<BR><BR><BR><BR><BR> <BODY> <p>Home builders have gone far too long without checks and balances, and have become entrenched with confidence that they can do almost anything other professions would not dream of doing.</p> <p>If you are viewing this text, your browser lacks the ability to read frames or iframes. Don't worry; you can still enjoy our site. All the pages can be viewed from the <A href="http://cauc2.net/sitemap.htm" TARGET=_parent >Site Map page</A>. Please come inside!</p> <p>This is also a story about an atrocious roof installed by Eagle Construction. Did the Better Business Bureau, Better Contractor's Bureau, NARI - National Association of the Remodeling Industry, GAF Materials Corporation, or the D&C newspaper do anything to help the consumer? Amy wants to share what she has learned to help other consumers not make the same mistakes she made.</p> <H1>Corrupt Establishment</H1> </body>
Corrupt Establishment

By "Corrupt Establishment" I mean the system of things is distorted, contaminated, warped, and just plain wrong.

What's Wrong With the System of Things?

Each year, thousands of unsuspecting homebuyers become owners of defectively built, even unsafe, new homes. Faulty foundations, serious moisture intrusion, and shoddy framing are often at the root of problems, which manifest themselves as windows and doors that don't close right, gaping cracks, and rotting walls.

Serious defects can be quickly hidden under concrete, siding, or shingles. Even professional home inspectors may not be able to spot the defects until the damage shows up. Thousands lose their life savings, and the equity in their homes often plummets; but they do gain years of stress from trying to get laws enforced to make the builder or warranty company be held accountable for its failure to honor its contracts.

Even one young attorney, frustrated with his inability to get his home builder to correct multiple defects, stated publicly; "Home builders have gone far too long without checks and balances, and have become entrenched with confidence that they can do almost anything other professions would not dream of doing." Are builders and home improvement contractors more powerful, or more respected, than other US citizens? Why are these people so untouchable? Where is the loyalty to the tax-paying public? THE LAWS HAVE TO BE REVAMPED, focusing on the protection of, and swift resolution for the consumer!

So how can a consumer be assured that they can invest thousands of dollars, and then receive the quality of workmanship that is right and fair? Sadly, the deck is stacked against the homeowner.

It Only Gets More Tainted

Builders' groups, particularly the National Association of Home Builders (NAHB), continue to push hard for the passage of new laws in our states and nationally. They are intent on aggressively tilting the political / legal arenas in favor of builders and contractors, uncaring if that campaign eradicates innumerable consumer rights in the process.

They sponsor new covert laws and statutes, such as Mechanic's Liens and Right-to-Cure laws. They want to include binding arbitration clauses in all contracts, and waive implied warranty laws wherever possible. They want to stick consumers with privacy agreements and gag orders. Unfortunately, they are among the most influential political constituencies; and are often, heavy campaign contributors. In view of that, construction defects are a very political thing that everyone wants to dance around.

"Thus far, it has been the consensus of our elected officials to punish Americans further by supporting building industry legislation that harms homeowners under the guise of consumer protection and affordable housing. There is nothing affordable about a defective home. Builder-sponsored legislation will enable bad builders to continue to build substandard homes and breach the warranty without fear of consequences."

Irresponsible homebuilders and contractors harm the reputation of the homebuilding and home-improvement industries, and drive up the cost of housing and contractors' insurance. Bad contractors create claims, lawsuits, and hidden costs of new housing / improvements such as unnecessary repairs, lost wages while taking off work and dealing with a construction defect dispute, experts' fees, legal fees, and loss of equity. These twisted laws and practices are perhaps a major cause of rising inflation, the growing deficit, feelings of discontent in America, and a significant influence on everything else that is going awry with our economy. To substantiate this, look at my situation. I was a working, productive member of society before I was swindled by Eagle Construction. Now unable to work for over three years, I am still hoping my application for Social Security Disability will be approved soon.

Consumers Union, the publisher of Consumer Reports, "believes that homebuyers deserve a better system to prevent serious housing defects and a fair way to resolve disputes and to compensate consumers for shoddy work."

"In this vacuum of oversight, groups such as Homeowners Against Deficient Dwellings at www.hadd.com, and Homeowners for Better Building at www.hobb.org, have taken the lead in the battle for home-buyer protections. On their Web sites, dissatisfied homebuyers swap information about builders and remedies, and call for better laws."

