Structured Settlements for Construction Defect Claims for Homeowners

If you're a homeowner and you've recently discovered significant water damage due to faulty construction, you can file a construction defect claim against the builder. In such cases, the builder can offer to pay you a lump sum amount or can offer you a structured settlement. If you are offered a structured settlement, we will explain why this could be a better option for you.

In this article, we will discuss structured settlements, how they work, and the benefits they offer if you are a homeowner who has recently discovered significant water damage due to faulty construction and has filed a construction defect claim against the builder. 

What are Structured Settlements? 

Structured settlements are a type of settlement in which the payment of damages is made over time, instead of in a lump sum. In a construction defect claim, structured settlements can be used to compensate homeowners for the losses they have suffered due to faulty construction.

Structured settlements are designed to meet the specific needs of homeowners. For instance, if a homeowner has incurred medical expenses, lost wages, and future income loss due to the construction defect, the settlement payments can be structured to meet these needs. The payments can be made for a fixed period of time or for the homeowner's lifetime, depending on the terms of the settlement agreement.

Structured settlements can potentially be used to compensate homeowners for any type of construction defect that causes financial losses, such as: 

• Water damage due to faulty plumbing, roofing, or windows
• Cracks or settlements in the foundation or walls
• Defective electrical wiring or appliances
• Poor insulation or ventilation leading to mold or mildew
• Structural defects leading to instability or collapse of the building
• Defective or improperly installed HVAC systems
• Poorly constructed or damaged flooring or decking
• Improperly installed or damaged siding or stucco.

However, the ability to obtain a structured settlement may depend on the specifics of the case and the negotiation between the homeowner and the builder or construction company.

Example of a Structured Settlement for a Construction Defect Claim

To better understand how structured settlements work, let's take a look at an example:

⏩Assume a homeowner has filed a construction defect claim against the builder for water damage in their home. The builder offers to pay the homeowner $400,000, but instead of a lump sum amount, they offer to purchase an annuity that will give the homeowner $2,000 per month for the next 20 years.

Payment Schedule	Payment Amoun ($)
Year 1 to 12	2000
Year 13 – 20	2500
Total Payment	480,000

The following table illustrates how the settlement payments will be structured: As you can see from the table, the homeowner will receive $2,000 per month for the first 12 years and $2,500 per month for the remaining 8 years. The total payment made by the builder will be $480,000, which is $80,000 more than the lump sum amount they offered.

Advantages of Structured Settlements for Construction Defect Claims

Structured settlements provide several benefits, both for homeowners and construction companies. Some of the advantages of structured settlements for construction defect claims are:

1. Structured settlements provide long-term financial security for homeowners. Instead of receiving a lump sum amount, the settlement payments are made over time, ensuring that the homeowner has a steady income stream.
2.  Structured settlements can help reduce the risk for construction companies. Since the settlement payments are made over time and are designed to fully compensate the homeowner for their losses, it can help reduce the risk of future lawsuits or claims related to the same defect.
3. Structured settlements provide flexibility in terms of payment options. Homeowners can choose to receive payments for a fixed period of time or for their lifetime. Additionally, the payments can be structured to meet the homeowner's specific needs.
4. Structured settlements can offer tax benefits for homeowners. In most cases, the settlement payments are tax-free, providing homeowners with additional financial security.
5. Structured settlements can help minimize legal fees for both parties. Since the settlement agreement is reached through negotiations, it can help reduce the time and expense of going to trial.

Disadvantages of Structured Settlement for a Construction Defect Claim

1. Once a structured settlement is in place, it's difficult to change the terms. Homeowners may not be able to access the money early, which can be a disadvantage if they need the funds urgently.
2.  In some cases, the settlement payments may not increase with inflation, leading to a reduction in the purchasing power of the money received over time.
3.  Homeowners rely on the insurance company or annuity provider to make the payments for the entire length of the settlement. If the company goes bankrupt or is unable to meet its obligations, homeowners may not receive the payments they were promised.
4. Homeowners may not fully understand the terms of the structured settlement or how the payments will be made. They may also not be aware of the fees associated with the settlement, such as administrative fees or charges for changes to the payment schedule.
5. In some cases, the structured settlement may not fully compensate homeowners for their losses. They may end up receiving less money over time than they would have received in a lump sum settlement.
6. The structured settlement may not meet the changing needs of homeowners, such as unexpected medical expenses or changes in living circumstances. They may not have access to the lump sum they need to address these needs.

It's important to note that not all structured settlements come with these risks, and in many cases, the benefits of a structured settlement can outweigh the potential risks. However, it's crucial for homeowners to carefully consider the terms of the settlement and seek advice from a financial professional before making a decision.

Also Read On: Structural Settlement for Construction