Chapter 14 - § 14.6 • STATUTORY AND RELATED CLAIMS ARISING FROM THE CONSTRUCTION AND SALE OF A HOME

• Jurisdiction: Colorado

§ 14.6 • STATUTORY AND RELATED CLAIMS ARISING FROM THE CONSTRUCTION AND SALE OF A HOME

Colorado's General Assembly has adopted certain statutes specifically intended to protect purchasers of newly constructed homes, and others that indirectly serve the same purpose. Colorado's Construction Defect Action Reform Act (CDARA) is discussed in detail in §§ 14.2.3 and 14.2.4. Thus, it is not discussed in this § 14.6. Section 14.5.2.h, "Statutory Disclosure Duties," discusses how the Soils and Hazard Analyses of Residential Construction Act and the Interstate Land Sales Full Disclosure Act affect a land seller's duty to disclose.

§ 14.6.1-Soils and Hazard Analyses of Residential Construction Act

In the early 1980s, following great publicity regarding millions of dollars of losses to homes located in Ken Caryl Ranch, Jefferson County, from highly expansive soils, the Colorado legislature passed the Soils and Hazard Analyses of Residential Construction Act, frequently referred to as the Soils Disclosure Statute, C.R.S. § 6-6.5-101. This law requires every developer or builder to provide the purchaser of a new residence with a copy of a summary report of the "analysis" and "site recommendations" no later than 14 days before closing.¹⁶⁴⁵ Presumably, the "analysis" referenced means a "soil and geologic hazard" analysis applicable to the home site, and the "recommendations" means the various building methods recommended for construction of the home.

One district court has held that the word "summary" as used in the Soils Disclosure Statute has a common and ordinary meaning: "a brief statement or account covering the substance or main points."¹⁶⁴⁶ Providing a summary to the home buyer appears to be mandatory, and it may not be sufficient to provide the original soils report, or just part of a series of reports addressing the soil conditions on the site.

As to sites with a significant potential for soil expansion, a publication must be provided detailing the problems associated with such soils, the building methods to address these problems during construction, and suggestions for care and maintenance to address such problems.¹⁶⁴⁷ "'Expansive soil and rock' means soil and rock which contains clay and which expands to a significant degree upon wetting and shrinks upon drying."¹⁶⁴⁸

The statute imposes a $500 civil penalty for failure to comply, in addition to any other liability or penalty.¹⁶⁴⁹ However, the statute does not apply to persons constructing residences for their personal use.¹⁶⁵⁰ No other state has passed similarly stringent "expansive soil" disclosure legislation applicable to developers and builders.¹⁶⁵¹

14.6.1.a-Private Right of Action

It is an undecided question whether the Soils Disclosure Statute gives rise to a private right of action for damages.¹⁶⁵² However, the statute provides for the $500 per purchaser penalty "in addition to any other liability" under law.¹⁶⁵³

14.6.1.b-Who Must Make Disclosures

Under the statute, at least 14 days before closing the sale of any new residence for human habitation, every developer or builder or its representatives shall provide the purchaser with a copy of the summary report. Whether liability under this statute may attach to a sales broker or agent in a proper case, or whether the sole liability rests with the builder or developer is not clear. A builder's principal has been held liable under this law.¹⁶⁵⁴ At least one district court has held that a builder need not be in privity of contract with the new home purchaser to be liable under the statute.¹⁶⁵⁵

14.6.1.c-Who May Sue

By the statute's express terms, the first purchaser of a new home or undeveloped lot may recover the $500 penalty provided in the statute. It is an unanswered question whether each first purchaser may recover the $500 penalty. Whether the limitation of recovery of the penalty to first purchasers also limits the class of persons intended to be protected by the statute has not been addressed, although secondary purchasers argue that it is reasonable to construe standing under the statute broadly given its benevolent purposes and the foreseeability of harm to future owners arising from a failure to comply.

§ 14.6.2-Colorado's Consumer Protection Act (CCPA) - Deceptive Trade Practices

Although its adoption was not intended solely for the protection of homeowners, new home purchasers are entitled to the safeguards of Colorado's Consumer Protection Act (CCPA).¹⁶⁵⁶ The CCPA prohibits various kinds of deceptive and misleading trade practices in conjunction with the sale or advertisement of goods, property, or services. Penalties include actual damages, treble damages, and attorney fees and costs.