So on one hand, we have consumer groups and a government that wants to dance around construction issues; and on the other hand, we have a powerful and rich industry led by the NAHB trying every contrivance to legally outmaneuver homebuyers and construction customers.

Homeowners and consumers want to able to trust people they have dealings with. They don't dream that contractors are out to get them. How can we fight against these people when our own government won't stand behind us?

Corrupt Establishment, Part 2 - Texas Exposé
(Texas - a brief visit to real corruption)

The consumer is the victim of all of the following dastardly deeds, but how
did this distorted "justice" get started, and how is it allowed to continue?

Calculated actions

Over the past 10 years, contractors have continued to furnish excessively expensive arbitration business to private, for-profit arbitration providers. The building industry negotiated repeat-business deals with these secretive tribunals, then name that specific company in their contracts' binding arbitration clauses; and that has resulted in thousands of favorable decisions for homebuilders.

There is no way to gauge this alleged bias, however, because proceedings are held behind closed doors. Nonetheless, you don't have to be clairvoyant to realize that, "diverting construction liability disputes from the public courts to a non-transparent adjudication system presents a tremendous opportunity for abuse."

More specifically, the National Association of Home Builders (NAHB) was instrumental in writing the National Construction Industry Arbitration Rules of the American Arbitration Association (AAA). These rules were adopted in 1996, and have become the industry standard for arbitration hearings. Simultaneously, NAHB canvassed for an industry-wide contract, which stipulated that arbitration be conducted under the Construction Industry Arbitration Rules; and specified AAA as the arbitrator. Now, virtually every major builder in Texas uses the 'Residential Construction Contract', which was promoted by the Texas Association of Builders and contains these clauses. Is Your State Next?

Standardized contracts are presented to the consumer in a take-it-or-leave-it fashion. Customers are not informed of the alliance between the Builder and the American Arbitration Association prior to signing a contract to purchase a home; and often believe, erroneously, that the American Arbitration Association is unbiased. Even if the consumer is savvy to the dangers of binding arbitration, he / she has little or no bargaining power; and consequently, has little ability to negotiate the terms of the contract.

AAA contracts may vary, but basically they read: "All claims... that may arise out of this agreement... shall upon the demand of either party, be submitted to binding arbitration before the American Arbitration Association and shall be governed by the provisions of the AAA Construction Industry Arbitration Rules."

Since the rules were written by the construction industry, it is not surprising that the rules give the advantage to the homebuilding industry. In literature published in 1996 by AAA, it indicates that: AAA aims to be more responsive to the needs of the construction industry.

So, in summary, NAHB has made a pact with American Arbitration Association (AAA). They helped AAA write their arbitration rules, and then promoted a standardized contract that named AAA as the arbitrator. These contracts are used so universally in Texas that consumers have practically no choice except to sign one of AAA's construction contracts. This secures favorable decisions for the Texas home-building industry. The builders in turn, create arbitration business and even serve as arbitrators in construction disputes. Sounds like a monopoly to me; I thought those were illegal in the US.

Plus, contractors' Insurance & Warranty companies also use questionable Arbitration Firms, which will likely rule in the business's favor or award less than full damages. This is evidenced by the very low loss ratios possessed by some of these insurers.

You will have a hard time believing particulars as you read my webpage about it, but remember I have backed up my statements with links to the sources. 'Binding Arbitration'

It Only Gets More Putrid

The toxic mold calamity in Texas is a crash course of the perils of binding arbitration, clobbering consumers with a one‑two‑three punch. First, they learn that their new dream home is a moldy lemon. Then they discover that they signed 'binding arbitration' clauses that steal their constitutional right to a jury trial. And then the ultimate insult, they learn that Texas politicians have helped this plaintiff-hostile system become commonplace and practically invincible. That's right, the once-great state of Texas has been bought by the homebuilders for almost nine million dollars in campaign contributions.

The following is an indication of just how invincible these construction people are in Texas.

Award-winning author, Jordan Fogal, has been a victim of "unscrupulous builders," and has not been able to get any resolution. She has gone before her mayor and city council twice. She has gone to Austin, TX. She has gone to the Attorney General. She even called the FBI and the health department. She went to the Better Business Bureau, the Texas Residential Construction Commission, her state (Texas) representatives Martha Wong, to Senator Ellis and her city councilwoman, Ada Edwards. Then she went to the media. She has been on channel 2, channel 13, in the Houston Chronicle, the River Oaks Examiner and People Magazine.

