The Evolution of Homebuilder Litigation:

From “Bad” (DTPA) to “Better” (RCLA) to the “?” (TRCCA)

D. Steven Henry
Gardere Wynne Sewell LLP
1601 Elm Street, Suite 3000
Dallas, Texas 75201-4761

Residential Real Estate Construction Law Rules

February 20, 2004
Austin TX
Chapter 2
 Table of Contents

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

II. Texas Deceptive Trade Practices – Consumer Protection Act . . . . . . . . . . . . . . . . . . . . . . . . 3

III. Residential Construction Liability Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

IV. The Texas Residential Construction Commission Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

V. The More Things Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

A. Which Act Applies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

B. When Does the TRCCA Apply? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

C. When Does the RCLA Apply? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

D. When Does the DTPA Apply? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

VI. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Appendices

TRCC Emergency Definitions Rule Adopted December 8, 2003 . . . . . . . . . . . . . . . . . . . . . . 12

Comparing and Contrasting the RCLA and TRCCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

2
The Evolution of Homebuilder
Litigation:
From the “Bad” DTPA to the “Better”
RCLA to the “?” TRCCA
I. Introduction
Those of us who have specialized in
homebuilder litigation over the past twenty
years have experienced a sea of change in
the legal framework that exists between
homeowners and homebuilders. We’ve
moved from the seemingly almost strict
liability framework of the DTPA1, to the
somewhat flawed (at least from the builder’s
perspective) “right of repair” framework of
the RCLA2, to the new state-sponsored
inspection and resolution procedures
(SSIRP) of the new TRCCA3. The purpose
of this paper is to identify not only the
changes between the various acts, but to also
identify what has not changed over the
years.4
II. Texas Deceptive Trade Practices –
Consumer Protection Act
The DTPA was passed in 1973 to
address the abuses – both real and perceived
– associated with the doctrine of caveat
emptor as it was applied to consumer
litigation and was a radical departure from
existing law. Some argue that it provided
consumers and the Texas Attorney
General’s office with a “more meaningful
and efficient remed[y] to address false,
deceptive or misleading conduct by
companies and persons doing business in
Texas.”5 Conversely, sellers of “goods or
services” and the attorneys who represented
them perceived the Act as creating a “guilty
until proven innocent” scheme.
From the homebuilder’s perspective,
the DTPA was and remains6 a nightmare.
Consumers could bring suit against a builder
for, among other things:
• The builder’s “use or employment . .
. of a false, misleading or deceptive
act;”7
• The builder’s “breach of an express
or implied warranty;” 8 or
• The builder’s “unconscionable
action or course of action.”9
What constituted a “false,
misleading or deceptive act” was,
unfortunately, ill-defined by the DTPA.10
While extreme cases (e.g. bait-and-switch
scams) were used as the poster child to
support the typical misrepresentation or
omission case, most cases involved facts
that fell more in the gray area. Before the
courts essentially re-recognized the concept
of “puffery,” any innocent but erroneous
representation could form the basis for
liability under the DTPA, even if the
representation was fairly broad or general in
nature.11
Equally problematic for builders
was the DTPA’s definition of an
“unconscionable action or course of
action”12 in the context of “taking advantage
of the lack of knowledge, ability or
experience” of a consumer. Since the free
market ideal of willing buyers/willing
sellers/perfect knowledge does not exist in
the real world, most sellers of goods or
services (and certainly most homebuilders)
have more knowledge than the typical
consumer. Moreover, all sellers are - to a
certain degree - attempting to employ this
knowledge differential to consummate the
transaction at the highest possible price.
This dynamic is the engine of our economy.
The challenge for builders and other sellers
of goods and services is to decide when the
exploitation crosses over from your “run-of-
the-mill” taking advantage of the consumer
3
to that which is considered “grossly
unfairly.”
Anyone who has practiced law more
than two months has realized that litigation
oftimes springs from uncertainty and
change. While businesses typically need a
break-in period before complying with new
statutory pronouncements, the DTPA’s
vague and ambiguous definitions meant that
no amount of break-in would ever be
enough to allow business to fully adopt
practices that would prevent even
unintentional violations of the DTPA.
In a bit of subtle irony, an example
of the typical types of misrepresentation
cases being filed against businesses involved
a gentlemen by the name of “Ronald
McDonald.” Mr. McDonald was traveling
from Houston to Mexico when he ultimately
stopped at Ray Hajevandi’s Texaco gas
station to have his fuel filter replaced.
Thereafter, Mr. McDonald’s van caught on
fire due to, according to Mr. McDonald, the
improper installation of the fuel filter.
While Mr. McDonald admitted that Mr.
Hajevandi’s negligence in installing the fuel
filter was a producing cause of the fire, he
sued Texaco for misrepresentation under the
DTPA because it was obvious that he “could
not Trust His Car to the Man Who Wears
the Star.”13 Fortunately for Texaco and
every ad-man in the western world, Mr.
McDonald admitted in discovery that he had
been drawn to the station not because of any
catchy jingles, but instead because the Esso
station didn’t have a mechanic and
recommended that he try Texaco instead.14
While claims against builders for
alleged misrepresentations and
unconscionable acts were certainly
problematic, many a builder has spent
sleepless nights fretting over how to respond
to the DTPA notice letter 15 that raises
alleged breaches of implied warranties. As
noted above, any breach of an implied
warranty creates liability under the DTPA.16
And while the DTPA does not create any
warranties,17 Humber v. Morton held that
two warranties automatically arise anytime a
new home is constructed: First, the implied
warranty of habitability; and second, the
implied warranty of workmanship.18
Representations and conduct
considered “unconscionable” could, at least
from the builder’s perspective, be
reasonably controllable. Seminar after
seminar was devoted to training sales
counselors to avoid unintentional
misrepresentations: “If you don’t know . . .
don’t guess . . . and for goodness sakes don’t
just make something up simply to avoid
sounding like a . . . well, an uninformed
individual.”19
Whether a home was not
“habitable” or constructed in a “good and
workmanlike manner” was more
problematic. No home has ever been built
without some amount of defects. In fact,
Texas law has adopted the concept of
“substantial completion” for construction
projects. “Substantial completion” is the
equivalent of “full performance” for
purposes of contract actions.20 Under the
DTPA, however, a jury can conclude that a
home that has been “substantially
completed” (and therefore allowing recovery
of the contract balance), was still not
constructed in a good and workmanlike
manner.21 Therefore, we were left with the
extremely odd situation in which a builder
could have satisfied its contractual
construction obligations,22 but still be liable
to the consumer under the DTPA.
III. The Residential Construction
Liability Act
Given this backdrop of uncertainty,
homebuilders began a legislative push in the
mid-1980’s for what initially began as a
right of “notice and opportunity to cure.”
Their efforts ultimately lead to the
enactment of the RCLA in 1989. The
4
RCLA was, according to Sen. Montford,
enacted "to provide a fair and appropriate
balance with respect to the resolution of
construction disputes between a residential
contractor and owner."23 The structure of
the RCLA was dramatically different than
the DTPA in the following regards:
• It applied exclusively to “construction
defect” claims;24
• To the extent of any conflict with the
DTPA, the provisions of the RCLA
prevailed;25
• It gave builders the right to inspect and
to make an offer of repair;26
• It limited the consumer’s recovery
where the consumer “unreasonably
rejected” the builder’s offer to repair (or
cash settlement proposal) or where the
consumer did not provide the builder a
reasonable opportunity to repair
pursuant to an accepted settlement
offer;27 and
• It provided that a builder was not liable
for any percentage of damages caused
by (i) persons other than the builder, (ii)
failure of the homeowner to mitigate
damages or reasonably maintain the
home, (iii) normal wear and tear, (iv)
normal shrinkage due to drying or
settlement of construction components,
and (v) the builder’s reliance on false or
inaccurate written information from
official governmental records so long as
the builder could not reasonably have
known of the falsity or inaccuracy;28 and
• It changed the causation requirement for
recovery of damages from the DTPA’s
“producing cause” standard29 back to the
more traditional “proximate cause”
standard.30
While builders were initially
trumpeting the RCLA as a remedy to all that
ailed them, consumer advocates were
carping about the dissolution of consumer
rights. In the end, neither group was entirely
correct.
On the builder side, the provisions
of the RCLA deemed most important were
(i) the right to repair, and (ii) the limitation
of recoverable damages. For several years,
builders assumed that if they made a
reasonable offer that was rejected by the
homeowner, then the homeowner would be
deemed to have “unreasonably rejected” the
offer and the homeowner’s recovery would
be limited by § 27.004(f)31 and 27.004(h).32
Builders assumed that in no circumstance
(i.e. even if the homeowner did not
unreasonably reject or if the offer was not
deemed reasonable) would any jury or
