Iowa Supreme Court Extends Implied Warranty of Workmanlike Construction to Subsequent Homebuyers

The Iowa Supreme Court recently held that a subsequent buyer of a home could recover from the home builder for defective construction under an implied warranty of workmanlike construction in the case of Speight v. Walters Development Co., Ltd., 744 N.W.2d 108 (Iowa 2008). The facts revealed that a newly constructed home was sold to the original buyer in 1995. The home was subsequently sold twice, with the plaintiffs purchasing the home on August 1, 2000. Sometime after purchasing the home they noticed water damage and mold which a building inspector determined was the result of a defectively constructed roof and defective rain gutters. The homeowners filed suit against the home builder on May 23, 2005 alleging a breach of the implied warranty of workmanlike construction. The implied warranty of workmanlike construction is designed to protect an innocent home buyer by holding the experienced homebuilder accountable for the quality of construction. This warranty "addresses the inequities between the buyer and the homebuilder-seller by requiring that a building be constructed in a reasonably good and workmanlike manner and . . . be reasonably fit for the intended purpose." Speight, 744 N.W.2d at 111. To successfully make a claim under the implied warranty of workmanlike construction, the homebuyer must show: (1) the house was constructed to be occupied by the buyer as a home; (2) the home was purchased from the builder-vendor, who had constructed it for the purpose of sale; (3) when sold, the house had not been constructed in a good or workmanlike manner; (4) that at the time of purchase, the buyer was unaware of the defect and had no reasonable means of discovering it; and (5) by reason of the defective condition the homebuyer suffered damage. Id. at 111, 114. In extending this warranty to subsequent buyers, the Iowa Supreme Court determined that where a builder already was required to warrant that a home was constructed in a workmanlike manner to the initial buyer, it would be inequitable to allow an original buyer to recover while simultaneously prohibiting a subsequent buyer from recovering for latent, i.e. hidden defects in homes that are the same age. There are two primary limitations on recovery under this warranty. First, Iowa has a 15-year statute of repose which begins to run upon completion of the construction of the building. Second, a claim must be brought within five years of the buyer's discovery of the defect. In short, Iowa will allow any homebuyer to bring a claim under an implied warranty of workmanlike construction as long as the claim is brought within 15-years of the construction of the home and within 5-years of when the buyer has, or should have, knowledge of facts that would support his/her claim. Nebraska, along with 18 other states, already allowed subsequent buyers to bring this kind of claim. This rule, however, is contrary to other jurisdictions, including Kansas and Missouri.

Nebraska Supreme Court Rules Priority of Simultaneously Recorded Documents is Determined By the Intentions of the Parties

The Nebraska Supreme Court recently held that resolution of priority between simultaneously recorded documents is determined by reference to the intentions of the parties. Borrenpohl v. DaBeers Properties, L.L.C., 276 Neb. 426, 755 N.W.2d 39 (2008). The facts revealed that a bank mailed its deed of trust in the same envelope with a notice of commencement regarding construction liens and without any instructions directing in what order to record the two documents. The County Register of Deeds office recorded the notice of commencement five minutes before the deed of trust. Later, two different contractors filed construction liens relative to improvements they made in the property, a week apart, however, because Neb. Rev. Stat. § 52-137(2) provides "if a lien is recorded while a notice of commencement is effective . . . the lien attaches as of the time the notice is recorded," both construction liens attached as of the date the notice of commencement was recorded. The two contractors sued to foreclose their construction liens asserting they had priority over the deed of trust because the notice of commencement was recorded five minutes before the deed of trust. In response, the bank sought a determination its deed of trust was superior to the construction liens. The Court determined that where documents were delivered simultaneously without instructions, the relative priority of the interests represented by the documents is resolved by considering the intentions of the parties. In this case, the bank produced affidavits from the bank and from the landowner stating that it was the intention of the landowner when he sought and obtained the construction loan from the bank that the bank would take an interest superior to the interest of any mechanics liens related to the simultaneously filed notice of commencement. Based on this evidence, the Court ruled the bank's deed of trust had priority over the contractors' liens. The Court noted that Nebraska's notice of commencement provision was primarily adopted to provide notice to persons searching public records of a potential construction lien, thereby alleviating the problem of hidden liens, not to advance the priority of construction liens. In short, while a notice to commence gives all mechanic's liens equal priority, if the notice is filed simultaneously with a deed of trust the Court will look to the intentions of the parties to determine the priority.