The CCPA prohibits a person in the course of his or her business, vocation, or occupation from, among other things, (1) misrepresenting that property is of a particular standard, quality, or grade if that person knows or should know that it is of another; (2) knowingly or recklessly making a false representation as to the characteristics of property or services; (3) knowingly or recklessly passing off services or property as those of another; (4) refusing or failing to obtain all governmental licenses or permits required to perform the services or to sell the property as agreed to or contracted for with a consumer; (5) knowingly or recklessly making a false representation as to the "approval" or "certification" of services or property; (6) failing to disclose material information concerning goods, services, or property, which information was known at the time of an advertisement or sale, if such failure to disclose was intended to induce the consumer to enter into the transaction; (7) advertising or representing that goods or services are guaranteed without clearly and conspicuously disclosing the nature and extent of the guarantee and the identity of the guarantor; or (8) knowingly or recklessly engaging in any unfair, unconscionable, deceptive, deliberately misleading, false, or fraudulent act or practice.¹⁶⁵⁷ C.R.S. § 6-1-105(1)(e) prohibits misrepresentations that have the capacity or tendency to deceive, even if they do not actually deceive every consumer exposed to them.¹⁶⁵⁸ "Recklessly" as used in the CCPA's deceptive trade practices section means a "reckless disregard for the truth or falsity of a statement or advertisement."¹⁶⁵⁹

In a U.S. District Court for Colorado case, the court identified four elements to establish a nondisclosure claim under C.R.S. § 6-1-105(1)(u): (1) the defendant failed to disclose information concerning goods, services, or property to consumers; (2) the defendant knew this information at the time of the advertisement or sale of the goods, services, or property; (3) the non-disclosed information was material; and (4) the defendant did not disclose this information with the intent to induce the consumer to enter into a transaction.¹⁶⁶⁰

The CCPA also provides that a person may not advertise or otherwise represent that his or her services, property, or goods are guaranteed without clearly and conspicuously disclosing the nature and extent of the guarantee, any material conditions or limitations in the guarantee that are imposed by the guarantor, the manner in which the guarantor will perform the guarantee, and the identity of the guarantor. A guarantee violates the CCPA if, when applied under normal conditions, the guarantee cannot be practically fulfilled, or is for such a period of time or is otherwise of such a nature as to have the capacity and tendency of misleading purchasers or prospective purchasers into believing that the goods or services so guaranteed have a greater degree of serviceability, durability, or performance capability in actual use than is true in fact. These provisions of the CCPA apply not only to guarantees but also to warranties, disclaimers of warranties, purported guarantees and warranties, and any promise or representation in the nature of a guarantee or warranty, and, thus, may apply to representations concerning home warranty services.¹⁶⁶¹

An "advertisement" includes "the attempt by publication, dissemination, solicitation, or circulation, visual, oral, or written, to induce directly or indirectly any person to enter into any obligation or to acquire any title or interest in any property."¹⁶⁶² "Property" means "any real or personal property, or both real and personal property, intangible property, or services."¹⁶⁶³ "Sale" means "any sale, offer for sale, or attempt to sell any . . . property for any consideration."¹⁶⁶⁴ Where a subsection of the CCPA prohibits a deceptive trade practice only to "goods and services," courts will extend the application of that subsection to the sale of "property."¹⁶⁶⁵

However, where the statement alleged to constitute a misrepresentation properly may be characterized as a contractual promise as opposed to a tortious misrepresentation, the distinction between tort and contract law will be observed, and no claim will lie under the CCPA.¹⁶⁶⁶ "A promise cannot constitute a misrepresentation unless the promisor did not intend to honor it at the time it was made."¹⁶⁶⁷

The CCPA was enacted in 1969, and many of its provisions are drawn from the 1966 Revised Uniform Deceptive Trade Practices Act (UDTPA).¹⁶⁶⁸ Other states that have adopted some variation of the 1966 revised version of the UDTPA include Georgia, Hawaii, Idaho, Louisiana, Massachusetts, Minnesota, Mississippi, Nebraska, New Mexico, Ohio, Oregon, and Wyoming.¹⁶⁶⁹ The careful practitioner should allege with specificity the factual bases for a CCPA claim to avoid possible dismissal under C.R.C.P. 9(b).¹⁶⁷⁰

14.6.2.a-1999 Amendments

In 1999, the General Assembly amended the CCPA in several significant ways, effective May 18, 1999. The amended law limits the standing of persons entitled to sue to: (1) actual or potential consumers of the defendant's goods, services, or property who are injured as a result of the deceptive trade practice; (2) any successor in...