arbitrator be able to award more than the
purchase price of the home or the fair
market value of the home without any
construction defects in an action “subject to”
the RCLA.33
Beginning in 1997, the carping and
trumpeting started to decline. In the case of
O’Donnell v. Roger Bullivant of Texas, Inc.,
940 S.W.2d 411 (Tex. App. – Fort Worth
1997, writ denied), the Fort Worth Court of
Appeals was presented the issue of what, if
any, limitations of damages would apply
when the builder was deemed to have failed
to make a reasonable offer of repair.
The case was decided at the trial
court level with competing motions for
summary judgment. The homeowner
asserted that the builder’s offer was
unreasonable as a matter of law, and
introduced two affidavits in support of its
motion for summary judgment. For
whatever reason, the builder did not
introduce a countering affidavit, and the
court was required to find that all of the
summary judgment evidence established that
the builder had not made a reasonable
offer.34
After holding that the offer was not
reasonable, the court examined whether the
“purchase price or fair market value without
construction defect” cap still applied to
damages awarded in the case. In what the
court considered a “plain reading” of the
5
RCLA, it concluded that where a builder
failed to make a reasonable offer, there was
only a limitation on total amounts of
damages that a homeowner could recover
against the builder.35 This interpretation
meant that the homeowner could
conceptually recover an unlimited amount of
money from the builder.
On the heals of Bullivant, the San
Antonio Court of Appeals issued its ruling
in Bruce v. Jim Walters Homes, Inc.36 In a
rapid reversal of fortunes, the trumpeters
shifted to the carping section, and the
carpers were promoted to trumpeters.
Bruce was another decision that
came to the appellate court after a motion
for summary judgment. In the trial court,
the builder was successful in getting the
court to enter partial summary judgment that
(i) the RCLA applied to all of the
homeowner’s claims,37 and (ii) that the
RCLA was the exclusive remedy and
“superseded” of the of common law claims
asserted by the homeowners.38 On appeal,
the appellate court rejected the builder’s
arguments and concluded that a claim for
“common law fraud” was not barred by the
language in § 27.002(b).39 Since the facts
underlying the Bruce case involved alleged
“construction defects,” it is hard to
understand how the San Antonio court
reconciled its holding with the language in
the proceeding clause that the RCLA applies
to “(1) any action to recover damages
resulting from a construction defect.”
The next decision in the RCLA
pipeline was In re Kimball Hill Homes
Texas, Inc.40 In this case, several hundred
plaintiffs were claiming that the builder had
“misrepresented the quality, craftsmanship
and energy efficiency of their homes and
that their homes were constructed with
‘substandard workmanship, poor quality
materials and virtually no craftsmanship,”41
and asserted causes of action for conspiracy,
common law fraud, statutory fraud in a real
estate transaction, breach of contract and
breach of warranty. 42 The builder moved to
abate the action under the RCLA since all
the plaintiffs had not provided the notice and
opportunity to inspect and repair required by
the RCLA. The plaintiffs dropped their
breach of contract and breach of warranty
claims and then raised Bruce for the
proposition that the RCLA did not apply to
the remaining fraud-related causes of
action.43 The court looked at the substance
of the plaintiffs’ claims rather than the form,
and properly concluded that the plaintiffs
could not avoid the requirements of the
RCLA by recasting a “construction defect”
claim into a “fraud” simply by asserting a
cause of action based upon a
“misrepresentation” that construction would
be done properly when it wasn’t. 44
Although the carpers (now
trumpeters) sustained a bit of a setback, the
setback was not long lived. In 2000, the
Fort Worth Court of Appeals delivered the
second of the one-two punch against
builders in the case of Perry Homes v.
Alwatarri.45 In this case, the homeowners
learned of cracks in their foundation and
sent the builder a RCLA demand. Less than
one week after sending the RCLA demand,
the homeowners filed suit. The builder
ultimately responded by offering to (i) pay
for a portion of the repair costs, and (ii) pay
for a portion of the attorneys’ fees incurred
by the homeowner, but conditioned the offer
on the homeowners executing a release of its
claims. Despite the fact that the
homeowners did not accept the offer, the
builder actually made structural and
cosmetic repairs to the home prior to the
date the trial commenced.
At trial, the jury found that the
builder was negligent and that it had
violated the DTPA by acting
unconscionably, by breaching the warranty
of good workmanship, and by engaging in
such conduct knowingly. Eighteen thousand
dollars in damages and thirty-five thousand
dollars in fees were awarded to the
homeowners.
6
 The Fort Worth court first reversed
its own decision in Bullivant by holding that
the builder’s failure to make a reasonable
offer should avoid “all limitations on
damages and defenses to liability provided
for in this section - both the limitation on the
amount of damages provided for in
subsection 27.004(i) and the limitation on
the types of damages provided for in
subsection 27.004(h).”46 Because the
builder’s failure to make a reasonable offer
resulted in a waiver of the defenses to
liability, the court held that a builder could
not raise the pre-emption language in
§ 27.002(b) to preclude DTPA liability.47
The Bullivant, Bruce and Alwatarri
cases galvanized the homebuilding
industry’s opinion that additional legislative
reform was needed. In each of the three
cases, the builder had either made offers or
performed repairs that were at least arguably
“reasonable.” However, in each case the
jury disagreed.48 While the homebuilding
industry had initially anticipated that the
limitations of damages (types of damages
and market value cap) would protect
builders in such a situation, any such belief
had now evaporated.
IV. The Texas Residential Construction
Commission Act
Beginning in the fall of 2001, the
homebuilding community was debating on
the proper response to this trio of decisions.
However, the industry was not unified in its
approach. Some argued that the problems
they perceived could be remedied by
“tweaking” the RCLA. Others took a more
aggressive approach, arguing that the
industry would be better served by being
regulated by the legislature than by the
increasingly problematic judicial decisions.
In the end, those favoring regulation over
the free market prevailed.
With its willingness to embrace
some level of regulation, the industry found
a receptive ear for its message. While many
on the “pro-consumer” side railed against
what they perceived as a one-sided
legislative initiative, the proposed legislation
(with a reasonably small amount of
modifications) was ultimately passed into
law as the Texas Residential Construction
Commission Act. 49
From the builder’s perspective, the
TRCCA has two distinct advantages for
builders and homebuyers: First, it
encourages pre-litigation resolution of
disputes through the state-sponsored
inspection and resolution process (SSIRP)
even before the RCLA’s offer to cure kicks
in; and second, it will (after adoption of the
building standards) give certainty to a
builder as to what construction standards or
construction conditions are or are not
acceptable.
The TRCCA is not without its
disadvantages for builders, however.
1. Regulation is here to stay. The
regulation genie can never be put
back into the bottle. And whereas in
the past most anti-builder groups
had little success with the Texas
legislature, it is possibly the case
that they will have better luck in
pushing their agenda at the
regulatory level.
2. More certainty means . . . more
certainty. Building codes focus on
how a structure should be
constructed, not on how it should
perform over the years. Until now,
it has been up to the judiciary to
define what is and is not acceptable;
i.e. the judiciary created the implied
warranties of workmanship and
habitability. But the question of
whether a condition resulted from
“unworkmanlike” construction or
was not “habitable” was left to a
jury or arbitrator relying on the
7
 rehashed testimony from the same
cadre of recycled experts. While
this oftentimes worked to the
disfavor of builders, they and their
counsel could still rightfully dispute
that a sixteen-foot long 1/8” hairline
crack in a post-tensioned slab was
acceptable. When the new building
standards are ultimately adopted,50
the builder and homeowner will (for
better or for worse) have a more
definitive answer when less-than-
perfect conditions exist . . . even if
they were not caused by any
improper construction.
So what exactly does the TRCCA
do? In a nutshell, it creates a commission
(the Texas Residential Construction
Commission) to oversee and regulate the
residential construction and remodeling
industry. The Commission is charged with
carrying out a number of responsibilities, the
most important of which include:
• Develop, implement and manage a
pre-litigation SSIRP, including
hiring and training of state
inspectors.
• Develop, implement and oversee
certain building construction or
performance standards.
• Develop, implement and oversee a
registry for homes (all homes closed
after January 1, 2004 plus any
homes closed before January 1,
2004 that will be involved in a
SSIRP).
• Develop, implement and oversee a
registry for “builders,” and establish
qualification standards applicable to
their registry.
V. The More Things Change . . .
For those who spend little time in
drafting residential construction contracts or
resolving residential construction disputes,
the patchwork of DTPA, RCLA and now
TRCCA can be confusing. We’ll spend a
little time on the interplay between these
three acts.
A. Which Act Applies?
We will spend more time evaluating the
current scope of the DTPA, RCLA and
TRCCA as they apply to residential
construction disputes, but for purposes of