Tell me, how can this happen in what is supposed to be the greatest nation on earth?

From Jan. 1, 2001, to Oct. 25, 2004, homebuilders contributed $8.99 million to state officials, state candidates, political parties, and political action committees (PACs). Over $1 million of it went to the governor, lieutenant governor, and the House speaker. That tally consists of $744,562 to Gov. Rick Perry, $294,100 to Lt. Gov. David Dewhurst, and $60,500 to Speaker Tom Craddick. The Legislature's committee members, charged with watching out for homeowners, received $238,450.

Texas is unquestionably the flag-bearer of a trend, which is growing nationwide, of tort reform and vanishing consumer rights. This has left homebuyers vulnerable to predatory business practices, and slashed homebuilding performance standards. "The result is that homes are so poorly constructed that they actually have higher maintenance costs than a 50-year-old home. Then there is the health hazard of materials that predispose the house to the growth of mold that creates even greater risks."

The Players

Texans for Lawsuit Reform (TLR), a pro-arbitration business group, was founded by four wealthy and politically influential businessmen: Richard Weekley, Leo Linbeck, Richard Trabulsi, and Hugh Rice Kelly. Chairman and CEO, Richard Weekley, is a Houston real estate developer, the chairman of his family development company, and vice chairman of his brother's David Weekley Homes. TLR's huge PAC has spent $2.6 million, in the years 1997 - 2002, on all three branches of Texas government. In the 2004 election cycle, TLR spent $3.1 million ($3,105,386), making it Texas' most powerful PAC.

TLR spearheaded the "Tort Reform" movement, which is strategically designed to immunize corporations from civil lawsuits, limit corporate liability, establish caps on punitive damages, and generally ratchet-down citizens' ability to seek justice in the courts. In order to get their tort reform ideals made into laws, the group discovered that they needed to break up the coalition of Democratic state senators; or their legislation would never get to the floor for a vote. So in 1994, TLR launched their tactical maneuvers by investing $300,000 in three contests in which novice Republicans were trying to unseat veteran Democrats - and won them all. With these three new senators, Republicans now had their first majority in the state Senate in more than a century. The GOP Majority dutifully and actively responded to the homebuilders' bidding, and began spouting a "tort reform" disinformation campaign to sell the public a distorted view of our legal system. Special-interest groups were on their way to gaining unprecedented control of the Legislature, an "imbalanced legislative process" in which homebuilders "are heard very well. The homeowners, the constituents of the legislators, they aren't heard."

An interesting tidbit: On occasion, TLR "received 80 percent of its money from the families of just 24 tycoons."

Two families with their own enormous construction companies are credited with "dishonorable mention" for the evolvement of binding arbitration and other efforts to limit consumer rights in Texas. They not only rank among TLR's top sponsors, but also give heavily to Texan politicos directly.

The Amazing Return They Got for Their Millions

After the flurry of dollars settled and after intense lobbying, the Legislature passed House Bill 730 with little media or public attention. (TLR did not endorse or lobby for this bill.)

The Senate's bill analysis states that since "The lack of state performance standards for residential construction in Texas and case law makes it difficult for homeowners and homebuilders to resolve construction issues without costly and time-consuming litigation," HB 730, "creates the Texas Residential Construction Commission Act, adopts performance standards for residential construction and establish a state-sponsored inspection and dispute resolution process that assists consumers in resolving construction issues with homebuilders."

The Texas Residential Construction Commission Act (TRCCA) establishes a state commission to register homebuilders, sets up a mandatory dispute resolution process, and imposes a state-mandated limited warranty for home construction. Sounds good, right? Sadly, it's not good at all.

In reality, the law strips crucial consumers' rights, allows too many ways for the builders to circumvent their responsibility, and ensures that home-owning constituents have little leverage to get shoddy construction fixed. The state-mandated warranty eradicates the "implied warranty of good and workman-like construction" afforded by common law; and is enforced by that [very complex] mandatory dispute resolution process.

By statute, the TRCCA limits warranty coverage to one year for workmanship and materials; two years for plumbing, electrical, heating, and air conditioning; and ten years for major structural components. The warranty period starts from the date the homeowner moves in or takes title, whichever is earlier.

