Monday, September 24, 2007

Homeowners, Defective Houses and Big Builders: Justice Is Not Blind

I received the following account from reader Jordan in Texas:

"My house is once again in foreclosure. I think this is the third time. We were not subprimes but could not afford the astronomical repairs my house needed--over $150,000. They cover up and dump these houses... especially on relocation people because they do not know about these properties. This is the fourth largest builder in the Houston. He has a foreclosure rate on his condos on Yupon of 50% and my subdivision Hyde park is next with about 25%.

Some of them never even received the certificates of compliance and the city is afraid to mess with them. Permits were never completed on many. A lady will be here tomorrow that has the names of 30 more houses all by my builder and protected by arbitration and the hands off policy of this city. The big builders are the worst offenders.

The arbitration clause has held up though 10 hearings and I have been dragged though arbitration twice and got a ruling of fraud from the American Arbitration Association. I have filed an appeal, in the appeals court. Then, if/or when they turn me down, I will go to the supreme court to make it known how they do things here in Texas.

I have been before two different judges so far. The ruling of fraud would automatically have nullified my contract in any other situation, but the builders are protected here, arbitration is an atrocity it cost 30,000 dollars the last time and that did not include legal fees. The builder filed on me because I would not go away and the judge ordered me to submit to arbitration again. This is one of the most unfair, one-sided things I have ever witnessed. It makes me wonder lately is this really the United States of America?

This is an appalling situation which most Houstonians probably don't know about, or understand until it happens to them."

If you think this is an unusual situation, please visit the Homeowners Against Defective Dwellings website.

Let's start out by noting that I am not an attorney nor am I familiar with the relevant laws in Texas, so my comments will be in the contexts of other similar cases described on the HADD website, and my personal experience as a builder.

Back in my late 20s and early 30s, My partner and I built (not developed, just built) a 42-unit subdivision, dozens of modest FHA-financed starter homes, a retail/restaurant commercial project, and several million-dollar+ super-custom homes--about 100 homes in all. It is thus fair to say I have quite a bit of experience with construction-related law. We were sued once for defective construction (a leaky roof) and settled for $50,000, which at the time exceeded the construction cost of the entire dwelling. It was our mistake. We tried several times to repair the leaky roof but should have replaced the entire roof after the first repair.

Although it sounds like an excuse to a homeowner, we were simply overwhelmed with work, and sending out a roofer to do the repair seemed like an adequate response.

But the experience was less than satisfactory for the homeowner, too. Our attorney (an older, very experienced lawyer who took on the lousy case just to help us) told us afterward that their faces fell when their attorneys told them the settlement didn't even cover their legal fees. (They had chosen to be represented by a big multi-name "high-powered" legal firm).

Would arbitration have possible settled this case to everyone's advantage? Perhaps. Perhaps instead of generating $60,000 in legal fees (again, exceeding the construction contract) and not getting the roof replaced (it was a high-wind, 80-inches of rain a year environment), maybe we would have agreed to pay $5,000 for a new roof and $5,000 for the arbitration and the problem would have been resolved to everyone's benefit.

But what happens when the builder refuses to fix the problem? Then going to court is the homeowner's only remaining option. But what if you signed away your right to sue?

Here is my take as a small builder: if a small builder claimed a house was completed and ready for occupancy without obtaining the proper certification/sign-off from the municipality (final building inspection approval or a certificate of occupancy), then that failure would undoubtedly void any "binding arbitration" clause in the contract. Ditto for any other failure to comply with the contract, and ditto with fraud--for example, telling the homeowner the house had been approved by the city when in fact it had not.

According to Jordan's account, and others on the HADD site, there are clearly two sets of laws: one for small builders, and one for big home builders. Some are more equal than others, as Orwell would say.

Where are the cities? Unfortunately, many are hiding under rocks, cringing in fear that they too will be sued/found liable. As a free-lance journalist, I started researching this topic here in California. I found that the topic terrified newspaper editors and city staff. The editor I pitched the story to trotted out a lecture on sourcing (this, after I'd written dozens of well-sourced feature stories for the paper), and the city staff whom I'd worked with before handled my request for data very gingerly: he referred me to another official who told me the city doesn't keep data on construction defect cases in the city.

Smart move: if there's no data, then maybe nobody will notice, eh? Given that the story paid a miserly $500 fee, and its sprawling, quick-hide-the-evidence difficulty in sourcing its many threads, I set it aside as financially impossible to pursue.

(SIDE NOTE: This is why there is no substitute for in-depth investigative reporting--but that costs a lot of money. To do an adequate investigation of this story in any one state or region would take at least three months full-time, which would cost about $15,000 in wages and overhead for a journalist. Now if your newspaper is pulling in a significant share of its advertising revenues from the real estate and home building industries, how far are you going to push this story?)

Based on my experience, I think we can safely predict that defective construction and the gross violations of consumer/homeowner rights by big builders and frightened municipalities (it's hard to sue a city and win, by the way) will only grow as a national issue as the housing bubble bursts.

If you follow the legal threads to the possibility of huge settlements and consumer backlash, it also seems likely that some major builders will eventually lose cases of such magnitude that they will immediately seek the solace of bankruptcy. We might also speculate that at some point, a city somewhere will actually be found liable for skimming over construction defects passed/ignored by the departments charged with protecting the safety of the public, and then similar legal claims will be unleashed on other cities.

Has justice been served in reader Jordan's case? Not if he was sold a house with significant defects which the builder refuses to fix, and not if the city failed to catch the defects during the construction process due to lax/non-existent inspections. In this situation, justice isn't blind--the blindfold is off, and she's grinding the fingers of the homeowner hanging off a cliff edge, hoping he/she falls to oblivion without a sound.

If you're interested in this topic, you might find some value in these previous entries:

Construction Defects: The Flood to Come? (June 1, 2006)

Construction Defects, The Flood to Come, Part II (June 3, 2006)

Thank you, Merrill P., ($25) for your generous donation to this humble site, and for your valiant service to this nation. I am greatly honored by your encouragement and readership. All contributors are listed below in acknowledgement of my gratitude.

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