analysis we would suggest that the
practitioner first utilize the following
guidelines:
Step One: Does the TRCCA apply?
If the answer is yes, then the notice, SSIRP,
opportunity to cure, and other requirements
of the TRCCA (plus the follow-on
requirements of the RCLA) must be satisfied
for any claims that are the subject of the
TRCCA. If the answer is no, then move to
Step Two.
Step Two: Does the RCLA apply? If
the answer is yes, then the notice and
opportunity to cure requirements of the
RCLA must be satisfied for any claims that
are the subject of the RCLA. If the answer
is no, go to Step Three.
Step Three: Does the DTPA apply?
If the answer is yes, then the notice
provisions of the DTPA apply and all of its
requirements must be met. If the answer is
no, then you most likely don’t have a
residential construction dispute at all!
B. When Does the TRCCA Apply?
Because the TRCCA is the most expansive
of the three Acts (at least with respect to
residential construction defect claims), most
all claims involving construction defects
will fall within the ambit of TRCCA.
With certain exceptions, the TRCCA applies
to any dispute between a “builder” and a
“homeowner” that arises out of a
“construction defect.”
8
The primary exceptions to the rule are: (1)
where the homeowner’s claim is solely for a
personal injury, survival, wrongful death or
damage to goods;51 (2) a request for a SSIRP
was not submitted to the commission before
the home is ten years old;52 (3) the home
was built by the individual that owns the
home, even with the assistance of the
individual’s employees or independent
subcontractors, and the individual uses the
home as his primary residence for at least
one year after substantial completion;53 (4)
where the claim “accrued” (i.e. the
homeowner learned of the construction
defect) before September 1, 2003;54 (5) the
claim is not limited to repair or replacement
of a roof;55 and (6) the claim arises from
remodel work on the interior of a home
where the cost of the work does not exceed
$20,000.56
If the TRCCA does apply, one would
believe that the TRCCA’s scope is identical
to that of the RCLA. But on detailed
examination the reader notes several
important differences.
A “construction defect” under the TRCCA
was different than the old RCLA
“construction defect” definition, but the
RCLA was amended so that the new and
same definition is utilized by both Acts. A
“construction defect” now means:
“(1) the failure of the design,
construction, or repair of a home, an
alteration of or a repair, addition, or
improvement to an existing home,
or an appurtenance to a home to
meet applicable warranty and
building and performance standards
during the applicable warranty
period; and (2) any physical damage
to the home, an appurtenance to the
home, or real property on which the
home or appurtenance is affixed that
is proximately caused by that
failure.”57
A “construction defect” does not include
(and the TRCCA would not apply to) a:
“defect that arises or any damages
that arise wholly or partially from:
(1) the negligence of a person other
than the builder or an agent,
employee, subcontractor, or supplier
of the builder; (2) failure of a person
other than the builder or an agent,
employee, subcontractor, or supplier
of the builder to: (A) take
reasonable action to mitigate any
damages that arise from a defect; or
(B) take reasonable action to
maintain the home; (3) normal wear
and tear; or (4) normal shrinkage
due to drying or settlement of
construction components within the
tolerance of building and
58
performance standards.”
A “homeowner” under the TRCCA is
defined as a person, or the subrogee of a
person, who owns a single family house or
duplex. The RCLA does not directly define
“homeowner,” but implicitly does so by
stating that the Act applies to owners of
single family homes, duplex, triplex and
quadraplexes, as well as condominiums.59
As such, the TRCCA may well not apply to
triplexes, quadraplexes and condominiums,
while the RCLA would.
In the RCLA, a builder was referred to as a
“contractor.” A “contractor” included
anyone that contracted “with an owner for
the construction or sale of a new residence
constructed by that person or of an alteration
of or addition to an existing residence, repair
of a new or existing residence, or
construction, sale, alteration, addition, or
repair of an appurtenance to a new or
existing residence.”60 A “builder” under the
TRCCA means “any business entity or
individual who, for a fixed price,
commission, fee, wage, or other
compensation, constructs or supervises or
manages the construction of: (1) a new
home; (2) a material improvement to a
9
home, other than an improvement solely to
replace or repair a roof of an existing home;
or (3) an improvement to the interior of an
existing home when the cost of the work
exceeds $20,000.”61 Therefore, for claims
against roofers or small interior remodelers,
the homeowner would utilize the RCLA and
not the TRCCA.
In summary, the TRCCA applies if:
• There is an alleged “construction
defect” in a residential home;
• The home is not a triplex, quadraplex
or larger multi-unit condominium
complex;
• The homeowner learns of a
“construction defect” after September
1, 2003;
• The work associated with the
construction defect was not simply a
repair or replacement of a roof;
• The work associated with the
construction defect was not a interior
remodel/repair job for less than
$20,000;
• The homeowner seeks to recover
against the builder for damages for
something other than personal injury
or damage to goods;
• The home is less than tens years old;
and
• The original homeowner did not build
the home and occupy it for at least
one year.
If all of the foregoing are satisfied, the
TRCCA should generally apply.
On the other hand, the TRCCA carves out
certain causes of action from the application
of the SSIRP process. The SSIRP process
does not apply to a dispute that arises out of
an alleged violation of the Texas Trust Fund
statute,62 fraud in the sale of real estate,63 or
a builder’s alleged wrongful abandonment
of the project. 64
C. When Does the RCLA Apply?
If the TRCCA applies, the RCLA’s follow-
on provisions apply as well. The RCLA
may, however, apply even when the TRCCA
does not.
One should think of the TRCCA as the first
of two acts legislatively stuck between the
homeowner first learning of the complaint
and the homeowner’s ultimate resort to
litigation or arbitration. Before the TRCCA,
the homeowner needed to (i) give the
builder timely notice, (ii) give the builder an
opportunity to inspect, and (iii) determine
whether to accept or reject any RCLA offer.
With the adoption of the TRCCA, both the
homeowner and builder have additional
obligations to satisfy before litigation or
arbitration may commence.65 Once those
obligations and the SSIRP process have
been completed, RCLA kicks in so that the
builder’s offer of settlement and the
reasonable of such offer will be evaluated
pursuant to the RCLA. For a more complete
analysis of the TRCCA and RCLA, please
review Exhibit “B” -- “Comparing and
Contrasting the Residential Construction
Liability Act (“RCLA”) with the Texas
Residential Construction Commission Act
(“TRCCA”) – a document that was prepared
for various builders immediately prior to the
effective date of the TRCCA.
Even if the TRCCA does not apply, the
RCLA will still apply for the following
scenarios:
1. Where the construction work was
exclusively for repair or
replacement of a roof.
2. Where the construction work was
exclusively for interior work and
the contract is for less than
$20,000.
3. Where the claim “accrued” (i.e.
the homeowner discovered the
alleged construction defect) prior
to September 1, 2003.
10
D. When Does the DTPA Apply?
The reports of the DTPA’s death
have been greatly exaggerated. The DTPA
can still apply to disputes between
homeowners and builders unless the
homeowner or any subsequent purchaser of
the home66 has filed an “action to recover
damages resulting from a construction
defect.”67
In short, if the homeowner is
seeking damages resulting from the home’s
design, construction, repair or alternation,
the RCLA applies. Otherwise, the DTPA
would apply. 68 Some of the situations where
the DTPA would apply are:
• Misrepresentation claims generally
unrelated to the quality of
construction. If, for example, the
builder misrepresented that a
community swimming pool would
be built, the DTPA would apply to
that claim. If the builder
misrepresented that the homeowner
could obtain some type of low
fixed-rate loan, the DTPA would
apply to that claim.69
• Some representations related to the
quality of construction may still be
governed by the DTPA. If, for
example, the builder represents that
a home will never have a crack in
the foundation, and it later develops
a cracked slab, that claim will
(depending upon when it “accrued”)
fall under the ambit of the RCLA or
TRCCA and the DTPA will not
apply. If the builder represents that
he will use insulation with a certain
enhanced R-factor (and does not),
the homeowner’s claim probably
falls within the RCLA. 70 If, on the
other hand, the builder represents
that the home will be constructed
before the end of the year, but is not,
such a claim would rightfully fall
within the scope of the DTPA.
• An “unconscionable action or
course of action” unless the
damages are associated with a
construction defect.
Another good rule of thumb for
determining whether a claim does or does
not fall within the RCLA is as follows:
Does the claim involve, directly or
indirectly, (i) a condition associated with the
structure of the home or any appurtenance,
or (ii) any damage to real property caused
by some condition of the structure of the
home or appurtenance? If the answer is yes,
the RCLA applies. If the answer is no, then
the DTPA may apply.
VI. Summary
There remain a number of unanswered
questions under the new TRCCA. Unlike
prior acts, builders are anticipating that most
tweaking of the Act will be handled through
a state administrative process rather than
through the courts. If history is a guide,
however, I suspect residential construction
lawyers will once again find themselves in
interesting times.
11
 Exhibit “A”