"TRCCA, in short, abolishes the common law discovery rule (which allowed homeowners to discover defects even after the warranty period). Today hidden defects undetected within the warranty period are not the builder's responsibility. If the homebuilder, for instance, installs the plumbing, electrical wiring or air-conditioning poorly (of which the homeowner has no knowledge) and these essential components fail after 2 years, the homeowner is left with a long mortgage, poor construction, and no recourse. Similarly, if the foundation crumbles completely after ten years, no matter how poorly the homebuilders' work and no matter how worthless the house, the homeowner has no recourse."

Texas Monthly: "It was one of the most blatant power plays in recent years." The TRCCA is special-interest legislation that is designed to shield the powerful homebuilder industry from legal retribution, and places sizeable hurdles before homeowners seeking to live in homes with the level of quality that they paid for.

Legislators pitched that a newly created agency would act as a mediator requiring homebuilders to make needed repairs, when necessary. But, in fact, this state agency has no authority to enforce its decisions or help victims get their homes repaired, even after the agency has inspected and verified the construction defects. The Texas Residential Construction Commission (TRCC pronounced trick), headed by nine gubernatorial appointees, is a worthless bureaucracy that regulates homebuyers by forcing them to follow the commission's rules for resolving disputes with builders.

Alex Winslow, executive director of Texas Watch said, "The TRCC was created by the builders and for the builders." Firstly, the man who composed much of HB 730's language was John R. Krugh, top in-house lawyer for Houston-based, Perry Homes. Secondly, Gov. Rick Perry who received $3.2 million from members of Texans for Lawsuit Reform, his single largest contributor bloc, and another $260,000 directly from Bob Perry, was to name the nine commissioners of the TRCC.

And whom did Gov. Rick Perry appoint to this commission to protect Homeowners? The chairman owns an abstract and title company, the vice chairman owns a construction firm and the secretary manages a construction engineering business. Other committee members are the vice president of another large homebuilder, a custom home building contractor, a construction manager and a professional arbitrator. But the most notable commissioner is senior vice president and corporate counsel of Perry Homes, John R. Krugh. Yep, the same man who helped draft the legislation that created the TRCC. So now, the TRCC is top-heavy with builder interests and presided over by representatives of the construction industry. Nice!

This pivotal coup d'état prompted Representative Garnet Coleman (D-Houston), to tell the Austin American-Statesman, "In Texas you can buy your own state agency, then regulate yourself."

Texas' pay-to-play politics must be stopped. Politicians need to be informed that if they sell out their constituents in this manner, that will be their last term in any office!

Texas Residential Construction Commission (TRCC)

The Texas Residential Construction Commission selectively accepts complaints against builders. Only 1 out of 4 homeowners can ask for assistance from the state agency. The TRCC's jurisdiction, covers only post-construction defects. Complaints that don't fall within TRCC's jurisdiction include: contract disagreements, project abandonment, most home-improvements, false and misleading advertisements, judgments or monetary reimbursement issues, and builders that go bankrupt. Homeowner advocate, Janet Ahmad, points out that the agency refuses to hear cases involving incomplete construction, even though one of the most common complaints against homebuilders involves those who disappear and leave behind half-finished projects. This lack of authority means that builders can erect homes that do not comply with minimum building codes, misappropriate money, and can build defective multimillion dollar condominiums with no fear of state action.

How Does TRCC Work?

This Hornet's nest of a bureaucracy only makes it harder for consumers to hold contractors accountable. Even if they want to, homeowners can't sidestep this new Texas Commission, because HB 730 amends state law to require that aggrieved homeowners complete TRCC's process prior to pursuing their claim in court or arbitration proceedings.

Before an owner of a defective home can do anything, he / she must give their builder 30-days notice. This first leg of the journey only delays any repairs that need to be made; and allows additional damage to occur such as water damage, wood rot, mold, and structural weakening. By the by, their home may or may not be fit for human habitation during this period. The homeowner may then need additional time to compile and prepare all of their evidence against the builder, including photos, engineering reports, etc. The process is so involved that homeowners need an attorney, and should also hire their own expert because they will need expert testimony to contest any inaccuracies in the state inspector's report. However, the builder is not required to give up any documentation that may hurt the builder's case in any subsequent legal proceedings.

At long last, they get to pay hundreds of dollars for the honor of filing a protest with the TRCC. Homeowners must then tackle the agency's arduous "dispute resolution process" with its long, statutory delays before the commission will make a determination of whether their case has merit, a finding that would then be admissible in court.

