Binding Arbitration
Possibly coming to your town soon – The dispute was taken to arbitration when the homeowners refused to close on the house because it was not satisfactorily completed, and many items were left unfinished. The arbitrator ruled that the BUILDER was allowed to keep the $140,000 house along with their fixtures and earnest money, and the BUILDER was awarded $100,000.
In yet another case, the arbitrator ruled that the builder had to repair all the items in the house EXCEPT the building code violations; and awarded $10,000 in attorney fees to the BUILDER.
It's a sad, sad situation in Texas. A person can't obtain the American Dream, in today's market, without a Binding Arbitration Clause attached. This oft-overlooked legalese (usually located in the small-print on the back of a contract) is an unfair tool used by Texas builders that deprives a person of their 7th amendment rights, and some clauses even strip a person of their 1st amendment rights as well.
These clauses (labeled by the National Consumer Law Center as "astonishingly unfair and undemocratic") are just one contrivance used by builders to keep homeowners out of public courts; and rob consumers of legal protections that the Anglo-American court system took centuries to refine, such as legal discovery, the development of case law, and rulings based on legal precedents. Instead, homeowners are forced to take construction disputes before an arbitration panel, one often handpicked by the builder or its warranty company; and to abide by that panel's decision. There is no jury of your peers to weigh the facts, or relate to the hardships – hardships that often include living with illness due to toxic molds, fear for one's safety, excessive stress, and financial losses.
Citizens of Texas are denied their right to sue the builder in a jury trial, even if the newly built home is unlivable! Furthermore, if they do complete the arbitration process, chances are they will be the losers because arbitration has nothing to do with court; it is a free-enterprise, lawless system that is skewed against consumers. Arbitrators wield more influence over your life than the Chief Justice of the United States. Yet, arbitrators overwhelmingly favor the homebuilders and home-warranty companies. The arbitrators do not have to make a determination based on our country's laws, or even justify their decisions. Incredibly, the arbitrator's decision can then be filed as a final judgment in a court, even if that verdict is contrary to consumer law. As if that weren't enough, these agreements often prevent you from being part of most class-action lawsuits.
The price tag for arbitration is so excessive that many people drop their complaints because they just can't afford to pursue them. The entire burden of proof is on the homeowner, and expenses can easily reach $100,000. The homeowner must pay an arbitrator $2000+ per day, as well as a plethora of other extra fees. The homebuyer must pay those exorbitant filing fees, for all expert testimony, for depositions, for a stenographer, and even for the rental of the arbitration room. "In requiring payment of these high, up-front fees, arbitration destroys the benefits of attorney contingency fee arrangements, which allow plaintiffs to pursue their case without advancing funds."
"Congress, the courts, and the public have been victims of a disinformation campaign, portraying arbitration as an inexpensive and impartial alternative to the public courts," said Joan Claybrook, Public Citizen president. "Today, we authoritatively debunk this myth." ... "Arbitration costs much more than litigation – so much more that it becomes impossible to vindicate your rights."
| Texans need our prayers
and our help. As a matter of fact, if you don't try to help now,
your state may be next. NAHB, National Association of
Home Builders, got this unconscionable practice implemented in Texas, and they
cite it as one of their objectives
to: "Include binding
arbitration clauses in all builder / trade contractor contracts." |
The Building Industry has successfully built a very propitious system to legally outmaneuver homebuyers. It's not surprising that they prefer to use this system instead of the Better Business Bureau's alternative dispute resolution process.
The building industry has attempted to bully the Houston Better Business Bureau from offering an affordable process that might hold builders accountable by canceling their membership in the Better Business Bureau of Metropolitan Houston. They'd rather all disputes go through the American Arbitration Association or the TRCC (explained in "Corrupt Establishment"). The industry's objective is to make sure that the consumer's only available forum is expensive arbitration.
But the BBB argues that members are committed, by membership terms, to participate in the agency's alternative dispute resolution program, which consists of first mediation, and then binding arbitration. The only BBB members who can avoid the bureau's process are those who name an alternative, such as an arbitration association, on their approved membership agreement.
Carol Ritter, Vice President of Operations at the Better Business Bureau of Houston, said that the bureau wouldn't take a case if the parties have already started another process.
"We feel the BBB offers a cost-effective way for consumers to resolve their complaints without having to jump through hoops and deplete their resources," Ritter said. – The bureau's process is free for consumers with disputes against members, but would cost consumers $150 to $250 for mediation or arbitration against a nonmember.
When a BMA clause is included in your construction contract, it means your dispute must be decided by a private, non-transparent adjudication legal system. "The strategy and growing trend is for the homebuilder to take the homeowner to Arbitration. It is often used early on to stop homeowners from getting their warranty work done or even to complete the home. The builder's strategy is based on the probability that the homeowner will back down because of the high cost of arbitration."
You relinquish your constitutional rights to a civil trial by jury. Small Claims court, with its time-tested court procedures and processes, is designed to produce impartial and fair justice. With BMA, this simple and low cost method of resolving a complaint is no longer an option. Also, it will be difficult to choose an arbitrator because the qualifications and fees are designed to be confusing to the consumer.
