Homeowners, Not Banks and Developers Get Warranty Protections

Dec 13, 2014

Iowa Supreme Court ruled Friday, only individual homeowners are protected under the Warranty of Workmanlike Construction, which holds builder venders accountable for shoddy workmanship.

The court says this protection doesn't extend to developers, or lenders who acquire dwellings through foreclosure. 

In 2009, Postville’s Luana Savings Bank branch took control of RO-KA Heights, an apartment complex it had financed, after the developer defaulted on payments.  

The default came about after the U.S. Immigrations Enforcement and Customs Agency raided Agriprocessors Inc. in 2008. The kosher slaughterhouse and meatpacking plant was the largest in the U.S., employing several hundred undocumented workers. 

Shalom Rubashkin, one of the RO-KA Heights developers, was the owner of Agriprocessors. The raid resulted in Rubashkin being sentenced to 27 years in federal prison. 

After taking procession, Luana Saving found black mold in the apartments.  The bank sued ProBuild: Building and Construction, the builder of the complex under the Warranty of Workmanlike Construction.

Pro:Build appealed, saying that the warranty only applies to individual homeowners. 

The Iowa Supreme Court sided with Pro:Build. In the ruling, Justice Thomas Waterman writes that a lender-turned-owner using the warranty is quote, “Akin to trying to pound a square peg into a round hole.”

The high court says individual homeowners lack both the bargaining power and expertise of builder venders, and that the Warranty of Workmanlike Construction was designed to remedy this specific disparity.

Since Luana Savings has both bargaining power and expertise in loan contacts, any loss incurred is simply the cost of doing business. 

In a related case, the court also ruled Friday that Sioux City townhome-developer Todd Sapp cannot sue a land developer for improperly back filling lots.  The court found the Warranty of Workmanlike Construction only applies to dwellings. 

Additionally, the court says that for-profit developers are a class apart from homeowners, who are seeking the basic necessity of shelter. Therefore, the protections of the warranty don't apply to Sapp.