If TRCC determines that it is an "eligible" complaint, it will name a state inspector within five days, who then has 15-50 days to conduct an inspection and file a report.

Homeowners must wait for that inspection. According to commission rules, the TRCC inspector must see the problems in person for the builder to be held liable.

One homeowner maintained that she had to pay out of her own pocket to repair the dangerous electrical problem and the water pouring on her stovetop, simply to be able to live in her home. Those repairs she made herself, before the TRCC inspector toured her home, were disregarded even though she had photos of the damage.

Unbelievably, if the inspector stumbles on any construction defects not included in the complaint, he /she is not allowed to notify the homeowners of those discoveries. This commission rule will surely save the homebuilders money, but at the expense of homebuyers' safety and protection.

If the contractor or the homeowner disputes the inspector's finding, he or she has 15 days to appeal. That kicks off another 25-day wait while the appellate panel makes a decision, and three days before it is mailed out.

"If the state's inspector or review panel finds against the homeowner, the homeowner will then face an uphill battle in court or arbitration in proving that there was a construction defect or an unreasonable repair of that defect. It also creates significant disclosure requirements for homeowners and harsh penalties for omission."

If TRCC finds the complaint to be valid, at least three months are provided for the parties to negotiate and agree on repairs.

The whole process could take many nightmarish months or years. The only possible outcome is: homeowners are initially blocked from suing their builder in court; they submissively follow the TRCC's grueling process, waiting for a resolution that never comes; only to end up back at square one - facing a court battle or arbitration. This is precisely the outcome the Texas Residential Construction Commission was created to prevent. And since most builder contracts require Binding Arbitration, the homebuyer will inevitably lose; and the builder will win the dispute in their "privatized justice" system.

In the past three decades or so, there has been an astonishing erosion of Texas homeowners' rights, with business interests investing billions of dollars and working the Texas Legislature.

But there is recent report that could help Texans regain some ground. Although the State Attorney's office has made a clumsy attempt to declare it 'out of order', it is still out there where the public can view it, see the situation in Texas, and maybe bring about needed changes.

On January 23, 2006, Comptroller Carole Keeton Strayhorn issued a blistering report. Dr. Eldo Jones, a retired surgeon, was alongside Strayhorn at a news conference. He said that he has had a rough time in his dealings with the TRCC. Dr. Jones said he now is currently engaged in a lawsuit against a builder and realtor.

Here are some of the statements from her News Conference that I found most noteworthy.

"In a homeowner survey conducted by my office, I found that 86 percent of homeowners who responded said their builder failed to fix construction defects in their homes. And that was after going through the mandated State Sponsored Inspection and Dispute Resolution process that verified the defects."

"I can say, however, that my research found no evidence the Texas Residential Construction Commission has had a favorable impact on the homeowner. "It is clear that the Texas Residential Construction Commission functions as a builder protection agency."

"This agency imposes costly and bureaucratic roadblocks for homeowners left out in the cold by shabby construction and a commission dominated by builders, where even the public members are beholden to the industry they are supposed to be regulating."

"Builders are required to pay a fee to register each home. However, if the builder fails to pay the fee as required by law and register the home, the agency shifts this cost to the homeowner. Not only do you have to pay $250 to have the Texas Residential Construction Commission inspect your home for defects, you also have to pay the homebuilder's fee for registering the home when the builder violates the law and fails to register it himself." "This just adds insult to injury--and it is wrong."

"The Texas Residential Construction Commission requires builders to pay a fee to register as a homebuilder." "Anyone can pay the fee and be a registered homebuilder. The statute and agency require no proof of experience, education or financial solvency."

"The Texas Residential Construction Commission requires applicants to disclose whether they have pled guilty or no contest to any felony or misdemeanor charge for a crime involving moral turpitude and the applicant must be 'honest, trustworthy, and have integrity'."

"However, Texas Residential Construction Commission files show that a currently registered builder was convicted of burglary of a vehicle, burglary of a building and attempted homicide. Another builder that was convicted of a sex crime registered as a sex offender just months before he was allowed to register as a homebuilder."

"But it isn't the role of government to throw up bureaucratic barriers to protect unethical or inept builders from their customers."

"Caveat emptor--let the buyer beware--is the motto of the unscrupulous. It should not be the hallmark of state policy."

