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Published
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Updated 7/1/2004
Florida Construction Defects
Fewer claims, bigger checks
State recovery fund to bar complaints against roofing,
pool, air-conditioning contractors who abandon work
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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