TEXAS RESIDENTIAL CONSTRUCTION COMMISSION

EMERGENCY DEFINITIONS RULE
ADOPTED DECEMBER 18, 2003

The Texas Residential Construction Commission (the “commission”) adopts on an emergency basis a new rule at Title
10, Part 7, Chapter 301, Subchapter A, Definitions, § 301.1, concerning definitions to be used in construing agency
rules promulgated to implement the Texas Residential Construction Commission Act, Title 16, Property Code.

Section 301.1, relating to definitions, defines words and terms that are used in Part 7 of Title 10 of the Texas
Administrative Code. It defines Accrual or accrued, Act, Affiliate, Builder, Building and performance standards,
Commission, Construction defect, Executive Director, Home, ICC, Improvement to the interior of an existing home
when the cost of the work exceeds $20,000, Living space, Local building official, Material improvement, Person,
Statutory warranty, State inspector, Third-party inspector and Transaction governed by the Act.

The rule is adopted on an emergency basis to clarify agency rules for persons interested in the implementation of House
Bill 730 enacted during the 78th Legislative Session, Regular Session. The new rule is adopted under new Title 16,
Property Code (Act effective Sept. 1, 2003, 78th Leg., R.S., ch. 458, § 1.01), which requires the commission to begin
providing services to the affected persons on January 1, 2004. The adoption of the emergency rule will provide clarity
to those who seek to utilize agency rules and those who are required to comply with the provisions of House Bill 730 as
set out in Title 16, Property Code.

The statutory provisions affected by the emergency rule are those set forth in Title 16, Property Code, and House Bill
730, 78th Legislature.

No other statutes, articles, or codes are affected by the rule.

§ 301.1. Definitions.

(a) The following words and terms, when used in rules promulgated by the commission, shall have the following
meanings, unless the context clearly indicates otherwise.
(1) Accrual or accrued-when a homeowner first becomes aware that the property damage in the home is a
potential construction defect.
(2) Act-the Texas Residential Construction Commission Act, Title 16, Property Code.
(3)Affiliate-a person who directly or indirectly through one or more intermediaries controls, is controlled by
or is under common control with a specified person.
(4) Builder-
(A) as defined by Property Code <*>401.003 any business entity or individual who, for a fixed
price, commission, fee, wage, or other compensation, constructs or supervises or manages the construction
of:
(i) a new home;
(ii) a material improvement to a home, other than an improvement solely to replace or
repair a roof of an existing home; or
(iii) an improvement to the interior of an existing home when the cost of the work
exceeds $20,000.
(B) When required by the context the term may include:
(i) an owner, officer, director, shareholder, partner, affiliate or employee of the builder;
(ii) a risk retention group governed by § 21.54, Insurance Code, that insures all or any
part of builder’s liability for the cost to repair a residential construction defect; and
(iii) a third-party warranty company and its administrator.
(5) Building and performance standards-those standards adopted by the commission pursuant to § 430.001 of
the Act.
(6) Commission-the Texas Residential Construction Commission.
(7) Construction defect-
(A) as defined in § 401.004 of the Act:
(i) the failure of the design, construction, or repair of a home, an alteration of or a repair,
addition, or improvement to an existing home, or an appurtenance to a home to meet the
applicable warranty and building and performance standards during the applicable
warranty period; and

