For the great majority of Coloradans, buying a home represents the largest single purchase they’ll ever make, which underscores the need for strong consumer protections.
But a bill recently introduced in Colorado’s legislature goes too far in seeking to amend current law.
Homeowners already have the right to receive damages resulting from shoddy work or materials. But the so-called “Homeowner Protection Act of 2009” would let buyers claim hefty interest payments for months and even years before they discovered the defect and filed a claim.
The measure, Senate Bill 246, would allow a homeowner to earn 6 percent interest on the damage payment from the homebuilder or contractor starting from the day the owner closed on the house.
(The interest rate also would apply to botched home improvements.)
The 6 percent interest payment rises to 8 percent to cover the time between the owner filing a defect claim and the contractor’s paying court-assessed damages.
The logic for the interest payments is that builders and contractors would want to avoid the high penalties and so would work more quickly to repair defects and pay claims, a benefit to homeowners and a benefit to the court system.
But contractors and builders already have powerful incentives to make their customers whole. To stay in business, they need good reputations — and avoiding court and the cost of litigation is almost always good for business.
But if SB 246 became law, owners have every incentive to take the matter to the courts, and to keep the process alive for as long as possible, as only court-ordered damages would earn the interest payments. The longer the process took, the more interest would accrue.
Opponents argue convincingly that the bill would stand in stark contradiction to the wisdom of the Colorado Supreme Court. Last October, the justices ruled in the so-called Goodyear decision that the kinds of “pre-judgment” interest payments SB 246 seeks are improper.
The Supreme Court found that interest payments on damage awards should apply only from the point the homeowner begins to lose money, through repair costs or because the home begins to lose value — yet another incentive for contractors to treat defect claims seriously.
Proponents say the Goodyear decision gutted an important consumer right, and are cheered on by trial attorneys who benefited from those pre-Goodyear years.
We worry that SB 246’s passage would not help the courts but swamp them with claims.
We also worry that SB 246 would swell the cost of housing, as it would certainly drive up insurance premiums for builders who would then pass on those costs to consumers.
That’s just not the kind of consumer protection Coloradans need.