"It is doubtful the Texas Residential Construction Commission's processes will significantly impact the Texas economy. But the economic impact on the homeowner living in a defective home can be devastating."

"For these reasons, if it were up to me personally, I would blast this Texas Residential Construction Commission builder-protection agency off the bureaucratic books."

On December 15, 2005, State Attorney General Greg Abbott accepted $100,000 in campaign contributions from Bob Perry and his wife. {Perry would had to have known that Strayhorn's review was underway.}

On December 16, 2005, Rep. David Swinford made a request for Abbott to issue a formal opinion on whether State Comptroller Carole Keeton Strayhorn had the authority to conduct her investigation of the Texas Residential Construction Commission. {Shhh, Swinford received money from Bob Perry too.}

Interesting enough, Perry's hundred grand to Abbott came on the eve of entertaining that request. Bob Perry, as someone who had worked very hard to get the TRCC established, had profound interest in Abbott's ruling.

What is more, the couple has given generously to Abbott in the past, to the tune of $1.1 million. In May, the attorney general ruled that Strayhorn didn't have the authority to assess the commission. Is it any wonder?

On the other hand, the consumer group Texas Watch issued a favorable response to Strayhorn's findings; and said they should serve as a wake-up call to the Legislature.

Update: "The Texas Residential Construction Commission (TRCC) will cease to exist on February 1, 2010."

Corrupt Establishment, Part 3 - What Gives?

KB Home began as Kaufman & Broad in 1957, and has diversified into a multi-tiered corporation. Its home-buying division services most of the western and southern United States, and it is a major commercial real estate developer in France through its Kaufman & Broad S.C. subsidiary.

In 1979 the Federal Trade Commission sued Kaufman and Broad for building defective homes, for providing inade­quate or untimely repairs under its warranty, and employing deceptive advertising to lure homebuyers. The penalty was minimal. They had to fix some of the homes; and sign a FTC Consent Order, promising never to do it again.

The consent order said that, among other things, KB Home was required to make timely warranty repairs and to furnish home purchasers with a warranty that is "substantially identical" to the Home Owners Warranty Corporation warranty. The consent order stipulated that KB's warranties must provide for arbitration of warranty repair disputes, without charging the homeowners any fee or deposit for those proceedings. Decisions from these tribunals would be binding only upon KB Home. This is unusual because Binding Arbitration normally places an injunction against both parties, barring them from seeking an appeal if they disagree with the arbitrator's judgment.

Now, in theory, customers of KB Home would be able to take advantage of an inexpensive dispute resolution method; but still be free to seek legal recourse if they were not satisfied with the arbitration result.

Guess what, KB Home continued to insert clauses into its contracts, which mandated homeowners use binding arbitration to solve disputes; and required the homeowners to pay the expenses to initiate and conduct the arbitration. This conveniently placed dispute resolution out of the reach of many cash-strapped Americans. Flagrant dishonesty has proven to be very profitable for KB Home, and the company was on its way to becoming a behemoth of the home construction industry.

In 1991 they once again got caught cheating. The U.S. Department of Justice (DOJ) filed a complaint against KB Home for violating several provisions of the 1979 order. Ultimately, the court filed an enforcement proceeding in the U.S. District Court. KB Home paid a civil penalty of $595,000 (mere pocket change for a corporation of this size), and agreed to a federal court injunction, forever prohibiting them from any violation of the FTC consent order in 1979.

By 1999 KB Home was America's fifth largest builder. That December, the FTC again warned KB Home to stop inserting binding arbitrations in their contracts and warranties. Yet, KB Home continued to thumb their noses at the Federal Trade Commission (FTC) by repeatedly violating the 1979 FTC consent order, as the once-powerful FTC and HUD stood by and watched.

Finally, in August 2005, the FTC announced that KB Home would pay a $2 million civil penalty to settle charges that it violated the terms of a 1979 consent order by inserting mandatory binding arbitration clauses in its contracts and warranties. The modified consent decree, which replaces the decree entered in 1991, also forbids KB Home from violating the terms of the original order in the future. It mandates that the company alter the dispute resolution provisions of existing warranties to comply with the 1979 order, and to then comply with those warranties as so amended. KB Home is to extend for one year certain homeowners' two-year warranty coverage for major home components. Moreover, KB Home is commanded to reimburse homeowners' costs of seeking arbitration.

