Right to Recovery on Foreclosed Home Construction Defects
Although the tidal wave of foreclosures seems to have ended, there are still many homes in California that are being foreclosed upon. Many of these homeowners are simultaneously in the midst of litigation over construction defects in the home. This has led many to ask: who can recover damages for th
Right of Recovery CasesIn the case of Siegel v. Anderson Homes, Inc. subsequent owners of a home built by Anderson Homes sued for preexisting construction defects discovered in the home only after it was purchased. Anderson Homes argued that the subsequent owners lacked standing to bring the action because there was no official assignment of rights. The court held that because the original owners had no damage, the right was assignable to the subsequent owners; however, it is not automatically transferred with a change in ownership of the house. Additionally, in the case of Vaughn v. Dame Construction Co., the owner of a condominium unit sold her home and then filed a lawsuit against the contractor for construction defects in the house. The contractor argued that she no longer had standing to sue because she was not the owner of the condo unit. The Court of Appeals found that she still had standing to sue because she was the real party in interest. It ruled that the "essential element" to the lawsuit was the injury to the interest in the property and not the ownership of the property itself. Finally, in Kasdan, Simonds, McIntyre, Epstein & Martin v. World Savings & Loan Assn., the court found that if a bank can show that the homeowners assigned their right of recovery to the bank at an earlier time for injury or damage to the home, they can pursue the construction defect claims, and not the homeowners. However, it must be shown that the actual assignment was made specifically by the homeowners to the bank.
Bottom Line for HomeownersDespite no longer owning a home, construction defects are considered personal property in California, and the former homeowner still has the right to recovery for defects that occurred while they lived in the house. However, this right can be assigned to the bank lenders when they foreclose upon the home. Former homeowners should read their foreclosure documents carefully to ensure that they are not unknowingly assigning their right of recovery to the bank. Usually, the deed of trust or the home loan documents contain language regarding the right of recovery and any possible assignment of that right. Some banks have a policy that includes a clause that automatically assigns the rights, effective on the foreclosure of a home. As a result, these documents should be reviewed anytime construction defect litigation occurs with a foreclosed home to double check who possesses the right to recovery.