What Can I do if I have Construction Problems in My Condo or Home but My Builder Went Bankrupt or Is out of Business?

Many people think that if the builder of their condo or home went bankrupt or went out of business, there is nothing they can do to hold the builder responsible for construction defects.  The good news is that a bankruptcy by the builder or the builder being out of business usually does not prevent an HOA or homeowner from recovering money to repair construction defects.

We are often able to file a lawsuit and obtain money to fix construction defects despite a builder having declared bankruptcy or having gone out of business.  There are several ways we are able to work around a bankruptcy or the builder closing its business.

First, a builder’s bankruptcy does prevent an owner from recovering directly from the builder, but in most construction defect lawsuits, it’s the builder’s insurance policy that is paying any settlement or judgment to cover construction defects.  An owner’s ability to bring claims against the builder and recover funds from the builder’s insurance is not affected by the builder’s bankruptcy.

Second, a builder going out of business does not affect the builder’s insurance.  Despite the builder no longer existing as a legal entity, the builder’s insurer is still obligated to make payments under the insurance policy for construction defects.

Third, a condominium project or a home is built by a general contractor and a team of subcontractors.  The fact that the general contractor—the “builder”—went bankrupt or went out of business does not affect an owner’s ability to recover from the subcontractors who did the improper construction work.  Those subcontractors should have also had insurance which should pay to cover any construction defects.

For all of these reasons, the fact that the builder of your condo or home went bankrupt or went out of business does not mean that you or your HOA have to live with or pay out-of-pocket for leaky windows, leaky roofs, rotting wood, cracking foundations, or other construction problems.  We analyze a potential case for an HOA or homeowner, at no cost to the HOA or homeowner, to determine whether the case is likely to be worth pursuing despite a builder having gone bankrupt or out of business.

Updated on December 14, 2019

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