Consumer groups are still in disbelief at the idea that a humungous corporation like KB Home, whose CEO earned a compensation of $47 million in 2004, could continually ignore a federal order; and then pay only a $2 million token fine.

But the FTC Was Not KB Home's Only Challenger

July 6, 2005 - The Department of Housing and Urban Development (HUD) found that KB Home's former mortgage division, KB Home Mortgage Company, had engaged in a number of poor underwriting practices, such as overstating buyers' income to qualify for loans, failing to include all of borrowers' debts, failing to properly verify sources of funds, and failing to ensure gift letters met HUD requirements. Also, documents from the HUD's Denver Homeownership Center confirmed that KB Home had submitted false HUD Builder Certifications (forms 92541). KB Home agreed to settle the dispute for $3.2 million, the largest settlement of its kind for HUD. By that time, KB Home had sold its mortgage division to Countrywide Home Loans in June of 2005.

Nancy Seats, President of Homeowners Against Deficient Dwellings (HADD), called the FTC and HUD settlements "inadequate," noting that KB Home stated that the settlements would not affect their bottom line. "Bruce Karatz [KB Home's chairman] could pay those costs out of his checking account and not miss a thing," said Seats.

In 2003 a petition was filed in Laredo, Texas. The lead plaintiff, Laredo truck driver Timothy D. Pruitt, filed as an individual, and as a representative of all other KB Home consumers who are similarly situated. Mr. Pruitt requested simply that the court declare the binding arbitration provision in his home warranty to be contrary to federal law, invalid, and unenforceable.

Alice Oliver-Parrott, Retired Chief Justice of the First Court of Appeals in Texas, recaps a history of continual defiance of FTC consent orders in the Pruitt petition. Here is an excerpt:

"For twenty-four years, KB Home has used subterfuge and lies to avoid public scrutiny and accountability for its wrongdoing. They have entered into agreements with the Federal Trade Commission, violated those agreements, and misrepresented their violations to the Commission. As a result, they have been allowed to continue to profit from their wrongdoings. When, in 1991, the FTC discovered KB Home's violations of the 1979 consent order and filed an enforcement proceeding in the federal district court, KB Home paid a monetary civil penalty of $595,000 and agreed to a federal court injunction, forever prohibiting them from any violation of the FTC consent order in 1979. They have now admitted in correspondence to this court that they have intentionally and willfully violated that federal court injunction insofar as the arbitration provisions contained in their home warranties. They have also admitted consistent misrepresentations to the Federal Trade Commission, to this court and to other courts concerning their violations. Only when confronted with irrefutable facts, do they admit their lies and offer apologies if any offense has been taken."

This case later became a class-action lawsuit against KB Home. Lawyers representing KB homeowners claimed that the Los Angeles-based homebuilder misled and misinformed homeowners of their consumer rights and remedies, that their actions were in violation of federal orders issued in 1979 and 1991, making the binding mandatory arbitration clauses invalid and unenforceable. A settlement agreement was reached.

On Feb 23, 2006, Laredo Morning Times reported that: "KB Home agreed to modify the existing warranties of tens of thousands of homeowners, who will be notified by mail. Arbitration proceedings will remain binding for KB Home, but not for homeowners. The option of arbitration will remain available to owners." However, the settlement could not be finalized until a hearing on May 16, 2006.

May 16, 2006 - Laredo District Court Judge Solomon Casseb, finalized and approved a court-supervised class action settlement of Timothy D. Pruitt vs. KB Home, which prohibits KB Home from forcing past, present, or future customers to consent to mandatory binding arbitration for the resolution of warranty claims. With the settlement of the class-action suit, KB Home and its subsidiaries' binding arbitration clauses are invalid.

The mandated court notification of the settlement will be sent to all Texas owners who bought a house from KB Home after January 1996. This includes about 60,000 homeowners in San Antonio, the Rio Grande Valley, Austin, Houston, Dallas, and Fort Worth. They will be informed that they can now sue KB Home in a court rather than being forced into binding arbitration regarding construction defects.

"It is our expectation that this Texas Class Action Settlement will spark other class-actions to be brought on behalf of homeowners in other states like California, Arizona, Florida, and the many other states where KB Home has a history of requiring homeowners to agree to mandatory binding arbitration in its contracts and warranty agreements," said Janet Ahmad, national president of HomeOwners for Better Building (HOBB), a non-profit group.

