. Dennison, Lobbyist, Lake at Las Vegas Joint Venture, stated she opposes certain sections of the bill regarding common-interest communities. Senator Townsend asked Ms. Dennison to wait until the committee has heard the testimony in favor of the bill.
Senator Schneider communicated he and Senator O'Connell took testimony from many homeowners during a meeting held September 26, 2000, that became a part of the bill. He elucidated on various sections of the bill, noting a commission is proposed in section 2 in an information gathering and advisory role to the SCB. He noted there would be an ombudsman to handle complaints from homeowners, who would have up to 2 years to file a complaint. He reviewed the hearing process in section 10, and the ability for the commission to bring action in district court in section 14. He pointed out the bill contains a lot of new language about licensing property managers. He emphasized section 27 addresses construction defects and homeowners associations. He drew attention to section 27 which covers solar energy being applicable to homeowner associations, rolling shutters, and ramps and elevators for the elderly. He noted section 35 covers fines and violation definitions. He remarked people in the industry may want to discuss the section on methods of keeping minutes. Senator Schneider conveyed the issue of foreclosures is also covered, because there are extenuating circumstances that may preclude an association member from temporarily meeting a fee or fine that does not warrant foreclosing on the home in order to realize payment.
Ms. Dennison stated she has been representing common-interest communities since she started practicing in 1972. Referring to her handout on objections to S.B. 421 and the proposed amendments (Exhibit H), Ms. Dennison contended there was no need to establish a commission for common interest-communities. She stated that the Nevada Real Estate Division’s role is not to draft governing documents for associations, but to protect consumers. She declared that sections 2, and 6 through 14 should be deleted, along with sections 26, 28, 34, paragraph 2, subsection (b); and section 49, paragraph 1, subsection (b), should all be deleted as they serve no purpose to the overall goal of the bill. She suggested modifications to section 29; section 35, paragraph 2; section 37, paragraph 1; section 43 regarding NRS 116.3109; section 47, paragraph 9, subsection (b); section 50, paragraph 1; and section 54, paragraph 4.
Senator O'Connell inquired if anyone present knew the outcome of the court action regarding a woman who inherited her mother’s home, which was in a senior retirement association, and was denied use of the property because she was not old enough.
Pamela J. Scott, Lobbyist, Senior Property Manager, Howard Hughes Corporation, stated she lives at the age-restricted community the senator referred to. She communicated she did not know for sure, but it was her understanding the court dismissed the lawsuit. She offered to check on the results and report back to Senator O'Connell.
Ms. Dennison stated section 28 of the bill would not cover that particular instance; it only covers a person inheriting a unit after the owner is deceased. Senator O'Connell clarified the woman in question was not yet at the age limit to become a resident in that development according to association guidelines. She explained the woman had sold everything she owned back east to come to Nevada to take care of her ailing mother who owned the unit. That upon the mother’s death, the only surviving relative, the daughter inherited the unit, but was denied the use of the property because it was an age-restricted community.
Ms. Dennison continued with her testimony on the various sections of the bill that should either be deleted or modified (Exhibit H). Commenting on association voting issues, Senator Townsend noted when only 3 or 4 percent of eligible voters actually elect the president of the United States, then he could offer no solution to the issue of voter apathy on the part of residents of housing associations.
Senator Schneider remarked not everything in the bill came out of bill drafting the way it was intended. He requested a representative from the Legislative Counsel Bureau be heard next.
Senator O'Connell explained the meetings were very extensive and included all sides from owners, to boards, managers, and others. She emphasized S.B. 421, as it was drafted, was intended to reflect the concerns of all points of view. She requested everyone keep in mind the issues reflect people’s daily lives and their investment in a home, making this a very emotional issue.
Micheline N. Fairbank, Senior Research Analyst, Research Division, Legislative Counsel Bureau, stated she was one of three research analysts assigned to the constituent services unit, and she has been addressing the issues concerning common-interest communities in chapter 116 of NRS. She explained with the growth of common-interest communities, there has been a significant increase in requests from homeowners regarding chapter 116 of NRS. For example, she said in 1999, the research division handled about 22 formal requests. In 2000, there were 32 requests. She said, to date, in 2001 they have already received 50 requests. She conveyed there are trends in the requests, the most recent having to do with funds collected by declarants, and actually having those funds in the reserve fund account. She expounded other common requests regard the right of homeowners to inspect the books, records and other documents of an association; voting and proxy requirements; use of special assessments to pay attorney fees; limiting of percentage of rentals in an association; minimum association units to be governed by chapter 116 of NRS; homeowner rights to be heard at association meetings; associations and the open meeting law; non-gated communities streets and sidewalks maintenance; power of attorney in lieu of proxy votes, can a board amend if they disagree with findings; non-dedicated streets parking violations and moving violations enforcement; non-judicial foreclosures and liens; and responsibility of payment of taxes on common elements. She elucidated frequently the requesters say the office of the ombudsman has been unresponsive or ineffective, and then the requester is referred to a private attorney.