12
 (ii) any physical damage to the home, an appurtenance to the home, or real property on
which the home or appurtenance is affixed that is proximately caused by that failure.
(8) Executive Director-the individual employed by the commission pursuant to § 407.001 of the Act, which
may include a person delegated by the Executive Director to perform a specific function on behalf of the Executive
Director.
(9) Home-the real property and improvements and appurtenances thereto for a single-family residential
dwelling or duplex.
(10) ICC-the International Code Council, Inc., currently located at 5203 Leesburg Pike, Suite 708, Falls
Church, Virginia, 22041-3401, or at a subsequent address, and any successor organization that performs substantially
the same functions that the ICC performs as of December 1, 2003.
(11) Improvement to the interior of an existing home when the cost of the work exceeds $20,000-
modifications to the interior living space of a home that include the addition of permanent fixtures inside the home. The
commission shall determine whether such modifications meet the monetary threshold for inclusion within the
requirements of the Act by aggregating the total consideration paid by a homeowner within a twelve-month period for
all such modifications to the home.
(12) Living space-the enclosed area in a home that is suitable for year-round use, embodying walls, floors,
and ceilings that are similar to the rest of the home.
(13) Local building official-the agency or department of a municipality, county or other local political
subdivision with authority to make inspections and to enforce the laws, ordinances, and regulations applicable to the
construction, alteration, or repair of residential structures in that locality.
(14) Material improvement-a modification to an existing home that either increases or decreases the home’s
total square footage of living space that also modifies the home’s foundation, perimeter walls, or roof. A material
improvement does not include modifications to an existing home if the modifications are designed primarily to repair
or replace the home’s component parts.
(15) Person-an individual, partnership, company, corporation, association, or any other legal entity, however
organized.
(16) Statutory warranty-
(A) that warranty defined in § 430.001(b) of the Act covering:
(i) one year for workmanship and materials;
(ii) two years for plumbing, electrical, heating, and air-conditioning delivery systems; and
(iii) ten years for major structural components of the home; or
(B) that limited warranty of habitability created in §430.002 of the Act.
(17) State inspector-a person employed by the commission pursuant to § 427.002 of the Act to:
(A) review on an appeals panel the recommendations of third-party inspectors;
(B) provide consultation to third-party inspectors; and
(C) administer the state-sponsored inspection and dispute resolution process.
(18) Third-party inspector-a person approved by the commission to perform services under the state-
sponsored inspection and dispute resolution process.
(19) Transaction governed by the Act-
(A) the construction of a new home; or
(B) for an existing home:
(i) a material improvement to a home other than an improvement solely to replace or
repair the roof; or
(ii) an improvement to the interior when the cost paid for the work exceeds $20,000.

This agency hereby certifies that the emergency adoption has been reviewed by legal counsel and found to be within
the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 19, 2003.

Stephen D. Thomas
Executive Director
Texas Residential Construction Commission

13
 Exhibit “B”

August 31, 2003

Comparing and Contrasting the Residential Construction

Liability Act (“RCLA”) and the Texas Residential
Construction Commission Act (“TRCCA”)

Just when we were getting comfortable with the RCLA, the Texas Legislature has passed a new
law that will, to a large extent, replace the RCLA with a new scheme for addressing claims of
construction defects. The purpose of this memorandum is to update you on the new scheme and
how we will now need to deal with construction defect claims

1. The “Old” RCLA

For the past several years, any “construction defect” claim was governed by the RCLA. When
we receive an RCLA demand letter, we have 35 days from the letter’s receipt to inspect the
home, and 45 days from the letter’s receipt to make a settlement offer (typically an offer to repair
and pay some attorneys’ fees). The homeowner cannot file a lawsuit or arbitration against us
until 60 days after we received the demand letter. If during the lawsuit or arbitration it is
determined that our settlement offer was not “reasonable,” then the limitation on recoverable
damages under the RCLA does not apply.

2. The “New” TRCCA and RCLA

The new TRCCA (“Act”) does, to a great extent, replace the RCLA scheme for dealing with
construction defect claims. The RCLA has now been modified to dovetail with the Act. While
the homeowner must still give us written notice of the alleged defects, what happens afterwards
and the timing of our “settlement offer” has changed completely.

• Under the current RCLA scheme, we have:

o A demand from the homeowner;
o An inspection by us; and
o A settlement proposal from us to the homeowner.

• Under the new TRCCA scheme:

o The homeowner will give us written notice of the alleged defect;
o A request for state-sponsored inspection and dispute resolution (which can be
made by either us or the homeowner);
o An inspection by a state-sponsored inspector (and us if we so choose – and we
should always choose to inspect);
o A recommendation from the inspector (or - if the inspector’s decision is appealed
by us or the homeowner - a ruling from a three-member appeal panel); followed
by

14
 o An RCLA settlement proposal from us to the homeowner.

The Act addresses four major areas:

• New State Commission: The Act creates a new state commission (Texas
Residential Construction Commission or “Commission”) to oversee builders and
disputes between builders and homeowners.
• Registration: The Act requires registration of “builders” and the homes we
build.
• New Building Standards and Warranty: The condition of the home will be
judged by specific new building standards to be adopted (probably in 2004) by the
Commission.
• Inspection and Dispute Resolution: All construction defect claims will first be
processed through the commission. No lawsuit or arbitration can proceed without
the homeowner or builder completing the state-sponsored inspection and dispute
resolution process. A builder does not need to (but can) make an RCLA
settlement offer until after the state-sponsored process is complete.

A. New State Commission

The Act creates the Texas Residential Construction Commission. The Commission will
be responsible for regulating the homebuilding industry, creating new building standards,
and overseeing disputes between homeowners and builders. Governor Perry will appoint
the nine commissioners in the Fall of 2003. Four of the commissioners must be builders,
three must be representatives of the general public, one must be a licensed engineer, and
the last must be a licensed architect.

Once appointed, the Commission will initially be responsible for:

1. Adopting new building standards that will apply to all new homes constructed
after their adoption. We anticipate that the standards will not be adopted until
sometime in the middle to latter part of 2004.

2. Registering both “builders” and any homes closed after January 1, 2004.

3. Hiring inspectors who will be responsible for (i) investigating all construction
defect claims, (ii) making determinations of whether the construction complies with
the appropriate building standard and implied warranty of habitability, and (iii)
entering a ruling on whether repairs are necessary and, if so, the scope of such repairs.

4. Appointing 3-member panels to hear appeals from decisions by the inspectors.

B. Registration

The new Act requires registration of both “builders” and each of the homes they build.

15
 1. Registration of Builders
Although the Act is not entirely clear,1 it is certain that every homebuilder will
need to be registered with the Commission. If a homebuilder does business with
more than one legal, each legal entity must be registered.

For a legal entity to be registered, it must appoint an individual to serve as its

“agent” for registration. That agent must individually meet all the requirements
of the Act, and must individually register with the Commission. Once the
individual is registered, the legal entity can then be registered.

If the individual retires, leaves or is otherwise no longer employed with the legal
entity, the legal entity must have another agent appointed and registered before it
can build a home. As such, we should always have at least two “agents” for each
legal entity under which we build homes in the State of Texas. If one agent
retires, leaves, etc., we will want to immediately replace that person and get the
replacement individual registered.

Failure to be properly registered can result in some very hefty financial

penalties, an order shutting down our operations, or both!

