Public Citizen Report Exposes Builders’ Use of Forced Arbitration and Deceptive Warranties to Escape Accountability for Construction Flaws

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Public Citizen Report Exposes Builders’ Use of Forced Arbitration and Deceptive Warranties to Escape Accountability for Construction Flaws

WASHINGTON - Millions of new home purchasers each year are forced into binding
mandatory arbitration by deceptive "warranties," and those warranties
may violate the law in as many as 17 states, Public Citizen has found.

This conclusion is contained in a report titled "Home Court Advantage: How the Building Industry Uses Forced Arbitration to Evade Accountability."

These warranties are particularly insidious because consumers often
do not learn of their details until after moving into their new houses.
Although builders often portray the warranties as gifts, bonuses or
extra protections, the warranties actually serve to exempt the builder
from liability for all sorts of problems (such as mold, building code
violations and "consequential damages") while relegating buyers to
pursue legal disputes in a private forum chosen by the warranty company.

Public Citizen today sent letters to attorneys general in states
that ban the use of forced arbitration in insurance contracts. Those
states are Arkansas, Georgia, Hawaii, Iowa, Kansas, Kentucky,
Louisiana, Maryland, Missouri, Montana, Nebraska, New Mexico, Oklahoma,
South Carolina, South Dakota, Utah and Washington. The letters are
posted at www.FairArbitrationNow.org.

Public Citizen's report exposes the troubling consequences of forced
arbitration for home buyers, a process that is rife with bias and
exorbitant costs - and is so devoid of safeguards that an arbitrator's
failure to follow the law is specifically disallowed as a ground for
appeal. Among the outrages revealed in the report, available at
www.FairArbitrationNow.org:

  • In Georgia, an arbitrator seemed to accept Leslie and Scott
    Kimbell's assertion that their floor was sinking but inexplicably
    blamed them for the problem rather than the builder who had failed to
    install proper supports under their stone fireplace. The arbitrator
    provided no relief and instead hit the couple with $12,950 in fees.
  • Jordan Fogal and her husband were forced from their Houston
    townhouse because of mold caused by a leaky roof. An arbitrator ruled
    that the builder had engaged in fraud. But she awarded the Fogals just
    $26,088 - less than 8 percent of what they paid for a house they were
    forced to abandon.
  • Army helicopter pilot John Rechtien and his wife, Michelle, of
    Savannah, Ga., filed for arbitration after battling their builder for
    nearly two years over myriad problems. The arbitrator cited technical
    language in the warranty to dismiss complaints over leaks, mold, broken
    trim and unfinished drywall, among other problems. On the items for
    which the arbitrator held the builder liable, he based his award
    primarily on repair estimates that the builder obtained and submitted
    to the arbitrator. When Michelle called the same contractors to make
    the repairs, they refused to honor the prices that formed the basis of
    the award.
  • Houston couple William and Jennifer Falbaum convinced an arbitrator
    that the foundation of their house was flawed. The arbitrator agreed
    but ruled against the couple in large part because he personally
    disagreed with an opinion of a Texas Court of Appeals. After the
    arbitration, the couple learned that the arbitrator had even signed a
    brief submitted to the Texas Supreme Court on behalf of the Greater
    Houston Builders Association seeking to overturn that very court
    decision.

"Because of forced arbitration, my husband and I have been stuck with a house riddled with costly defects," Michelle Rechtien said during a press conference
to discuss the report's findings. "The building company we bought our
new home from has used arbitration to force complaints against it into
a rigged system so it can avoid accountability."

Added Fogal, who also spoke at the press conference, "Our story is
shared by millions of Americans caught in the snare of this cursed
[arbitration] clause. Arbitration is the privatization of the justice
system where the rules no longer apply."

A free and independent press is essential to the health of a functioning democracy

Although proponents of forced arbitration often call for more
"study" of the problem rather than a cure, scant information is
available to the public for real research - a problem for which the
arbitration industry also is to blame. The process is inherently
secretive, and arbitration firms routinely flout the few laws that
require them to disclose basic information about their cases. The
American Arbitration Association, the country's largest arbitration
firm, is supposed to abide by a California statute's requirement to
disclose a prevailing party in arbitrations, but does so in only 4.3
percent of its reports. Public Citizen has sent letters to California
Attorney General Edmund G. Brown Jr. and the city attorneys of five
California cities urging better enforcement of the state's arbitration
disclosure law.

"The arbitration companies know that their futures depend on keeping
the people who hire them happy, and that means the builders and
warranty companies," said David Arkush, the director of Pubic Citizen's
Congress Watch division. "As a result, the system is stacked against
the consumer."

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Public Citizen is a national, nonprofit consumer advocacy organization founded in 1971 to represent consumer interests in Congress, the executive branch and the courts.

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