877-879-8776
Indiana Skyline

Indiana

Protect Valuable Property Rights in the event of construction defects and the resulting damage to your condominium or townhome project.


An Overview of the Survivor’s Guide to Construction Defect Resolution in Indiana

Indiana provides both statutory and common law warranties as to the quality of new residential construction.

New Home Construction Warranties Act

In 2002, Indiana enacted the New Home Construction Warranties Act, which applies to the construction of new residential homes.  Under the Act, at the election of the developer, the developer may warrant that for two years the new home will be free from defects, that for four years the roof system will be free from defects and that for ten years the home will be free from major structural defects.  A “major structural defect” is defined as actual damage to the load bearing part of the new home.

Common Law Implied Warranty

The incentive for a developer to include the express statutory warranties set forth in the New Home Construction Warranties Act in a new home sales contract is that, by doing so, the developer can disclaim the common law implied warranty established through Indiana case law.  The common law implied warranty provides that a home “will be free from defects that would substantially impair the use and enjoyment of the home.”  A broad range of defects have been held to constitute a breach of the common law implied warranty.

Both the statutory warranties and the common law warranty potentially extend to subsequent purchasers.

Statute of Limitations 

Legal action to enforce the express statutory warranties and the common law implied warranty must be filed within the period of the applicable statute of limitations.

The limitations period for both categories of warranties begins to run when the defect or damage was or could have been discovered.

While the limitations period for the common law warranty is six years from discovery, the limitations period for the statutory warranties may be as long as ten years, but this is an open question of law that has not yet been addressed by the Indiana Supreme Court.  However, in no event may an action for breach of the warranties be filed more than ten years after construction.

Amount Recoverable

The amount recoverable as a result of the breach of the warranties is the cost of repair or the loss in value due to the breach.  Loss of use, relocation costs, consultant investigation charges and attorney fees may also be recoverable, depending on the facts.

Association Standing to Act on Behalf of Unit Owners

A condominium association governed by the Horizontal Property Act has standing to sue to enforce these warranties on behalf of unit owners as to common area defects and on behalf of two or more unit owners with respect to defects within units.  There is no similar statutory standing provision for non-condominium homeowners associations.

While there is a legal argument to support standing for a non-condominium association to pursue construction defect claims on behalf of unit owners, there is no case law on this issue in Indiana.  However, it is possible that an association’s governing documents may grant such authority.  Alternatively, an association may be able to acquire such authority by taking an assignment of claims from individual unit owners and/or by making a claim as a representative in a class action with several board members also joining as individual class representatives.

Pre-Suit Notice of Claim Requirement

Before filing an action based on defective construction an association or other claimant must first serve the developer with written notice of its claim and allow the developer an opportunity to inspect the defects and to make an offer of repair or payment. The claimant is not required to accept any such offer, and if the offer is not reasonable, the claimant may ask the court in a subsequent action based on the defects for an award of attorney fees.

Impact of Developer Bankruptcy or Dissolution 

The fact that a developer may be bankrupt or no longer in business will not necessarily prevent a claimant from obtaining an actual recovery.  This is because a developer may still have insurance coverage for some or all of its liability even though the developer was bankrupt, out of business or had no insurance policy in effect when the claim was made. However, publication of the notice of dissolution of an LLC or corporation could dramatically reduce the time period for enforcement of a claimant’s warranty rights.

The Mediation Process

In order to resolve a substantial construction defect claim it may be necessary to initiate legal proceedings.  However, the fact that legal proceedings may have been started does not mean that a trial will be necessary to resolve the claim.  Nearly all lawsuits are resolved before trial as a result of a mediation process that takes place while the legal action is pending.

A mediator is usually a Retired Judge or an attorney with substantial experience in dispute resolution.  The mediator does not have the authority to decide the claim.  Rather, the mediator will facilitate a voluntary resolution of the claim by the parties involved.  Ultimately, most legal actions are resolved through this mediation process, and construction defect claims are no exception. Therefore, legal action should be viewed as an often necessary part of the dispute resolution process.

Hiring a Law Firm on a Contingent Fee Basis 

There are law firms that will represent associations in pursuing a defect claim on a contingent fee basis.  In such cases, the only attorney fee that is paid by the association is the percentage of any actual recovery specified in the attorney client agreement.

Conclusion

Associations and their unit owners have substantial protection against construction defects under Indiana’s express warranty statute and under Indiana’s common law implied warranty.  However, an association, acting on behalf of its unit owners, must proceed in a timely manner.