Water damage, other building defects addressed in new Pa. bill that aims to regulate construction of new homes

Republican and Democratic lawmakers introduced a sweeping piece of Pennsylvania legislation this week aimed at better regulating new-home construction, a multibillion-dollar industry that for the last few years has faced a swelling number of claims from consumers who have encountered defects in their homes.

The bill, introduced by State Rep. John Galloway (D., Bucks), with bipartisan support from four Southeastern Pennsylvania legislators, would establish improved protections for consumers buying new homes — and would better hold builders accountable when defects arise. Specifically, any home builder or limited liability corporation would be required to register with the Pennsylvania Attorney General’s Office every two years, comply with specific language in purchase contracts, and notify consumers soon after the company becomes aware of a construction defect.

The legislation also would establish a fund from which consumers could collect money if their builder does not or cannot pay out the settlement awarded by a court. The pool, to be administered by the Attorney General’s Office, would be financed by a $50 fee that every home builder who enters into a contract with a buyer would pay each time a building permit is issued.

Galloway said his legislation, dubbed the New Home Construction Consumer Protection Act, was prompted by a November 2018 Inquirer investigation that examined how shoddy new residential construction overseen by at least 27 builders had left hundreds of homes severely damaged by water intrusion. The investigation found that a combination of rushed production, undertrained workers, lower-quality materials, and lax oversight allowed water to seep into the walls of new homes, leaving homeowners with repair bills that can cost as much as hundreds of thousands of dollars.

>>READ MORE: How water intrusion in new homes turns American dreams to rot

Yet by the time many homeowners discovered the problem, layer after layer was already damaged, sometimes bringing infestations of mold, termites, and phorid flies, The Inquirer investigation found. Other houses had become so water-ravaged that they were structurally unstable. When some homeowners approached builders with their discoveries, they were told that too much time had passed — and the problem was out of builders’ hands.

“This bill was really something that came from the reporting [The Inquirer] had done, which showed that this was a much bigger problem than just stucco,” said Galloway, who represents Bristol and areas of Lower Bucks County. “It was born out of the fact that consumers had very little recourse. Their hands were tied, and the contractor was holding all of the cards.”

The bill was referred to the Committee on Consumer Affairs this week, where it now awaits a hearing. State Rep. Brad Roae, the committee’s Republican chair, was not available to comment on when a hearing may be scheduled.

Galloway’s legislation — detailed across 30 pages — marks one of the most significant regulatory steps that have been taken since water intrusion in new construction has swelled to what some observers have called “epidemic” proportions within the last few years. Pennsylvania has often been described as the crisis’ epicenter, largely because of its wide variations in weather, the types of home-building materials used, and the massive building boom that the region experienced during the mid-2000s. Initially thought to be a crisis affecting only stucco homes, The Inquirer’s reporting disclosed that water intrusion also has damaged brick, vinyl siding, stone, and fiber cement homes — some of which were 10 or 20 years old, while others were brand new.

Still, recent regulatory legislation has not been able to gain significant traction. In 2017, State Rep. Bernie O’Neill, a now-retired Bucks County Republican, introduced two bills that similarly targeted construction defects, one of which would have required builders to notify customers when problems are discovered. Neither advanced.

“There are not adequate protections in the statute in Pennsylvania for individuals having new homes built,” said State Rep. Thomas Murt (R., Montgomery), a cosponsor of the latest bill. “We have to address this in a meaningful way.”

Daniel Durden, the CEO of the Pennsylvania Builders Association, a statewide trade organization whose political committee is a financial contributor to state lawmakers and committees, said that while the association “sympathizes with the [bill’s] intent … we don’t believe it’s the correct way to do it.” Specifically, he said the association is opposed to how the Home Builder Guaranty Fund is structured, including the fees that a home builder must pay when obtaining a permit. He said the group also is opposed to a requirement that each home-building company pay a $25 fee, which cannot be billed more than once a year, if the fund’s balance falls below $1 million.

“Any additional fee on permits is going to increase the cost of housing and make affordability that much more difficult at the entry level,” Durden said.

Though Galloway said the legislation was initially motivated by the water-intrusion problems across Bucks County, his legislation covers a wide-range of defects. For example, one provision requires that home builders notify their customers within three months upon discovering a “defective building material, product, special-order material, or building technique” of any kind. Homes less than 30 years old would be eligible.

The Inquirer’s reporting found that many builders did not notify homeowners of any potential problems — even as their lawyers combated water-intrusion claims. For example, Anthony Geonnotti of Horsham-based Toll Brothers, a Fortune 500 company, testified in 2017 that within slightly more than two years, he had inspected 300 to 350 regional homes for water intrusion — with roughly 85 percent needing repairs, according to an arbitration hearing transcript filed in court. Nearly a dozen homeowners told The Inquirer that Toll had never notified them of a problem.

In a November statement, Toll said that water-intrusion-related issues on older stucco homes are an “industrywide problem in Pennsylvania,” adding that the company has “an excellent record of ensuring that these water-intrusion complaints are reviewed and resolved.”

“If Ford Motor Company knows its air bags are bad, they are required to tell all the consumers who drive that car for a product recall,” said Jennifer Horn, an attorney with Horn Williamson, one of many local law firms that has handled water-intrusion claims. “Why is that not required in the construction industry?”

Wally Zimolong, a Villanova-based attorney who also handles these claims, said the bill’s notification requirement is “significant," especially because local municipal code inspectors are not required to specifically check for errors that could lead to water intrusion, as The Inquirer found.

The proposed legislation mandates that when a building company registers with the Attorney General’s Office, the names, addresses, and phone numbers of partners, offices, and managers must be included, as well as all prior business names. For LLCs, the name of each director holding more than a 5 percent interest must be listed. Proof of general liability insurance that would cover personal injury and property damage is required.

In addition, all construction must comply with the building code, according to the bill, and arbitration clauses must be written in boldface type with capital letters, and must appear on a separate contract page. The Inquirer’s reporting found that some builders require customers to enter into mandatory arbitration, where records are not public.

If a builder misrepresents or conceals his or her real name or the name of the business, the bill states, he or she could be charged with a felony of the third degree. Consumers who cannot collect monetary awards are eligible to receive as much as $30,000 from the Home Builder Guaranty Fund. The bill states that more than $200,000 cannot be paid out to different customers who purchased from one home builder, unless the home builder reimburses the fund.

A builder’s registration certificate will be revoked when a payment is made from the fund on the company’s behalf. The certificate will be reinstated only when the full amount is paid, plus interest.

The bill, which would not apply retroactively, does not address the Pennsylvania law that currently allows homeowners to bring claims against a builder within 12 years, and in some cases, 14 years after a home is built. Under Galloway’s bill, that time frame would remain.