2. Registration of New Home Sales

In addition to the registration of “builders,” the Act also requires that every home
be registered with the Commission not later than the 15th day of the month
following the month that the home was closed. For example, if a closing takes
place in December, the home must be registered not later than January 15. The
registration requirement will start for homes closed in January 2004. As such, we
must ensure that all homes closed in January are registered by February 15.
The registration will include certain information2 along with a registration fee not
to exceed $125 per home. If a home is not registered timely, the Commission can
(in addition to de-registering the builder or seeking injunctive relief) impose a late
payment penalty not to exceed $500 per home.

C. New Building Standards and Warranty

Currently, all homes in Texas must be built to meet the following requirements: The
International Residential Code, the implied warranty of workmanship, and the
implied warranty of habitability. Although not required by law, we also provide
homeowners with a typical 10-year extended warranty. All builders and their legal
counsel struggled in trying to define or decide whether something did or did not meet
these implied warranties. When TRCCA is fully implemented, builders will still be
required to build in accordance with the International Residential Code, but the implied

1
Interested parties and trade organizations are preparing a draft of detailed regulations to assist the commission in
its efforts. Many of the uncertainties will hopefully be resolved after the regulations are adopted.
2
The specific information required has yet to be adopted. We expect the Commission will prepare a registration
form that we will use in registering homes.

16
warranty of workmanship will go away (to be replaced by specific building standards),
and a newly defined habitability warranty replaces the current uncertain habitability
warranty.

1. New Building Standards.

The Act requires the Commission to adopt specific building standards that will
replace the implied warranty of workmanship. While every home must still be
built in accordance with the International Residential Code, the new building
standards will be used to judge whether a specific condition on a completed home
(even one built per the International Residential Code) is acceptable.
For example, at this point we cannot say with certainty whether a 1/16” hairline
crack spanning across the corner of a garage floor is acceptable. It is our hope
that the new building standards will give us some certainty on whether such
conditions will be considered acceptable.

2. Habitability Warranty

In addition to the obligation to build in accordance with both the International

Residential Code and the new building standards, a home must also be
“habitable.” The Act states that a home is habitable if it (i) is in compliance with
the new building standards, and (ii) it is “safe, sanitary and fit for humans to
inhabit.” For a construction defect to violate this implied warranty, the defect
“must have a direct adverse effect on the habitable areas of the home and must not
have been discoverable by a reasonable prudent inspection or examination of the
home” at the time the home was acquired.

D. Inspection and Dispute Resolution Procedure

The Act completely changes the process used in responding to and resolving complaints
concerning construction defects. As noted above, under the RCLA we would perform an
inspection within 35 days of receiving the complaint and make a settlement proposal
within 45 days of receiving the complaint. On or about the 60th day, we would typically
get a lawsuit (or demand for arbitration) and then spend months if not years in legal
wrangling before the matter was resolved. The new process changes everything.

1. Overview of Inspection and Dispute Resolution Process

The new dispute resolution process is comprised of 7 possible steps:

• Initiation of claim (by either homeowner or builder).
• Inspection(s) by builder.
• Inspection by state-appointed inspector.
• Recommendation of state-appointed inspector.
• Right of appeal (by either homeowner or builder).
• Decision by three-member panel.
• Initiation of lawsuit or arbitration (by either homeowner or builder).

17
 a. Initiation of Claim

Under the RCLA, the homeowner started the process by sending a RCLA demand
letter. Under TRCCA, the homeowner or the builder can initiate the process by
filing a written request with the Commission for state-sponsored inspection and
dispute resolution. In other words, if we are unable to satisfy a homeowner’s
concerns regarding the alleged construction defect, we have the right (but not the
obligation) to request that the state-appointed inspector get involved and render a
decision on who is right and what, if anything, needs to be done about the alleged
construction defect.

This request cannot be filed until 30 days after the homeowner has given us
written notice of the alleged construction defects. But this request must be filed
not later than the earlier of (i) two years after the alleged defect is discovered, or
(ii) the 30th day after the applicable warranty period expires. Legal counsel
should be consulted if there is any question on whether an inspection request has
been timely filed.

The person filing the request must provide the following to the Commission and
the other party3 at the time the person files the request for state-sponsored
inspection and dispute resolution:

• The filing fee as set by the Commission.4

• The name(s) of any person that inspected the home on behalf of the person
filing the request.5
• Reasonable detail of each alleged construction defect.
• The amount of any known out-of-pocket expenses and
engineering/consultant fees incurred by the homeowner in connection with
the alleged construction defect.
• Any evidence that depicts the nature and cause of the alleged defect.
• Any evidence that depicts the types or extent of repairs necessary to
remedy the alleged construction defect (including all discoverable expert
reports, photographs, and videotapes).

b. Inspection by Builder

If the homeowner is the party filing the request, the homeowner must within 30
days after filing the request notify the builder of each construction defect and give

3
The filing fee is sent to the Commission only. A copy of the request and the other information must be sent to the
other party by certified mail, return receipt requested.
4
If the home in question was not previously registered with the Commission because it had closed prior to January
1, 2004, the person filing the claim must also pay the fee to have the home itself registered.
5
If the person’s name is not disclosed at the time of filing, that requesting party may not use that person or that
person’s reports or materials in the inspection or dispute resolution process or any litigation/arbitration that may
result following the state-sponsored dispute resolution process.

18
 the builder a reasonable opportunity to inspect the home or have the home
inspected by experts. In addition to this initial inspection, the Act also
contemplates that the builder will be allowed additional “reasonable”
opportunities to inspect (or have inspected) the home up until the state-sponsored
dispute resolution process is finalized.6

c. Inspection by State-Appointed Inspector

Within 15 days after the Commission receives the request for state-sponsored
inspection and dispute resolution, the Commission must appoint a state-sponsored
inspector. The Commission will adopt rules giving each party a one-time right to
reject an appointed inspector.7 After being appointed, the inspector must
promptly inspect and make his recommendation as set forth below.8

d. Recommendation of State-Appointed Inspector

After completing his inspection, the inspector will make a recommendation

concerning the alleged defect. Except as otherwise provided in the Act, the
recommendation will be limited to two items: First, whether the alleged
construction defect complies with the applicable warranties and building
standards; and second, the required method or manner of repairs, if any, to the
construction defect. In only very limited situations will the inspector be able to
recommend payment of money. If the inspector finds for the party that submitted
the request, the Commission may order the other party to reimburse the winning
party for its filing fees and inspection expenses.

Non-Structural Defect. If the alleged construction defect is non-structural in

nature9, the inspector must issue a recommendation within 15 days of being
appointed.

Structural Defect. If the alleged construction defect is structural in nature,10 the

appointed inspector must be an engineer. The inspection of the home shall take
place not later than the 30th day after the request is submitted. In the absence of a
request for more time by the inspector, the homeowner or the builder, the
recommendation must be issued within 60 days of the date the inspector is
appointed.

6
The builder has a “reasonable” but not unlimited number of inspection opportunities. A builder should be prudent
before making multiple inspection requests.
7
As such, one party could object to the first appointed inspector; the other party could object to the second
appointed inspector; but no one could object to the third appointed inspector.
8
The specifics on timing of inspection, who may attend, what information may be provided the inspector, and many
other details were not included in the Act. These specifics will likely be included in the rules and regulations to be
adopted by the Commission in the future.
9
E.g. bad paint, leaky faucet, doors out of plumb, etc.
10
E.g. foundation movement, roof truss, etc.

