Tuesday, April 9, 2019

A Customer Threatens to Sue You, Now What?

For any new home builder, being threatened with a lawsuit by one of your current or past customers can shake you to your core.

As a modular home builder who can literally work with a customer from the first meeting to years after the customer has moved into their home, when you are threatened with a lawsuit, that threat needs to be evaluated closely before any actions are taken. This is not the time for any knee-jerk reaction that could hurt you later.

The first thing you have to know is the majority of lawsuit threats are not carried out, as most people are too lazy to actually file a lawsuit after their initial anger passes. However, from time to time, the real threat of litigation might actually be serious.

Fortunately for modular home builders, insurance and warranty programs can be purchased that covers nearly every kind of legal liability your business might face.

Distinguishing Anger Rants from Serious Legal Problems

While most potential legal threats are be easy to identify as spur of the moment threats during a rant, sometimes serious litigation threats are made that make them difficult to evaluate. A customer threatening to sue because you forgot to put up a ship loose cabinet in their laundry room is clearly an empty threat. However, a customer threatening to sue because you haven’t fixed a leaking roof during the first year is really something to take seriously. Especially if you’ve tried to fix it and nothing has worked.

One thing is clear. You as their builder need to sit down and listen to what they say. Allowing a customer to feel heard may be all that is necessary to avoid a scene or disruption to business operations. Take lots of notes and depending on how serious their problem is, ask for a short period of time to come up with a remedy or fix. Then stick to that timetable and report back to them what your plan of action will be.

Settle Quickly and Quietly is Always Good Advice

If the customer threatening to sue has a legitimate claim, it may be best to settle the claim quickly and quietly. A claimant may be willing to settle their claim for much less than the claim is worth before they have spoken to a lawyer.

However, utilizing an attorney can help you know whether it is a good idea to settle. An attorney will also be helpful when it comes time to negotiate and formalize the settlement.

Laws vary from state to state, and making sure that your settlement agreement is enforceable and actually fully settles the matter can sometimes require magic legal language. Also, your attorney can advise you regarding whether you need to report the claim to your insurance company, or whether your insurance company can actually cover the costs of the settlement.

The Two Sides of a Ranting Customer

When a customer is raving mad and ranting with empty threats about things that always happen when someone builds a new home, remember this, they almost always only have two options when they threaten you…. They either are “On” or “Off”.

Let them rant and then ask them to leave your office. Ranting is their “On” switch and after a while the “Off” switch automatically kicks in. That’s the way most bullies and nut cases operate.

If a bogus lawsuit is filed, hire a lawyer as soon as you are actually served with the legal documents. The courts are used to dealing with frivolous lawsuits. There are procedures available that can get bogus cases dismissed quickly. However, there are strict deadlines. So even if you know the lawsuit is a sham, retaining a lawyer as soon as possible will help to keep the costs low.

And if you are sued over a bogus claim, go on the offensive. Tell everybody about it in every way you legally can. Write on social media, tell all your other customers what this nut is doing and how it might delay their new home, comments to vendors and other businesses are all fair game. Just make sure you don’t slander them. The truth always shines through.

Remember, your business is your baby and nobody messes with a Mother Bear protecting her cub.

I, Gary Fleisher, the Modcoach, am not a lawyer and this should not be considered legal advice. It is simply some common sense options you should know.


Anthony said...

Coach, more and more these days retail customers used the legal system to use as an excuse not to pay legitimate final bills. It is a shame that the "handshake" approach is long gone and a lot of individuals want something (and usually a lot because they couldn't afford it from the start or just are unethical and immoral people) for nothing. If I get any indication these days that I have a potential customer that may lead to this type of situation (no matter how many hours I have invested in it) it is much less expensive to walk away then take on a project that will wind up in the red. This will save you the most financially and remove a situation that gives you a lot of stress and takes your time away from the legitimate paying customers.

Ron D'Ambra said...

This is an excellent article and a strong learning tool to recognize that every builder, no matter how big, small or the standard reply of "I have never been sued before" approach should now recognize the need for reducing and transferring their risk to a quality administered warranty program, as a direct option and avenue to explore to reduce a builders risk. Warranty programs that provide binding arbitration can save a builder thousand of dollars, and also the time and grief of representing a civil action in a court that more than likely may be heavy weighed towards the homebuyers concerns, more so is the fact that a quality warranty will spell out in no uncertain terms what is and is not a defect and what the builders obligation is to remedy a defect or not. Workmanship and systems delivery protection for the homebuyer is a must and required by most lenders as part of the loan requirements, along with Statute Of Repose Laws for individual states negate the responsibility of the builders "one year" warranty. In todays world, people sue for anything, including finding problems that don't exist due to buyers remorse, why should any builder expose themselves to this potential action that can result in huge defense costs, even when there is no merit to the homeowners claim? Unless every builder is setting aside an unspecified amount of money every year for every home they builder just incase they have one claim out of how many homes they sell a year during the Statute of Repose laws and regulations, one claim can bankrupt the entire builders operation and portfolio. What then is the builders option? Utilize the services and provisions of a insurance backed quality warranty program that levels the field for both the homebuyer AND the builder, and provides an avenue for the builder to transfer his/her risk! Excellent article and topic that is often never explored but certainly a major equation when considering profitability and serviceability for any builders homeowner.

Anonymous said...

Get rid of "self builds" (meaning owner being the GC on their own new home project) the industry would lose 90% of all train wreck service scenarios. Its a cancer in our industry that never seems to go away.