Most arbitration rulings are kept secret. This a primary benefit, FOR THE BUSINESSES, and a key reason why contractors elect to arbitrate as opposed to litigating publicly in court. Sealed outcomes serve no public function in warning consumers. The public is not able to learn about serious issues linked to the builder they may be preparing to hire. Jury decisions, as public records, are still the best way to send a message to corrupt businesses, which would otherwise stomp on consumer rights. The secrecy also protects the decision-maker, shielding them from public accountability for wayward rulings.
Practically speaking, appeals are also not an option for you. There's no procedure that would facilitate you to appeal a bad decision; and there's no opportunity to appeal matters of law, discovery, or time restraints, etc.
Even more incredible, Rules of Law have no place in arbitration. Attorneys point out that there is no requirement for due process, right to discovery, rules of evidence, or rules of procedure. It's mind-boggling, but hearsay is accepted over sworn testimony. Yep, arbitration results in subversion of all existing consumer laws.
The standard "Residential Construction Contract" in Texas specifically names the American Arbitration Association (AAA) as the arbitration panel. Here, "Fast Track" hearings are held 30 days after choosing an Arbitrator. The homeowner has only this short period of time to find expert witnesses, get estimated cost of repairs, and find an attorney, all while holding down a job and taking care of a family under stressful and very difficult circumstances. Sad to say – the mental, emotional, and financial stress of shoddy construction is often more than a marriage can handle.
AAA even has special procedures to apply when the dispute involves construction defect claims. Their Supplementary Procedures for Residential Construction Disputes provide that the parties may only obtain, at least five business days prior to the hearing, copies of each other's exhibits in cases subject to the Fast Track Procedures (i.e., cases involving no more than $75,000). These parties are also supposed to identify all witnesses they intend to call. – More information can be exchanged in cases subject to the Regular Track Procedures (i.e., cases involving more than $75,000 and where the disclosed claim or counterclaim is less than $500,000).
There will be no additional time granted for legal discovery, as conducted in the American court system; and the other side is not required to produce the materials you request. {Discovery is defined as: Formal investigation that parties conduct before trial (or arbitration) in order to obtain information from each other about the case to prepare for settlement, trial, or arbitration.}
Often plaintiffs are denied discoveries and / or witnesses. The thirty-day time restraint and the denial of discovery does not allow for proper preparation for a hearing, thus it is practically impossible for the consumer to find justice. Since discovery is not allowed, the builder is not required to produce the original set of plans and specifications, which are critical in preparing a case involving a construction dispute under the best of circumstances. In a court of law, on the other hand, the builder would be required to produce any documents the court deems necessary to allow the consumer to prepare for trial.
"Groups such as Public Citizen; Consumers Union, the publisher of Consumer Reports; and Homeowners Against Deficient Dwellings warn that binding arbitration amounts to a kangaroo court." Several consumers have petitioned courts to release them from binding arbitration decisions. Sadly, the courts regularly uphold the decisions, citing U.S. Supreme Court rulings that enforce arbitration on consumers. In fact, the 3rd US Circuit Court of Appeals in Philadelphia said on July 1, 1999, that it didn't matter that the clause was in fine print on the reverse side of the contract; hence, the consumers were barred from litigating in court.
Distinct Advantages for Builder
Home Buyer (Consumer) Disadvantages
Award-Winning Author, Jordan Fogal, has this to say
after being in the arbitration snare for 29 months.
{By the way, she and her husband have a 30-year mortgage on
a house that didn't last two and a half years.}
A Message from Janet Ahmad, president of Home Owners for Better Building
If you must purchase a newly built home – Do NOT agree to Binding Mandatory Arbitration unless you're willing to give up your right to a civil trial by jury. – Buyers can refuse Binding Arbitration if they have a HUD / FHA-insured loan, a VA loan, or buy a KB Home. Also, you should seriously consider hiring an independent inspector. Ask your builder if you can have an independent inspector to verify the construction of your new home during all major phases of construction, and make sure an equivalent statement is in the contract.
Beware of OUTRAGEOUS New Builder Clauses – that require homebuyers to sign an Arbitration Agreement at closing that results in giving up their 1st and 7th constitutional rights. See Buy a New Home – Don't Sue and Shut Up!
Excerpts from Goff Homes contract: Buyers must agree not to: FILE ANY PROTEST, GRIEVANCE, OR COMPLAINT... INCLUDING THE BETTER BUSINESS BUREAU OR ANY MEDIA ENTITY, TELEVISION OR OTHERWISE... AGREES THAT NO SIGN OR BILLBOARD OR WRITING OR CHART OR DRAWING CONCERNING THE CONDITION OF THE HOME AND/OR PROPERTY SHALL BE ERECTED OR PLACED IN SUCH A WAY THAT IS VISIBLE TO PERSONS PASSING BY THE PROPERTY... and much more.
Also contained in the contract is a biased arbitration provision that specifies the use Construction Arbitration Services (CAS). If that isn't enough, the final clause in the agreement could cost homeowners their home – "A SUM EQUAL TO THE PURCHASE PRICE, OF THE HOME" – if the owner appeals the arbitrators' decision to the appellate courts.
KB Homes requires that homeowners sign a Repair, Assignment and Release Agreement as a condition to getting NEW HOME WARRANTY repairs made to their homes. In signing this agreement, homeowners must agree not to speak to any member of the press (including print, electronic and broadcast media) or any other resident of the community.