19
 Threats to Health or Safety. If a construction defect has created an imminent
threat to the health or safety of the inhabitants, the builder must take reasonable
steps to address that condition “as soon as practicable.”11 If the builder fails to do
so, the homeowner may do so and recover the cost of doing so (plus attorneys’
fees) in addition to other damages.

e. Right of Appeal

Not later than the 15th day following the inspector’s recommendation, the
homeowner or the builder may appeal the recommendation to the Commission. If
the appeal is not timely filed, the recommendation becomes final.

f. Decision on Appeal

If appealed, the Commission will appoint three other state inspectors to (i) review
(without a hearing) the recommendation, (ii) approve, reject or modify the
recommendation or otherwise remand to the original inspector for further action,
and (iii) issue a written finding not later than the 30th day after the notice of
appeal is filed. In evaluating the appeal, the recommendation of the original
inspector will be presumed correct.12 The party seeking to overcome that
presumption must establish “by a preponderance of the evidence” that the
recommendation is inconsistent with the applicable warranty and building
standards.

g. Initiation of Litigation/Arbitration

If the inspector’s recommendation was not appealed to the three-member panel,

the homeowner cannot file a lawsuit (or initiate arbitration) until the 45th day after
the date the recommendation was issued.

If the inspector’s recommendation was appealed, the homeowner cannot file a

lawsuit (or initiate arbitration) until the 45th day after the date the three-member
panel issues it’s ruling.

Under either scenario, if the statute of limitations would expire before the 45th
day, the homeowner will be allowed (and must) file suit or arbitration before the
statute of limitations expires.

As in the appeal scenario, the recommendation of the inspector (or ruling of the
three-member panel if an appeal was taken) shall constitute a rebuttable
presumption that the recommendation (or ruling) was correct. In other words, the
underlying recommendation or ruling will be presumed correct both as to (i) the

11
As such, in such a situation the builder cannot wait until the state-sponsored inspection is completed.
12
Because of this presumption, the builder should work diligently during the original inspection process to provide
all information and evidence possible to convince the inspector that the builder’s position is correct.

20
 existence or non-existence of a construction defect, and (ii) the reasonable manner
of repair for such construction defect.

E. RCLA Settlement Proposal

Timing of Offer. As noted above, before the TRCCA the RCLA settlement proposal had
to be made not later than the 45th day after receiving the demand. Now, an RCLA
settlement proposal must be made not later than (i) the 60th day after the original
inspector’s recommendation assuming no appeal is taken, or (ii) the 45th day after the
three-member panel’s ruling assuming that an appeal was taken.

In other words, if no one appeals the inspector’s recommendation, the builder has 60 days
from receiving the inspector’s recommendation to make an RCLA offer. If either the
builder or the homeowners appeal the inspector’s recommendation to the three-member
panel, the builder has 45 days from receiving the panel’s ruling to make an RCLA offer.
Please note that there is nothing to prevent the builder from making an offer before or
even during the state-sponsored inspection.

Content of Offer. The RCLA offer made by the builder will still be evaluated as to its
“reasonableness.” An offer may include, among other things, an offer to repair (at no
cost or at a discounted cost to the homeowner) or have repaired fully or partially by
another contractor. It may also include an offer to absorb some, but not the entire costs
of repair. It can include a whole or partial cash settlement. It can also include an offer to
repurchase the home. Again, however, the issue that will ultimately be decided is
whether the offer was “reasonable,” and you should caucus with legal counsel before
making any RCLA settlement proposal.

Under the existing RCLA, the settlement offer could only be made one time. In other
words, the judge or arbitrator would only look at the “reasonableness” of the initial offer.
Now, if a homeowner believes the builder’s offer is “unreasonable,” the homeowner must
within 25 days of receiving the offer notify the builder in writing and in reasonable detail
of the reasons why the homeowner believes the offer is unreasonable. Within 10 days
after receiving this written notification, the builder has the right, but not the obligation, to
supplement its settlement offer. The judge or arbitrator will then look at the final
supplement (i.e. not the original offer) to determine whether the settlement proposal is
“reasonable.”

The best way to ensure that a settlement offer is ultimately found “reasonable” is to
simply offer exactly what the inspector recommended (if there is no appeal) or what the
three-member panel ruled (if there is an appeal). While there may be other items to
address in the offer (e.g. temporary housing, etc.), the safest offer is simply to mirror the
recommendation or ruling. If a homeowner rejects a “reasonable offer” or does not
permit the builder to inspect or repair the home, the homeowner may not recover an
amount exceeding:

21
 1. The fair market value of the builder’s settlement offer or the amount of
reasonable monetary settlement or purchase order made by the builder; and

2. The amount of reasonable and necessary costs and fees incurred before the offer
was rejected (or deemed rejected).

If the homeowner accepts our repair offer, we must complete the repairs within 45 days
of receiving the homeowner’s acceptance of our offer. Upon completion of our repairs,
we must engage the services of the original state-sponsored inspector to re-inspect the
home to ensure that the repairs were properly made.

Repurchase of Home. If we ultimately decide to modify our contracts, we can include a

provision that could give us the right to force the homeowner to sell us the home under
certain conditions. You may hear about this from other builders, but at this point we have
elected not to pursue the option.

3. Timeline for Implementing New Act

On or before December 21, 2003, the Governor must appoint the nine members of the
Commission. As soon as possible thereafter (no specific deadline), the Commission will adopt
the building standards. These building standards will apply to any home started after their
adoption.

Any homes closed after January 1, 2004, will need to be registered with the Commission.
Homes closed in January will be registered on or before February 15, 2004. February closings
will be registered on or before March 15, and so forth.

On or before March 1, 2004, the Commission must have completed training of the state-
approved inspectors.

On March 1, 2004, the Commission will start registering Builders.

We will be conducting more formal training sessions regarding the new Act and its
implementation. The attached chart will hopefully assist in that training session. There are
many questions that remain unanswered; and we are hoping that they will be answered when the
Commission’s rules and regulations are ultimately adopted. In the interim, please feel free to
contact me if you have any questions or comments.

