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Recent Articles : Construction
Defects - Fewer claims, bigger checks
 A
revised state law that takes effect July 1 will reduce
the number of Florida homeowners who may file claims
against contractors who abandon projects.
But as a result, aggrieved homeowners who still qualify
will end up receiving more money.
The revision, which tightens how payouts will be made
from the 11-year-old stateConstruction Industries Recovery
Fund, no longer will allow claims against pool builders,
roofers and air-conditioning companies — a move
that will prevent hundreds of homeowners from seeking
compensation.
Only claims against so-called Division 1 contractors
— those who build, renovate or remodel homes —
will be considered by a board that hears homeowner complaints.
Until now, the construction contracts law permitted payouts
to all contractors, even though the Division 2 group
did not contribute to a fund through building permit
fees as is required of other contractors.
In fact, most of the recent claims to the recovery fund
involved pool builders and others in the Division 2 category.
But those homeowners whose claims do make it through
the state gauntlet will draw from a bigger pot.
Payouts on claims will increase from $25,000 to $50,000
per homeowner for contracts entered into after July 1.
The total cap against each contractor will increase from
$250,000 to $500,000.
But the change has done nothing to help one group of
Broward County homebuyers who have been seeking to be
made whole since the mid-1990s. The group’s members
have been relegated to their own Catch-22 by the state’s
Construction Industry Licensing Board, according to their
attorney, Roy Oppenheim of Oppenheim & Pilelsky in
Weston.
Oppenheim contends that the board improperly ruled that
his clients were not entitled to any recovery because
they did not own the homes on which they had placed deposits.
He says the property ownership issue was never addressed
by either the original law or the revised one scheduled
to take effect July 1.
Nearly 10 years ago, the buyers brought suit in Broward
Circuit Court against builder Charles Sauls of Treasured
Spaces of Florida Inc. By law, the suit was a required
precursor to the staking of any claim to the recovery
fund.
Earlier this month, at a hearing in Coral Gables, the
licensing board not only denied any further payout to
the group but said that a $100,000 award received several
years ago was in error.
In its ruling, the board said the buyers never had actually
owned their property, but instead had had it under contract.
Oppenheim said he will challenge the board’s decision,
saying court cases have established that property title
is not essential.
It means, he said, that the revised law needs to be changed
again, and he’s considering marshalling a legislative
effort next year to do that.
What’s at stake is millions of dollars in state
funding to pay homeowners’ claims against contractors,
and how to better administer that money.
Representatives of the state Department of Business and
Professional Regulation, which oversees the construction
licensing board, stopped short of pointing any fingers
at how the fund has been administered.
But it became clear last year, through published reports
and the department’s own informal study, that more
accountability by state officials was necessary, said
G.W. Harrell, a department attorney who co-authored a
legislative analysis that supported the need for a revised
law.
The department pushed for the revisions, which were sponsored
in a bill by Sen. Nancy Argenziano, R-Crystal River.
She could not be reached for comment by deadline.
The foundation for the recovery fund was laid in the
1980s.
It was then that contractors began paying a penny-per-square-foot
of “under roof” space to study radon gas,
said Doug Buck, lobbyist for the Florida Home Builders
Association in Tallahassee.
By the 1990s, radon had evaporated as an issue.
But in 1992, Hurricane Andrew devastated South Florida
and left a slew of homeowners clamoring for financial
help after contractors took their money but never completed
the work on their damaged houses.
The recovery fund was created in 1993, and the first
payout was made in 1995.
It is funded through a half-cent per square foot of “under
roof” space paid by Division 1 contractors —
those who build or renovate homes — on building
permits for new homes, renovations, alterations and additions.
The fees go to the state’s Professional Regulation
Trust Fund, and then to the Building Codes Administrators
and Inspectors Fund. The surplus rolls into the recovery
fund, and excess from that goes to the industry licensing
board.
While the recovery fund initially was allocated $1.2
million each fiscal year, it has received $4 million
each year since 2002. Unused funds are rolled over into
the next year’s allocation.
Since the fund’s inception, claims have steadily
risen, from about 200 to 220 per year, to 285 in 2003.
Between June 2003 and May 31 of this year, 257 claims
were filed. All told, there are 648 pending claims that
date to the fund’s inception.
Average payouts from the fund also rose, from about $15,000
per claim to $22,670 in fiscal year 2002 to 2003.
The increase in numbers of claims “appears to be
attributable to financial misconduct of pool contractors,”
said department spokeswoman Meg Shannon in a written
statement.
But pool contractors are among those classified as Division
2 contractors, and they have not contributed to the fund.
Until now, the law allowed the inconsistency, said Tim
Vaccaro, executive director of the Construction Industry
Licensing Board.
Couldn’t Division 2 contractors now simply be required
to contribute to the recovery fund?
No, because their projects aren’t based on square-foot
calculations, Vaccaro said.
Given the wide variety of work they perform, calculating
a funding method would be too difficult, he said. Any
fee charged the contractors would likely be passed on
to consumers.
Vaccaro, who contends that more claims involve Division
1 than 2 contractors, said the new law will mean more
money will go to homeowners most affected.
The department’s legislative analysis points to
another inconsistency: How local governments substantiate,
or don’t, their payments to the state fund.
Counties and municipalities are required to make quarterly
payments to the state of the fees collected through building
permit applications.
Until now, however, the state has not required those
contributions to be documented. Nor has the state done
any audits of local governments’ reports. Because
the department has no authority over the granting of
building permits, it has no information on the numbers
of permits issued, said spokeswoman Shannon.
The state, in other words, must rely solely on the local
governments’ computations.
Until July 1, that is.
The revised law will require local governments to document
their calculations and local building officials to sign
off on the reports.
It is, said the department’s Harrell, the best
method available to the state.
“We don’t have the statutory authority to
audit their records,” he said of the local governments.
“And we don’t have the personnel required
to audit that many departments. We feel this provision
gives us the ability to research it from up here.”
Overall, the recovery fund “has been criticized
as difficult to navigate and unresponsive to those who
have sustained the greatest financial losses,”
the department analysis indicated.
Which doesn’t surprise Oppenheim.
In 1995, the original 22 homebuyers who plunked down
thousands of dollars in deposits on homes to be built
in Bonaventure sued Treasured Spaces of Florida Inc.
for $235,000 owed them in deposit money.
The company, whose principal was Sauls, had abandoned
a 70-home project in Weston in Bonaventure’s LaCosta
subdivision, finishing about 30 homes. After winning
their case in 1997, the buyers failed to get their deposits
back when the company went out of business, and went
to the state recovery fund.
In 1998, the group received a $100,000 payout from the
fund — the maximum allowed against a single contractor.
Two months before that payout, however, an amended state
law took effect, allowing a $100,000 payout annually
with a total cap of $250,000.
The group, now down to 14, still hopes to recoup the
remaining $135,000 members say is due them.
But, in a ruling earlier this year, the construction
industry licensing board ruled that Treasured Spaces
— not the 14 homebuyers — owned and controlled
the homesites, and that disqualifies the buyers from
any additional award.
“The statute makes clear … that to be eligible
[for an award], you have to have a contract with a contractor
for construction,” Vaccaro said.
Oppenheim said the state law is silent about whether
only owners could recoup from the fund.
What’s more, he said, the board’s ruling
“is entirely inconsistent with the history of the
fund until today.”
Vaccaro, when asked to cite in the statute where a homebuyer
is denied any recourse, declined comment, saying he could
not discuss the merits of the case.
The board has “touched a third rail that they’ll
be sorry they touched,” Oppenheim said.
Terry Sheridan can be reached at tsheridan@floridabiz.com
or at (954) 468-2614.
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