Guess what, despite these agreements and fines, HomeOwners for Better Building (HOBB) says it has obtained information that confirms KB Home has once again disregarded the FTC consent order and the terms of the new class action settlement even before the ink was dry. "Documents show that at the same time KB Home negotiated the settlement and was under the provisional certification of the class action, the company referred at least one homeowner with major foundation problems to its third party warranty provider, Home of Texas, who denied the claim and notified the homeowner to submit to Binding Arbitration conducted by Construction Arbitration Services (CAS)." The FTC is now reviewing those documents.

Excerpt from a KB Home Letter Excerpt from a KB Home Letter

Excerpt from a KB Home Letter Defying FTC Consent Order (dated March 30, 2006) " " "

Today KB Home is an undisputed leader in the industry. The company reported net earnings of $480 million as of November 2004. Just how did KB Home become such a multi-billion-dollar corporation giant when they build what many critics refer to as "disposable housing"?

Well, "when it comes to defying all good business principles of producing a durable and lasting product, KB has truly excelled." "While most companies fail due to a bad product, negative press, and their infamous reputations, KB Home has thrived on the idea that if you make it easy for customers or just build it, they will come, regardless of quality."

KB Home also knows the secret to success in the building industry: government (taxpayer) support. To assure success, the building industry coined the new political buzzwords 'Affordable Housing' to replace the old, more restrictive 'low income housing' phrase. Subsequently, the government endorsed 'Affordable Housing' program has become anything but low income for the giants of the homebuilding industry, and has in fact made them billionaires, while taxpayers pick up the tab for many decades to come.

With government financial incentives and influence, the finest attorneys money could buy, and some great luck, they have become the leader in how to gain outrageous profits while selling defective products. Experts have remarked that 1-year-old homes built by KB Home "were so bad that expensive repairs and high long-term maintenance would cost more than simply tearing them down and starting over."

Formula for KB Home's profits and overall success:

  1. Go where no one else would dare to go - swampland, bombing ranges, and landfills.
  2. Target first-time homebuyers, specifically young families, generally in medium-sized developments close to major metropolitan areas.
  3. Use government incentives (money) and innovative financing techniques to qualify the buyer.
  4. Cut building costs whenever possible, including site preparation and foundations.
  5. Purchase the cheapest materials in volume, and use the cheapest possible unskilled labor.
  6. After the home has been sold, ignore all complaints, warranty claims, and bad press.


So now after decades of building defective structures, thumbing their noses and deceiving authorities, multiple federal orders, a 2-year-long class-action lawsuit, and lastly a district court order, KB Home finally has to answer to thousands of homeowners spending untold time, money, and energy in litigation in the next years to come. How many thousands of people had to suffer at their hands? How many marriages / families were destroyed all because our government didn't take swift, definitive action to punish these deceptive acts and protect the taxpaying citizens, the constituents of our "mighty" officials. Again I ponder, are homebuilders and contractors more respected, or more powerful, then the rest of us? Someone please explain it to me.

How many thousands of people had to suffer at the hands of the other construction giants? How many thousands of people had to suffer at the hands of the numerous little construction companies?

How many more people, marriages, families will suffer before our government develops a plan to stop these deceptive practices, regulate the construction industry, find a way to make sure records of these acts are readily accessible for public knowledge, possibly design a contract that will keep contractors honest, enforce building codes, create a recovery fund to save marriages, families, homes; and help citizens get back on track fast, before illness, mold growth, and extensive water damage. How many more people, marriages, families will suffer before our government improves judgment collection, and stops Binding Mandatory Arbitration, Right to Cure laws, Mechanic's Liens? Someone please help us, and our nation!

The US Congress has 100 Senators and 435 Representatives. Then there are the state legislative branches; NY currently has 62 State Senators and 150 Assemblymen. Multiply that by 50 states and we are talking thousands of state and federal officials. Even if a small percentage of these are people are easily bribed, then we have a number too large to be tolerated. I know some representatives may feel compelled to reward those who made sizable campaign contributions, thinking 'this little concession won't hurt anyone'. Again, multiply that by the huge number of delegates being approached by the lobbyists. This concurrence of venal personnel equates to excessive corruption, and little support for consumers. We need more representatives to think: If our nation is going to be strong, then I need to be strong. I want to hold my head high, and be proud of all of my decisions.

Binding Arbitration and Right-to-Cure, Is Your State Next? That is a very real threat!