22

DALLAS
1 1357763v1
Texas Deceptive Trade Practices – Consumer
Protection Act, §§ 17.45 et seq, Texas Bus. &
Comm. Code.
2
Residential Construction Liability Act, Ch. 27,
Tex. Prop. Code.
3
Texas Residential Construction Commission Act,
Ch. 401 et seq, Tex. Prop. Code.
4
This paper is not intended to be a comprehensive
treatise on the DTPA, the RCLA or the TRCCA.
Other participants in this seminar of other authors
over the years have prepared masterful works of
legal art on these subjects, and the author strongly
recommends that such works be consulted on the
minutiae of these acts. See, e.g., Scott Summy &
John D. Sloan, Jr., The Texas Residential
Construction Liabilities Act: Framework for
Change, 27 Tex. Tech L. Rev. 1 (1996).
5
Texas Bar Journal, September, 2003 “The
DTPA: An Old Dog with New Tricks.” Paul
Carmona
6
As will be noted later, the DTPA remains
effective for certain types of claims made against
homebuilders.
7
Tex. Bus. & Comm. Code § 17.50(a)(1)(A).
8
Tex. Bus. & Comm. Code § 17.50(a)(2).
9
Tex. Bus. & Comm. Code § 17.50(a)(3).
10
The four primary sections utilized by consumer
lawyers were §17.46(b)(5) (representing that goods
or services had certain characteristics, etc. they did
not have); § 17.46(b)(7) (representing that goods or
services were of a particular standard or quality
when they were of another); § 17.46(b)(12)
(representing that an agreement involves rights or
obligations which it does not have); and
§ 17.46(b)(23) (failing to disclose information with
the intent to induce the consumer to enter into a
transaction into which she would not otherwise
have entered).
11
“Far West and GCAI argue that the
representation in the brochure that the
condominium was of ‘meticulous construction’
was not truly a representation of fact, but was mere
puffery or sales talk. However, representations as
to the quality of goods, even if only a general
description of the quality of goods, may be
actionable representations. See Pennington v.
Singleton, 606 S.W.2d 682, 687 (Tex. 1980).
("Words like 'excellent' and 'perfect' are words
indicating a high degree of quality" and are
actionable); see also Short v. Mitchell, 454 S.W.2d
285 (Tex. Civ. App. 1970, writ ref’d
n.r.e)(representation such as "solid construction" is
a representation of existing material fact).” HOW
Ins. Co. v. Patriot Financial Services of Texas, Inc.;
786 S.W. 2d 533, 543-544 (Tex. App. – Austin
1990).
12
An unconscionable act or practice is currently
defined as an “act or practice which, to a
consumer’s detriment, takes advantage of the lack
of knowledge, ability, experience, or capacity of a
consumer to a grossly unfair degree.” Tex. Bus. &
Comm. Code § 17.45(5).
13
McDonald v. Texaco, Inc., 713 S.W.2d 203, 204
(Tex. App – Corpus Christi 1986, no writ). As an
aside, those lawyers under 30 may have never
heard of Texaco’s little jingle; those of us over 40,
unfortunately, may never be able to purge it from
our memories.
14
Id. at 205.
15
Tex. Bus. & Comm. Code § 17.505. The current
version of the DTPA, unlike the original version,
contemplates a right of inspection before the DTPA
response is required.
16
Tex. Bus. & Comm. Code § 17.50(a)(2).
17
La Sara Grain Co. v. First Nat. Bank of
Mercedes, 673 S.W.2d 558, 565 (Tex. 1984).
18
426 S.W.2d 554 (Tex. 1968).
19
It should be noted that the author’s use of the
term “uninformed” is itself somewhat deceptive, as
most trainers would typically use a phrase that, in
polite company, would better describe an
unintelligent donkey.
20
Chappell Hill Bank v. Lane Bank Equipment
Co., 38 S.W.3d 237, 241 (Tex. App. – Texarkana
2001, pet. denied); Del Monte Corp. v. Martin, 574
S.W.2d 597, 599 (Tex. App. – San Antonio 1978,
no writ).
21
Smith v. Baldwin, 611 S.W2d 611 (Tex. 1980).
22
A builder that has substantially completed a
home could recover the full contract price less the
cost to fully complete the work. Vance v. My
Apartment Steak House, 677 S.W.2d 480, 481
(Tex. 1984).
23
See Tape of Hearings on Texas Senate Bill 1012,
The Residential Construction Liability Act, Before
the Senate Committee on Jurisprudence, 71st Leg.,
R.S., Tape 2, Side 1, April 4, 1989 (statement of
Senator Montford).
24
Tex. Prop. Code § 27.002(a)(1).
25
Tex. Prop. Code § 27.002(b).
23
26
Tex. Prop. Code § 27.004(a), (b).
27
Tex. Prop. Code § 27.004(f).
28
Tex. Prop. Code § 27.003.
29
Tex. Bus. & Comm. Code § 17.50(a).
30
Tex. Prop. Code § 27.004(h).
31
Recovery limited to (i) reasonable costs of
offered repairs necessary to cure defects that are
the builder’s responsibility, or the amount of
reasonable monetary settlement offered, and (ii)
reasonable attorneys’ fees and costs incurred
before the offer was rejected or considered
rejected.
32
Recovery limited to (i) reasonable costs of
repairs, (ii) engineering and consulting costs, (iii)
temporary housing during the repair period, (iv)
reduction in market value to the extent caused by
structural failure, and (v) reasonable and necessary
attorneys’ fees.
33
Tex. Prop. Code § 27.004(i).
34
Bullivant, 940 S.W.2d at 419 – 420.
35
Bullivant, 940 S.W.2d at 420.
36
943 S.W.2d 121 (Tex. App – San Antonio 1997).
37
The homeowner had sued for common law fraud,
breach of contract, tortious breach of contract,
breach of warranty, and negligence. The
homeowner also sought additional damages under
the RCLA.
38
Bruce, 943 S.W.2d at 122.
39
“To the extent of conflict between this chapter
and any other law, including the Deceptive Trade
Practices – Consumer Protection Act (Subchapter
E, Chapter 17, Business & Commerce Code), this
chapter prevails.”
40
969 S.W.2d 522 (Tex. App. – Houston [14th
Dist.] 1998, no pet.).
41
Id. at 524.
42
Id.
43
Id.
44
Or, as an old trial lawyer friend of mine once
observed: “You can dress up a pig and call it
Wanda; but it’s still a pig.”
45
33 S.W.3d 376 (Tex. App. – Ft. Worth 2000, pet.
denied).
46
Id. at 384.
47
Id.
48
In the recent decision in F&S Construction, Inc.
v. Saidi, 04-02-00649 (Tex. App. – Fort Worth
2003), the homeowner had instructed the builder to
stop construction before the home was finished.
Although the builder requested the opportunity to
“complete its work on the house,” the jury and the
appellate court determined that such an offer was
not “reasonable” under the RCLA.
49
Tex. Prop. Code § 401.001 et seq.
50
The current conventional wisdom is that a draft
will be published for comment sometime in the late
Spring or early Summer.
51
Tex. Prop. Code § 426.001(a)(1).
52
Tex. Prop. Code § 426.001(a)(2).
53
Tex. Prop. Code § 401.005.
54
Emergency Rule 301.1(a)(1).
55
Tex. Prop. Code 401.003(a)(2).
56
Tex. Prop. Code § 401.003(a)(3).
57
Tex. Prop. Code § 401.004(a).
58
Tex. Prop. Code § 401.004(b).
59
Tex. Prop. Code § 401.002.
60
Tex. Prop. Code § 27.001(3). The definition also
includes the owner, officer, director, shareholder,
partner or employee of the contractor; and certain
risk retention groups. Tex. Prop. Code
§ 27.001(3)(A, B).
61
Tex. Prop. Code § 401.003(a). The definition
also specifically includes owners, directors,
shareholders, partners, affiliates and employees of
a builder; certain risk retention companies; and
third-party warranty companies. Tex. Prop. Code
§ 401.003(b). A “builder” does not include
professional services performed under a license
issued by any political subdivision of the state (e.g.
an architect). Tex. Prop. Code § 401.003(c).
62
Tex. Prop. Code § 162.
63
Tex. Bus. & Comm. Code § 27.01.
64
Tex. Prop. Code § 426.001(b).
65
See Exhibit “B” attached hereto.
66
Tex. Prop. Code §27.002(a)(2).
67
Tex. Prop. Code §27.002(a)(1).
68
At least to the extent that the plaintiff could
satisfy the requirements of the DTPA; e.g.
consumer status, etc.
69
But note that a breach of contract, even if it
arguably involves a misrepresentation (i.e. he
“represented” he was going to do something and he
didn’t), is still a breach of contract and not a
violation of the DTPA.
70
If the insulation actually installed was somehow
“defective,” then the RCLA would clearly apply.
24