Local Condo Association Receives $3M Construction Defect Settlement For ONE Leaky Door!

Portland, OR – Readers who have been following the HOA Detective blog for any length of time should know by now how yours truly feels about the construction defect litigation racket.

Thanks in no small part to Oregon’s overly lenient statute of limitations, which allows a homeowner association to bring a  civil action against a contractor or material supplier for up to ten years in certain situations, the Portland area has become something of a hot-bed of litigation activity with many prominent attorneys having set up shop in Stump Town to pursue the vast riches that await after the successful prosecution of a construction claim.

Over the years we have been privy to a considerable amount of insight into the inner workings of some of these lawsuits in our work as reserve study providers and as a result of the 400-plus pre-purchase due diligence reports that we have prepared for Oregon homebuyers. However, in all the years the HOA Detective has  been active in this arena he has never seen a case quite like this one…

Although the names have been changed to protect the guilty from having aspersions cast upon them, the pertinent facts about this case were obtained from the documents provided by a local condominium association to a buyer who had purchased a CIDA Report.

As is typical in almost all construction defect cases one of the stipulations in the settlement agreement was that the agreement itself is declared confidential by the Court. As a result of the confidentiality clause in the settlement agreement what we do know about this case is limited to a single memo that was prepared by the Board of Directors for the purpose of communicating to the HOA membership what the final outcome of the case was and what the status of the defect remediation effort would be moving forward.

And that’s where things start to get really interesting because as it turns out it doesn’t appear that there are actually any defects that need to be corrected, other than a single entrance door to one of the condominium units, which apparently leaked and “damaged the unit’s floor…” Otherwise it appears the settlement of $3,025,000 that the Association received, was the result of windows that were alleged to be defective but which had not in fact leaked or otherwise failed to perform, and also to a balcony coating material that was used to waterproof the surface of the unit balconies. To quote from the memo:

Question from HOA member:  “Have any of the residential windows in the building actually leaked?”

Board Response:No. There is one door that has leaked and damaged the unit’s floors but no windows have leaked. The single door is being fixed.”

The memo then goes on to answer another question which was obviously posed by one of the more rational members of the community:

Question from HOA member: “Why would we replace the windows if they aren’t leaking?”

Board Response: “We shouldn’t! Receiving money doesn’t mean we have to do any construction. All building systems wear out eventually and this settlement ensures that the HOA will have the money to cover replacement costs at the appropriate time”

And there you have it! The windows don’t leak and shouldn’t be replaced, according to the Board of Directors! At least not until they wear out and eventually require replacement, at the appropriate time!

Meanwhile, the balcony or “deck coating” that is referred to in the memorandum, appears to be in need of re-coating due to nothing more than normal wear. Again quoting from the memo:

Question from HOA member: “What about the decks?”

Board Response: “Deck coatings are an important part of the building’s construction and need to be redone every few years. The building is due for its regular deck re-coating cycle…”

In other  words, the decks are in need of re-coating as a result of the routine maintenance requirements of the coating. Not because the coating is necessarily defective!

So, to summarize what we have learned from reading the memorandum:

  • A single door into one of the condominium units has leaked resulting in damage to the floor of the unit.
  • The windows are not leaking, shouldn’t be replaced and receiving money doesn’t mean we have to do any construction.
  • The deck coating needs to be redone every few years and is due for its regular deck re-coating cycle.

We also know from a little snooping around on the Internet that the building in question was completed in 2005. What we don’t know is when the aforementioned memorandum was issued since it is not dated. If we assume that the case was settled within the 10-year window statutory window that the Association has for bringing a defect claim then it means that the case could have been settled as recently as 2015 or at any time subsequent to completion of construction. It is also possible that the settlement date occurred after the 10-year window had closed as long as the claim was filed prior to the expiration of the statute of limitations.

Since we know that the building was due for its “regular deck re-coating cycle” at the time the memo was written it is probably safe to say that the case was settled at least five to seven years after completion of the original construction and possibly as much as ten years after the building was completed. The wording in the memo raises the question of whether or not the coating was actually defective or whether a new application of the coating was needed because the “coating needs to be redone every few years” and was simply “due for its regular re-coating cycle?”

The memorandum confirms that by the Board’s own admission the windows were not leaking at the time the claim was settled and shouldn’t be replaced.

What we don’t know, and will never know since the terms of the settlement have been kept confidential is, What were the actual defects that warranted a settlement of $3 million dollars?

Inquiring minds want to know….



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