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This is a report done by Public Citizen on the pitfalls of Mandatory Binding Arbitration. In 2007 Senator Russ Feingold and Congressman Hank Johnson filed a bill called the Arbitration Fairness Act. PC has done extensive studies on MBA in consumer contracts and certainly in new home construction contracts. The home building industry does not want to loose this advantage so that consumers who have problems will not be able to sue.
MBA is in contracts from credit cards, cell phones, utilites, automobiles. Almost every contract you sign will have this clause.
Construction defect lawsuits are the current rage amongst plaintiff lawyers. They fight any bills that take away their ability to make CD cases out of control costly and take away the potential for crazy verdicts from jurors who do not understand the case at all, so that the builders and their insurance carriers will settle their cases. In the end, it is the lawyers who really make out. The homwoners have to disclose all of the imaginary (and sometimes real) defects that they claim in their lawsuits to the next buyer.
Here how it works all too often. The lawyers and their pet expets claim that a house has $634,000 in construction defects. In reality it probably has $11,200 in defects. If there were no defects at all, the homwowner usually would not be going to the lawyers at all. Once they get the case, some lawyers and their pet experts will go thorugh the house and analyze everything to find the basis for a large claim. A defect worth $20,000 or even $50,000 is not worth suing over, so they have to find or create something bigger. The case goes on for three years. Experts come into your house and tear it up doing all sorts of tests. If you lose, you have to pay for those experts and you get nothing. You may have to pay for the other side's experts. (The lawyers often do not really tell you about that possibility). Usually the cases settle, lets say they settle for $120,000 per house. The lawyer gets between $40,000 and $60,000. The expert consultant gets $20,000 to $30,000 for their work. This leaves Henrietta Homeowner with between $30,000 and $60,000. (I am not sure whether Henrietta has to pay taxes on the settlement or not). Now Henrietta's morgage holder contacts her and says "You have $625,000 worth of defects in your home, we are undersecured, fix those defects immediately or we will call the loan" Oops- she only has $30,00 to $60,000. Most of the defects are not real, but she has alleged that they are in her lawsuit. If she goes to sell the house, she must disclose those defects and that fact that they were not corrected. SOmeitmes poor Henrietta loses her house, but hey the lawyers and experts make out.
Plaintiff lawyers hate the arbitraiton provisions. Arbitraiton is quick and less expensive and usually results in verdicts for only the reaosnable value of actual defects. The liklihood of a crazy jury verdict is gone and with it goes the panic driven settlements. Suddenly, the $11,200 worth of defects settles for only $5,000 instead of for $120,000. If you investigate deeply enough I think that you will find that the opposition to arbitration agreements in home buyer contracts is driven or funded by plaintiff's lawyers who do not want to lose their cash cow. Arbitration is certinaly not detrimental to homeowners who only want real defects corrected.
Who do you think ends up paying all of these huge settlements and resulting outrageous insurance premiums for builders? Do you think that the builders just take it on the chin and sells their home and stops paying their workers in order to fund these expenses? Builders exist to make a profit. They are going to make a profit. The costs of all these lawsuits and settlements and resulting insurance premiums gets passed back into the cost of homes.
This process does not sort out good builders from bad builders. All builders end up getting dragged into these lawsuits. Many builders set up temporary companies that build one or two projects and then disappear. They leave their subcotnractors and or insurance companies to take the losses. Either way, it all gets passed back onto the home buyers.
Arbitration is a good thing. It is cheaper, it is faster and the decsiions are made by persons with actual knowlege about construction. What you do not get is crazed runaway verdicts. This is not a bad thing. Twelve people who either could not figure out how to get off a jury, or who have nothing better to do for a few months or a year, are not better suited to make a rational decision on these cases than a professional with experince in construciton. Wht is it that makes people think that Arbitration is somehow bad or unfair. It is true that it generally results in reaonsable and rational verdicts rather than some crazy result that bankrupts companies, but is that a bad thing?
A perfect example is shown in the propoganda report attached to the OP. the arbitrator found that some of the problems were caused by the homwowners fault. The report does nto explain why. It is extremely common for homeowners to cause their own problems and then sue. the most common example os overwatering. Howmoners are told how much to water and more importantly, how much not to water. They susually do nto read their owners maual and water like mad becuase they want lush soft green lawns. The problem is that we do nto have the technology to build a house the floats. Turn your lot into a pond, and your house will sink. Gasp! what a surprise.
