Legal Memorandum: Standing to Pursue Construction-related Counterclaims

Issue: Under Alabama law, do purchasers of a home retain standing to pursue construction-related counterclaims following foreclosure of the loan on the property?

No Alabama court appears to have directly addressed this issue.*FN1  Other courts have.  Recently the Indiana Court of Appeals held that plaintiffs retained standing to pursue a breach of implied warranty of habitability claim despite the foreclosure of the property.  In ARC Constr. Mgmt, LLC v. Zelenak, 962 N.E.2d 692 (Ind. Ct. App. 2012), the plaintiff homeowners sued the builder alleging a number of claims arising out of faulty construction.  The trial court granted the summary judgment to the builder on the ground that the plaintiffs lacked standing after the home was taken in foreclosure proceedings following commencement of the suit as to all the plaintiffs’ claims, except the breach of warranty of habitability claim.  The court of appeals affirmed, stating:

The judicial doctrine of standing focuses on whether the complaining party is the proper party to invoke the court’s power.  Courts seek to assure that litigation will be actively and vigorously contested.  To have standing, a party must demonstrate a personal stake in the outcome of the lawsuit and must show that he or she has sustained, or was in immediate danger of sustaining, some direct injury as a result of the conduct at issue.  The Zelenaks are alleging that they sustained damages as a result of ARC’s construction of their home.  We therefore conclude that they have standing.

962 N.E.2d at 698 (citations omitted).  See also Dennis v. Magic City Dodge, Inc., 524 So. 2d 616, […]