Don’t Litigate (If You Can Help It)!

I recently represented separate sellers of two different modern condos, one built in 2004 and the other in 2007.  They each bought their condos within several years of each other in strong markets. They both just sold their units. One was a two bedroom condo in the Mission whose photograph appears above and one was a one bedroom view condo with lots of amenities in Mission Bay. With the run-up in the real estate market, one would expect that each of these sellers would make a nice profit. The seller who lived in the Mission sold her condo for $176,000 more than she paid for it. The Mission Bay seller sold her condo for $5000 more than she paid for it. Why such a difference in appreciation for these two nice properties? One word – litigation!

When new developments are built – and there are a lot of them being built in SF right now – inevitably, there is something that ends up not being perfect. It could be flashing that is on the exterior of the building that was installed improperly resulting in leaks or it could be a lack of sufficient ventilation in a high rise. Once buyers move in and discover these imperfections, they get upset and consider hiring a lawyer.

There is a law that covers this situation. It’s called SB800. Under this law, before suing a builder, an owner is required to advise him of the issues he may have with the building and allow the builder time to fix the situation. If construction defects are not fixed to the owner’s satisfaction, then he has 10 years from close of escrow within which to sue. See http://www.certifiedriskmanagers.com/SB800.htm for more information on this law.

As a former litigator, I strongly recommend that owners use their best efforts to resolve the situation amicably. Litigation should always be a last resort. It’s very expensive and time consuming and there is no guarantee that at the end of the day you will get the result you want.

For the client who sold her Mission condo and made a nice profit, the HOA amicably resolved the issues that had arisen and entered into an agreement, forgoing litigation.  The other client’s HOA unfortunately was unable to resolve the issues and ended up suing. The litigation has been going on for an amazing seven years! A trial date has been set so, fortunately, it will be resolved in the not too distant future.

However, for sellers like my Mission Bay client, the impact was great. When a building has litigation, it is harder to sell a unit, resulting in lower prices for the development. Most lenders won’t lend on a building with pending litigation. This results in a pool of fewer prospective buyers. In addition, buyers naturally have concerns about the litigation and agents often will not encourage their clients to buy in the building.

The bottom line is if you buy in a new development where issues arise, do your best to encourage members of the HOA to try to resolve the issues outside of the courtroom!

 


 

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