Avoiding Defect Litigation: A Strategic Guide for HOA Boards

Construction defect litigation in HOAs can feel like a foregone conclusion. A leak appears, cracks widen, repair costs climb, and someone suggests filing a claim. Before long, the conversation turns to contingent fees, insurance policies, and potential settlements. In this episode of The Uncommon Area, Matthew Holbrook sat down with Chad Thomas of Berding|Weil to discuss a critical question facing HOA boards: does every construction defect issue require litigation?

For many community associations, the assumption is that if defects exist, a lawsuit is the next logical step. But HOA boards have a fiduciary duty to fully evaluate their options, including SB 800 pre-litigation procedures, warranty enforcement, maintenance compliance, and negotiated repair strategies.

The real issue is not whether defects exist. The real issue is how a board decides to respond.

The Illusion of the “Big Payday”

There is a persistent belief in the industry that every building contains millions of dollars in defects if you look closely enough. Bring in experts. Open walls. Run tests. The problems will appear.

Sometimes that is true.

Sometimes it is not.

There is a difference between a construction defect and a maintenance issue. There is also a difference between a material failure and normal wear within a predictable lifecycle.

The danger begins when boards assume that every issue must become a lawsuit.

Because litigation is not just a financial tool. It is a public event.

Once a claim is filed, it can affect:

• Refinancing options
• Mortgage approvals
• Market perception
• Property values
• Owner confidence
• Board credibility

Defect litigation can stigmatize a community. Even when the association prevails.

And that stigma lingers long after the settlement funds are spent.

Fiduciary Duty Means Full Analysis

Board members have a fiduciary obligation to act in the best interests of the association. That obligation does not begin and end with maximizing a settlement.

It requires thoughtful evaluation of every available option.

That includes asking hard questions:

• Is this truly a defect, or is it deferred maintenance?
• Have we followed the maintenance manual?
• Are there product warranties we have not yet pursued?
• What does our reserve study say?
• Are expenses materially deviating from projections?
• How much time remains under the statute of limitations?

Rushing into litigation without answering these questions is not strategic leadership.

It is reaction.

And reaction can be costly.

Understanding SB 800 and Pre-Litigation Options

In California, SB 800, also known as the Right to Repair Act, was designed to reduce unnecessary lawsuits. The law creates a pre litigation process intended to encourage inspection, dialogue, and repair before anyone files a complaint in court.

Its purpose is collaboration.

The builder receives notice.
The builder has an opportunity to inspect.
Both sides exchange documents.
Discussions take place.

The goal is resolution.

Yet in practice, many boards hear “SB 800” and assume it is simply the first step toward a lawsuit.

It does not have to be.

A well prepared board, supported by proactive management, can use this framework as leverage for early resolution. The key is preparation.

The Manager’s Role: Objectivity and Diligence

Community managers play a central role in shaping the outcome long before any attorney becomes involved.

Strong management teams:

• Maintain organized warranty documentation
• Preserve maintenance manuals
• Track reserve funding and operating budgets
• Document recurring repair costs
• Engage trusted vendors for objective opinions
• Identify patterns early

When concerns arise, preparation builds credibility.

Walking into a conversation with a builder and saying, “We have concerns” is one thing.

Walking in and saying, “We have followed the maintenance manual, reviewed product warranties, tracked abnormal expenses, and documented recurring failures” is something entirely different.

That level of diligence signals seriousness. It also strengthens the association’s negotiating position.

Ignoring small problems in the hope they disappear rarely ends well. Buildings do not repair themselves. Small issues compound. Water intrusion spreads. Costs multiply.

Proactive investigation preserves options.

Delay narrows them.

The Timing Trap: Statutes of Limitation and Tolling Agreements

One of the most complicated aspects of defect claims involves legal timelines. Statutes of limitation and statutes of repose vary by state and are often influenced by governing documents and contract provisions.

Boards should never attempt to calculate these deadlines without legal guidance.

However, engaging counsel to understand timing does not mean committing to litigation.

In some situations, boards may request a tolling agreement. This agreement pauses the legal clock, allowing both sides to explore resolution without pressure.

A builder willing to sign a tolling agreement may be open to productive dialogue.

A builder unwilling to do so may signal that formal action is inevitable.

Either way, the response provides valuable information.

Timing strategy is not about racing to the courthouse. It is about preserving leverage while exploring solutions.

When Litigation Makes Sense

None of this suggests that defect litigation is inappropriate.

Sometimes it is absolutely necessary.

Examples include:

• Severe structural failures
• Builder insolvency
• Insurance triggers required to fund major repairs
• Repeated bad faith responses
• Significant damages beyond reserve capacity

Litigation is a tool.

But it should be selected deliberately, not reflexively.

Communities that rush into large claims may later discover that legal fees, reconstruction disruption, owner frustration, and market stigma outweigh the expected recovery.

Communities that approach the issue methodically often find creative paths forward.

Some cases resolve through targeted repairs.
Some through partial cash contributions.
Some through warranty enforcement.
Some through negotiated scopes of work.

Each community’s circumstances differ.

The Credibility Factor

There is another reason thoughtful analysis matters.

Board credibility.

If litigation ultimately becomes necessary, a board should be able to say to its members:

We explored every reasonable option.
We engaged in good faith dialogue.
We reviewed warranties.
We assessed maintenance compliance.
We sought expert guidance.

And only then did we proceed.

That transparency builds trust.

And trust is one of the most valuable assets a board can preserve during a contentious process.

A Strategic Framework for Boards

When defects are suspected, boards should follow a disciplined sequence:

1. Gather documentation
2. Review maintenance compliance
3. Consult trusted vendors
4. Evaluate financial deviations
5. Obtain legal advice on timelines
6. Consider informal dialogue
7. Explore pre litigation procedures
8. Assess settlement flexibility
9. Weigh community impact
10. Decide with full information

Skipping steps may feel efficient in the short term. It often creates complications later.

The Bigger Picture

Construction defect litigation became common decades ago in an insurance environment that incentivized quick claims and carrier funded settlements.

That landscape has changed.

Developers now carry large self insured retentions. Insurance markets are tighter. Claims histories affect future premiums. Builders may be more motivated than ever to resolve issues early, particularly when approached with credible documentation and reasonable expectations.

Boards that understand this shift are better positioned to protect their communities.

The question is not whether defects exist.

The question is how leadership responds.

Final Thought

In community management, leadership is rarely about dramatic action.

It is about disciplined evaluation.

Litigation can be powerful. It can also be disruptive.

The best boards resist the temptation to chase the loudest solution. They gather information. They ask better questions. They weigh consequences beyond the immediate payout.

They remember that their obligation extends beyond the next settlement check.

It extends to long term stability, owner confidence, and protecting the value of where people live.

And that requires strategy.