Blake: Condo shortage likely to continue in Denver

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For the second year in a row, an attempt to fix Colorado’s construction-defects law was shot down in the dying days of the legislative session.

Which means that new condominiums will continue to be hard to find in the Denver metro area.

Historically about 20 percent of residential construction in the area has been condominiums. They’re a natural purchase for young couples hoping to build equity instead of paying rent — and for empty-nesters hoping to stay property owners when down-sizing.

But currently only 3 percent of new construction are condos — just 216 of 6,721 residential housing starts last year, according to Metrostudy Denver.

Builders claim the law makes it so easy for homeowner associations to sue that they can’t get the insurance coverage they need to protect themselves. There are three or four law firms who specialize in construction-defects suits on a contingent-fee basis, taking 30 percent or more off the top of any award.

The problem: It takes only two unit owners, and the cooperation of the HOA board, to launch a suit in which all the owners can then join. Scott Sullan, “the one-man suing machine,” brags on his Web site that in 2009 alone he won $75 million in construction defect settlements for homeowner associations.

He’d be even richer if he’d been able to pass his Amendment 34 in 2004. It would have lifted most limits on construction-defect suits, including the $250,000 cap on “pain and suffering.” But it lost big.

“Nearly all of our big builders, the Richmonds, the D.R. Hortons, have said publicly they will not build [condos] until there are changes to the statute because it’s not a risk they can afford to take” said Amie Mayhew, director of the Colorado Association of Home Builders.

Would-be construction-law reformers are usually Republicans, but Senate Bill 220 in the recent session was carried by a Democrat, Sen. Jessie Ulibarri of Westminster. He believes more of his constituents should have the opportunity to own their homes. He was backed by chambers of commerce and the metro mayors, including Denver Mayor Michael Hancock. They want more property owners, not renters. But apartments get built instead of condos because they aren’t subject to the same civil liability.

The bill would have prohibited condo HOAs from eliminating mediation or arbitration for settling alleged defects if those remedies were specified in the original bylaws. More to the point, it would have required HOAs planning construction defect lawsuits to first notify all unit owners and obtain the written consent of a majority of them.

But the measure didn’t get the support it needed from Senate President Morgan Carroll, who is a trial lawyer. She “played games with it,” maintained the home builders’ Mayhew. “She pushed back for long periods of time.” This resulted in a late introduction and ultimately the bill’s defeat.

S.B. 220 wasn’t introduced until April 20, less than three weeks before the end of the session. Carroll did assign the bill to the State Affairs Committee, which Ulibarri chairs — but she also assigned it to Judiciary. A double assignment is a broad hint that leadership wants the bill dead.

The bill wasn’t passed by State Affairs until May 5, two days before the session had to end. It takes a minimum of three days to pass a bill — and that’s rare. Judiciary didn’t take it up until the last day. “After it was constitutionally dead, they killed it just for sport,” said Mayhew.

Last year Sen. Mark Scheffel, R-Parker, tried a bill he hoped would “resonate” not only with Republicans but with Democrats, who love density. It was aimed only at condos near light-rail stops — “transit-oriented development” — where nobody is building the units needed for that urban lifestyle city planners so love. It would have given builders a “right to repair” a construction defect before further action could be taken. That action would have to be binding arbitration by a neutral party.

The bill had “a super-good hearing,” said Scheffel, “then went down in flames.” The HOAs and construction-defects lawyers are good at turning out witnesses who can tell horror stories about their shoddy condo construction. There certainly is some of that, though exaggeration is not unknown.

Changing the law won’t solve the basic problem, according to construction-defect attorneys. “Why don’t they just build to code?” Jesse Witt asked in one of many stories on the issue published by the Denver Business Journal. “They only get sued if they didn’t do the work properly.”

That raises the question of the competence of local building inspectors and the responsibility of cities. But condo construction is a difficult game and perfection is hard to come by at a price buyers can handle. Scheffel hopes to be back next session with another stab at legislation. His success may well depend on the effect of the election on the legislature. Democrats may continue to hold both chambers, which is why Scheffel is careful to try and stay on the good side of Morgan Carroll, whom he called “very fair.”

Said Scheffel: “We need to give appropriate redress for folks who are legitimately wronged, but not foster a cottage industry that allows limitless scrutiny and limitless liability for a product that will never be perfect.”

Longtime Rocky Mountain News political columnist Peter Blake now writes Thursdays for CompleteColorado.com. Contact him at pblake0705@comcast.net You may re-publish his work at no charge and without further permission; please give full credit to Peter Blake and www.CompleteColorado.com.

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