Just like a car, homeowners must do maintanence. If you do not change your oil and your car siezes up are you entitled to sue the car manufacturer? Likewise if you do nto clean out your gutters and your house starts to leak, you should not be suing the builder. Yes builders make a lot of istakes, and modern houses are built on the cheap, but most of the time, lawsuits for construction defects are massively inflated. Why? Becasue typical defects do not generate enough money to satisfy the lawyers. Who wants a case for $15,000? A third of that will not even begin to pay the costs. It is clear to me that this report is nothing but raw propoganda. That is obvious becuase they cite examples of the arbitrators "horrible" decisions without giveing the reasons for those decisions. They are hiding the true facts. Further they assert that the "secretive" arbitration associations are inleague withthe builders through secrete connecitons. Not only is that completely illegal, but it is untrue. Most homebuyer contracts call for arbitration through the Maerican Arbitration Association. The largest provider of arbitraiton services. They do not cater to any one industry. Both parties participate int he selcection of the arbitrator(s). If there is any evidence of an undisclosed connection between the arbitrator and one of the parties, the decision cna be overturned.
THis kind of propoganda really makes me angry becuase it is self serviing rubbish aimed at protecting the huge incomes of certain plaintiffs lawyers. It is nto for the benefit of homeowners. The COnstruciton defect litigaiton industry is raping the construciton industry and ultimately the American people who pay the price though increased home costs. This whole process sickens me. there are few more dispcable people than tohe people who are taking advantage of others through this system. Ultimately it is the homeowners fault and they end up having to pay. If they woudl just claim only the actual and real defects and refuse to proceed withthe junk science and self cuased defects, these cases would resolve quickly and chepaly. In fact, most builders will repair any real defects that are not caused by the homwowner (and sometimes even those that are caused by the homeowners).
I do not work for or usually represent developers in these matters. I do often get involved in these cases on behalf of secialty contractors who often end up paying even if their work had absolutely nothing to do with any of the alleged defects. Often a street building contractor ends up paying some portion of a settlement in a case that arose beacuae windows were improperly installed. The whole system is a fiasco and arbitration is the only means to bring reason into the mess. However
Your assertion of "imaginary" defects and homeowners causing them are ludicrous.
New homes falling apart are the result of shoddy construction and not caused by homeowners.
Arbitration is not faster, cheaper and better. Arbitors do not have to follow the letter of the law. There is a reason businesses like arbitration and use it in so many cases unknowingly with consumers.
Are you in the building industry?
I would also ask those reading this thread to go to Homeowners Against Deficient Dwellings and Homeowners for Better Building. There is much information on arbitration on both sites. Another site to visit is called Tort de form.
One big problem I have seen with home defects is that once they are covered they are truly bad before people notice. So an issue that might only take a few grand to fix actually costs much more because your ripping out ceilings, floors or finishes in an existing home and having to put everything back to match the rest of the home. The fact that so many people want wood or tile floors, moldings, ceiling treatments, etc only adds to it.
A few years ago I saw a condo complex where the crew had not nailed half the floor sheathing to the joists in a couple of the buildings. Problem is the plywood was considered part of the system as bracing from the engineers part of view and the warping that occurred in just a few years was noticeable. Floors came up, ceilings came down, a couple of joists (trusses really) had to be ripped up- others where sistered with 2xs of plywood to turn them into box beams of types.
The 'problem' was really only about three hours of labor with a nail gun or screws plus the screws/nails. But to do that after the fact was throwing two homeowners at a time out of their homes. ripping half of everything out , fixing each location as needed and have to re-finish these rooms. So a problem that would have been a couple of grand at constrution was about 100 times that when having to rehabilitate.
If the issue involves water infiltration all bets are off.
There is shoddy building and there are a lot of real defect. Unfortuantely for the lawyers, the real defects tend tobe the ones that are easy and checp to fix. Improper flashing of windows is probably the most common.
Homeowneres do cause a lot of their own problems. Overwatering is the most common and that often causes foundation problems and mold. Failure to clean out gutters is another big one.
Yes there is shoddy build8ing practices. That is what we ahve asked for mass produced cheap homes. We do nto want to pay for craftmanship and will not pay for it. Builders who perform quality work and have to charge 20% more for a h9ouse go out of business.
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