HOA Scam shows need for Construction Defect Reform
Greg Brower | Review-Journal
February 15, 2015
The largest corruption investigation ever pursued by federal prosecutors in Southern Nevada is slowly and painfully coming to an end in a Las Vegas courtroom.
The FBI’s “Operation Grandmaster” has, so far, resulted in guilty pleas by some three dozen defendants since 2011.
Tragically, four other targets of the wide-ranging investigation have committed suicide. Just last month, Leon Benzer, the alleged mastermind of the massive plot to take over HOA boards in the Las Vegas area, pleaded guilty to 19 conspiracy, fraud and tax evasion counts in two separate federal indictments.
Yet while this scandal is winding down, the state law that gave rise to this mess remains on the books.
As usual, underlying this massive corruption was money — a lot of money. Benzer’s plea agreement detailed the direct link between himself and a Las Vegas law firm.
According to the scheme, Benzer would gain control of HOA boards in order to manufacture construction defect claims and then steer them to the firm which, with the approval of the Benzer-controlled HOA boards, would file construction defect lawsuits. These lawsuits eventually were settled out of court with millions of dollars going to the firm and to Benzer, who was hired by the HOA boards to repair the “defects.”
Instead of fixing the defects, however, Benzer would simply pocket the money. Ironically, it was a law approved by a well-intentioned Nevada Legislature that opened the door for the bad guys to perpetrate this fraud. And now, in light of all that has happened, the Legislature should close that door.
The HOA scandal grew out of a law passed in 2003 that was intended to help Nevada’s homeowners resolve legitimate claims of construction defects. Homeowners and homebuilders agreed that claims of defects in newly constructed houses and condos deserved quick and affordable resolution. In response, the Legislature passed a new set of laws that came to be known as “Chapter 40.” Unfortunately, these reforms led to numerous unintended consequences, including homeowners with legitimate defects having to wait months or longer for repairs.
Meanwhile, the costs associated with defending thousands of frivolous defect claims stifled home construction, resulting in the loss of thousands of good-paying jobs throughout our state and significantly contributing to Nevada’s highest-in-the-nation unemployment rate during the Great Recession.
In a recent five-year period since Chapter 40 was enacted, new home sales decreased by 86 percent while construction defect claims increased by a staggering 355 percent. From 2007 to 2014, the percentage of new multifamily building in relation to all new housing in Southern Nevada has declined by 84 percent. Perhaps most significantly, Nevada’s ratio of construction defect claims per home is 38 times higher than the national average.
Not surprisingly, like bees to honey, the new Chapter 40 law attracted personal injury lawyers, who recognized a new way to make a quick buck and were all too eager to take advantage of homeowners seeking help.
Since the law was passed, these lawyers have generated approximately $2 billion in judgments and settlements. That is more than five times the annual budget for the Nevada Department of Public Safety. And, as calls for fixing Chapter 40 have grown louder, these same lawyers have provided more than $300,000 in campaign contributions to their friends in the Legislature, hoping to preserve the status quo.
Despite the construction defect lawyers’ continuing efforts to keep their gravy train rolling, the system must be reformed. In his recent State of the State address, Gov. Brian Sandoval cited the reform of Nevada’s construction defect laws as one of his priorities for this legislative session.
I agree with Gov. Sandoval that we need to protect our homeowners by creating clearer rules and ensuring prompt resolution of disputes while discouraging unfair and abusive lawsuits. We should learn a lesson from the HOA corruption scandal and close the door on a flawed law that nearly destroyed Nevada’s construction industry.
The time is now to support construction defect reform so Nevada’s approach is more in line with what has proved to be effective in other states. I’m committed to joining the governor in supporting common-sense reform legislation that will fix Chapter 40 once and for all.
Restoring fairness to our construction defect litigation process will boost Nevada’s economy and put more Nevadans back to work.
Greg Brower, a Republican, represents Washoe County’s District 15 in the Nevada Senate. He was U.S. attorney for Nevada from 2007 to 2009.
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