FBI investigates Las Vegas HOA corruption/ September 26, 2008 at Center for California Homeowner Association Law: "According to a law enforcement source, the FBI is investigating whether individuals were placed on homeowners association boards who, in turn, would direct business stemming from construction defect lawsuits to select companies.

At issue, according to the source, is whether HOA members were steering contracts to certain construction companies.

Other sources said there has long been speculation that some HOA representatives were hiring certain law firms to handle construction defect lawsuits in exchange for kickbacks.

State Sen. Mike Schneider, D-Las Vegas, a lawmaker who has been involved in homeowners association issues before the Legislature, said the speculation involved management companies steering construction defect business to law firms in exchange for kickbacks."
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I don't know anything about the merits of the cases that are being investigated, but the political ramifications intrigue me. I'm wondering if this case will turn out to be Exhibit A for why Nevada needs to pass legislation cutting back on the ability of community associations to file construction defect suits. Developers in many states have been arguing for decades that CID construction defect litigation is a racket.

Now here we are with the housing market in tatters. New homes are not selling, developers are in bad shape financially, and of course attorneys representing all the existing developments are filing litigation regardless. Now, on top of everything, the credit markets just imploded.

This case, if it proves to be a real example of criminal conduct, could be the wedge that developers need to open a policy window and enact such measures as:

1. Mandatory binding arbitration
2. Caps on attorney fees
3. Caps on damages--such as going to the traditional rule of cost of repair or diminution in value, whichever is less. Often the diminution in value is zero or very speculative. Cost of repair is the only thing that makes sense for an HOA.
4. Mandatory meet and confer requirements with the developer having a chance to repair
5. Having court appointed experts do the repair estimate
6. Changing the burden of proof or the test for recovery, or otherwise raising the bar for proving the case

Here is some historical background. In 1995, California passed a law that made it harder to file these suits. My informal understanding of things is that a number of California construction defect attorneys migrated to Las Vegas and Arizona in hopes of finding greener pastures in the desert, so to speak. These attorneys have done well for themselves, but now I think they may find themselves in an uncomfortable spotlight. This is a hard issue, because if there are serious defects in original construction, there has to be a real remedy for these associations. There has been a lot of shoddy construction, especially during housing booms. But the fees are so high for the attorneys involved, and the risks and cost of litigation so high for the developer and insurance companies, that there is always a temptation for some practitioners to trump up a damage claim in the hope of a settlement. If you want examples of ethical attorneys pursuing valid claims, you can find them, but if you want bad apples, you can find those too.