Mr. Magrath stated he would highlight some points in his presentation (Exhibit I). He expressed concern if there are too many more laws, the entire homeowner association process would collapse. He emphasized the fundamental element of associations is volunteers. He pointed out if a volunteer board member has the potential to be fined simply because they missed something in a thick board packet regarding a very complex section of chapter 116 of NRS, these people are not going to take the chance of risking their homes and their families’ security. He noted that even the association insurance does not cover paying for those types of fines. He stressed without volunteers homeowner associations would fall apart, leaving no one to enforce CC&Rs and take care of the association’s business, which could affect maintenance of common areas, which, in turn, would reflect on reduced property values. Referring to section 47, page 22, line 11 of the bill, Mr. Magrath stated his concerned was if a homeowner brought a civil action for a construction defect, he had no problem with requiring a 50 percent majority approval. He maintained the way he understands the wording, the bill would require 50 percent of all association members, and that would be like trying to wake the dead. He contended by deleting some of the sections in the bill, the elected boards would have their hands tied to enforce the CC&Rs, because they would first have to have approval to act from 50 percent of the total membership, even on small infractions. He pointed out that section 54 would prohibit use of attorneys in CC&Rs arbitration. He opined that would be a big mistake because of the complicated areas in the CC&Rs and in NRS 116. Additionally, he said, the law does not allow a corporation to represent itself in pro per. He noted that since most associations are incorporated, this section would present a problem.
Senator Schneider explained homeowners complained boards hire attorneys using association dues, when the homeowner, who paid those dues, cannot afford his own attorney. He said many association homeowners felt strongly about that type of lopsided arbitration.
Mr. Magrath responded there might be a constitutional issue, and urged that section be deleted from the bill. He expressed concern about an anomaly that would result from section 23, in which the 10-day response time versus the 10-day notice time would cause a board to break a law no matter what they tried to do. He asserted that to keep on with more laws of this type would cause the system to collapse, and it would be very difficult to fix or to convince anyone to volunteer for a board position with a homeowners association.
Ms. Scott stated she concurred with the points made by previous testifiers. She articulated she wanted to address issues specifically relating to very large associations, of which there are over 100 in Nevada, representing close to 300,000 people. She explained what large associations need was delegate voting systems. She pointed out it was virtually impossible to get quorums in large associations without representative and delegate voting systems. She elucidated the proposed amendment would allow every neighborhood subdivision in a large master plan to elect their own person, and that person would represent the subdivision to the larger association. She said another issue is the cap on penalties, which allows some people to buy their fine while continuing to commit the penalty. Referring to her handout (Exhibit J), Ms. Scott explained almost all association developments are not in the business of selling lots to speculators, but in the business of building communities. She stated most associations are generous in allowing 5 to 6 years for completing the building of a home, but when it is 8 years later and the home is still not complete, then everyone around is affected. She remarked with a cap of $500 a year on fines, the property owner would never have to perform, and construction would never be finished.
Senator Townsend stated the committee is out of time today, but would take up S.B. 421 next week. He urged, in the meantime, that all concerned parties come together to agree on constructive things to put in the bill, that would be an asset to homeowners and homeowner associations.
Senator O'Connell offered her 3-foot tall stack of homeowner complaints to the group, if it would help them in their deliberations on the issues. She added the ombudsman receives over 1000 complaints a month, and those could also be made available.
Karen J. Brigg, Resident Agent, Regional Vice President, Eugene Burger Management Corporation, pointed out what is not being looked at when looking at a council, is the thousands of homeowner associations and the people involved. She maintained NRS 116 has helped the industry a lot, but so many complaints would not be received if everything were really working as it should. She emphasized it is important to have a vehicle the homeowners can use to address their problems without the recourse of massive lawsuits.
Randa Steele, Concerned Citizen, stated a proposed amendment to NRS 116.3115, section 4, regarding fair assessments is not now mandatory. She conveyed information was put together showing the reason behind the requested amendment, and the proposed amendment itself (Exhibit K).
Senator Townsend informed the people in Las Vegas that the video conferencing hookup would remain open after the meeting for all groups to work together. He said support staff would also be available to assist them.
Senator Schneider stated he would return to assist the group after the Senate Floor Session. Referring to an article in the April 2001 issue of Governing magazine, called “Boss Thy Neighbor” (Exhibit L), Senator Schneider told everyone that Nevada seems to be the leading state in writing the homeowners association law, and the rest of the nation is watching what Nevada does, because it has become such a big issue nationally.
Senator Townsend said the hearing on S.B. 421 would continue on Wednesday, April 11, 2001, and adjourned the meeting at 11:54 a.m.
Laura Adler,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: