Texas Laws Can Be Crazy For Builders and Homeowners

The much-maligned Texas Residential Construction Commission Act (TRCCA) is about to fade into the sunset if activists in Texas get their way. TRCCA took root in 2004. The legislated purpose was to (1) promote quality construction by registering home builders, (2) serve as a resource for home owners and (3) offer neutral technical review of alleged construction defects. Sounds good so far.

But the Texas Sunset Advisory Commission has reported that TRCCA isn't working as planned and recommended abolishing the Commission. The national press has picked up on the issue, referring to Texas as "the worst state in the nation when it comes to protecting buyers of new homes." Those are strong words -- and will be the subject of this article.

First, an important clarification. TRCCA covers both new homes and nearly every home improvement project valued at $10,000 or more. The rap on TRCCA is that the claim process takes too long (5 months) and doesn't resolve enough disputes (only 12%). Worse, TRCCA doesn't give anyone authority to enforce decisions that go against Texas builders (or Texas home owners). Texas can't suspend the license of a truly egregious builder because Texas doesn't license contractors.

The benefit of TRCCA is the follow-up every claim receives. At a cost of $250 to the home owner, a state-appointed inspector visits the site, writes a report and makes a recommendation. If the claim involves a structural defect, the inspector will be a licensed engineer. If the construction defect is a threat to health and safety, the builder has to fix the problem ASAP. If not fixed promptly, the home owner can have another contractor do the work and add the cost to the claim. If the inspector finds in favor of the home owner, the inspector's fee can be charged to the builder. The inspector's decision has to be based on the warranty and building code in effect and must recommend a method of repair.

About half of the TRCCA reports confirm a defect that has to be repaired. The inspector's report becomes evidence if suit or arbitration follows. Either the home owner or the builder can appeal the inspector's decision to a review panel. The panel has to reach a decision in 30 days.

TRCCA also created a mandatory residential warranty that can't be waived. This warranty is not a trivial document - it contains over 100 pages of standards that define what constitutes "quality construction". This warranty is used by TRCCA inspectors when deciding what constitutes a defect and what doesn't. Duration of the TRCCA warranty is 1 year on workmanship and materials, 2 years on plumbing, electrical and HVAC, and 10 years on structural components. This is the most comprehensive and detailed residential warranty I've seen. No other state comes close.

TRCCA is stacked on top of remedies home owners had before 2004. If TRCCA doesn't resolve a claim, the dispute drops into the Texas Residential Construction Liability Act of 1989. TRCLA gives builders the right to inspect and repair after a claim of defect. There's a heavy incentive for builders to make a reasonable offer of settlement - and sweeten the deal by throwing in attorney fees and the cost of temporary re-settlement if the owner has to relocate during repairs.

If the builder's offer isn't "reasonable," the home owner can claim: (1) the cost of repairs, (2) the cost of replacing or repairing anything damaged as a result of the construction defect, (3) engineering and consulting fees (4) temporary housing during the repair period, (5) loss of market value after the defect is repaired, (6) attorney fees.

If the cost of repairs is extensive, the builder can elect to re-purchase the home at the original purchase price plus closing costs plus attorney fees plus expert witness fees plus the cost of any improvements plus the cost of moving. In essence, it's a money-back guarantee.

But Texas doesn't stop there. TRCCA and TRCLA are stacked on top of remedies provided by the Texas Deceptive Trade Practices Act (DTPA). This is where home owners with construction defect claims want to be. DTPA dates from 1973 and gives buyers of construction services a private right to collect triple damages plus attorney fees for misrepresentation or breach of warranty.

Taken together, TRCCA, TRCLA and DTPA offer Texas home owners a triple canopy of protection, including independent third-party inspection, a 100-page written warranty, money-back guarantee and triple damages. Even trivial errors by a Texas contractor can earn heavy penalties: --- Omitting the contract notice required by Texas Property Code § 41.007(a) is a violation of DTPA and qualifies an owner to collect triple damages plus attorney fees. --- TRCCA voids any arbitration clause in a contract which fails to make specific disclosures in 10-point bold type. --- Omission of disclosures required by TRCCA makes the contract unenforceable. --- TRCLA gives an owner the right to recover $500 from a contractor if the contract omits a specific statement.

Is Texas the worst state in the nation when it comes to protecting buyers of new homes? Exactly not, in my opinion. Can a residential contractor still make a living in Texas? Of course. One place to start is at the site Construction-Contract.net. You'll find a good selection of residential contracts with bias favoring contractors. All comply with Texas law and all download at no charge.

Gary W. Moselle is a California attorney specializing in state-specific construction contracts. Disclaimer: Nothing in this paper should be interpreted as a substitute for professional advice from an attorney practicing in your community. Only local counsel can appreciate the business and legal environment under which a construction contract is drafted, negotiated and executed.

You can find more of Gary's posts on construction contract law at http://garywmoselle.blogspot.com

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