Failures in Builders Binding Arbitration
DALLAS MORNING NEWS
REPRINT FROM 2006
State-
Construction board lacks authority to have builders correct defects
04:50 PM CDT on Thursday, October 12, 2006
By PAULA LAVIGNE / The Dallas Morning News
Buyers of brand-
Good news: In about nine of 10 investigations, Texas officials have told builders to make repairs.
Bad news: Two years into the program, most builders haven’t made the fixes.
The Dallas Morning News contacted more than 60 homeowners in North Texas who took their problems to the Texas Residential Construction Commission. Of the 23 who responded, only four said the builder made some or all of the repairs recommended.
The informal survey seems to echo the sentiment of a statewide review of 102 homeowners. Of those, 88 said the builder didn’t make the repairs suggested by the commission, according to a state comptroller’s office report released this year. Some of those included cases still being reviewed, commission officials said.
The Legislature formed the construction commission in 2003 to handle complaints about new homes. The commission investigates and recommends repairs, but it lacks the power to force builders to comply. As a result, homeowners and consumer activists have criticized the agency for its inaction.
DallasNews.com/Extra
Agency set to put complaints online
Visit the Wilson home, where cracks run through concrete, drawers don’t open, and a ball rolls down the crooked mantle
Chat transcript: TRCC executive director Duane Waddill on reporting problems and getting information on builders
Home Owners for Better Building
• Tell your story and view other complaints
Texas Residential Construction Commission
• Search for builders
Contact the commission at (877) 651-
Agency officials said their rulings would help homeowners prevail in whatever legal action or other options the owners pursued. But owners say the rulings have not provided a boost.
Even builders acknowledge that progress has been slow, with only 35 percent of those involved in complaint investigations saying they’ve resolved their disputes with homeowners, according to agency reports.
“I’d like the number to be higher,” said TRCC executive director Duane Waddill, who said he’s personally investigating cases in which the builder is not cooperating.
Homeowners often find that if they don’t get relief through the agency, their options are limited.
Some may opt for a private, fee-
Disgruntled owners can also file lawsuits if their contracts allow, but legal fees can mount.
Only fraction complain
Builder associations support the agency’s oversight and say most homeowners are satisfied customers.
The 525 investigations initiated in two years with the TRCC represent about one-
Investigations can include multiple problems. Inspectors reviewed 7,730 alleged defects. They confirmed about 60 percent and suggested the builder make repairs, according to a TRCC report released last month.
Most cases with defects found were in homes built by custom or smaller-
“We’re focusing on a very, very small number of situations where … communication and other things have broken down,” said Scott Norman, vice president of governmental affairs and general counsel for the Texas Association of Builders.
“A lot of the time [defects] might be a minor paint blemish or ruffled carpet. Those are all getting repaired,” Mr. Norman said.
Robert Martinez of Tyler said his builder blew him off for two years before he complained to the TRCC.
Water had seeped in from a leaky window and damaged his hardwood floors.
The TRCC inspector ordered the builder to fix the window, replace the floors and make other repairs stemming from a plumbing leak, Mr. Martinez said.
The builder started work within a month, Mr. Martinez said.
“I’m pretty satisfied,” Mr. Martinez said. “I guess I was one of the few fortunate ones.”
‘Builder said no’
Sachse homeowner Jean Cogdell is still waiting.
TRCC officials ruled in February that her home’s foundation shifted because the builder failed to properly prepare the soil. They recommended the builder consult an engineer on foundation repairs, improve the drainage and fix interior cracks.
“The builder said no,” Ms. Cogdell said.
Now she, her husband and their attorney are assessing whether they should go to arbitration – required by their contract – or just pay for repairs themselves.
“Most [homeowners] are barred from filing lawsuits and are subjected to a biased and costly binding arbitration process,” said Janet Ahmad, president of HomeOwners for Better Building, a national consumer advocacy group based in San Antonio. “Without enforcement authority, builders have no incentive to build homes correctly or even make repairs.”
But Mr. Waddill said he’s trying to do as much as he can within the TRCC’s powers.
He described a recent encounter with a McKinney builder.
“I asked, ‘What is your good faith effort? What are you doing to operate with integrity and honesty in the state of Texas? What actions are you taking to deal with this?’ ” he said, adding that the builder later offered the owners money for repairs.
Some builders say that they’ve offered to make repairs but that some demands are unreasonable.
Bradley Taylor, division president of Lennar Homes in Dallas, said his company agreed to make the TRCC-
Mr. Taylor said, “If they called me today and said, ‘Next Wednesday at 5 o’clock,’ I’d make that [the repairs] happen. … I feel like we’ve gone above and beyond.”
Other options
Homeowners whose problems are not resolved by the agency are faced with myriad options that are often complicated and costly.
Irving homeowner Sam Lyle said it would cost up to $38,000 to repair his foundation. An attorney told him she thought he’d have a good case against the builder. But he can’t afford her $500 fee.
“I don’t intend to give up,” he said. “Who knows, maybe $500 will just fall out of the sky.”
Some smaller, custom homebuilders simply disappear or threaten bankruptcy if homeowners don’t agree to a settlement.
Ms. Cogdell, whose Sachse home needs foundation repair, said builder Doug Buchar told her that he might file for bankruptcy if she continued the case.
Mr. Buchar could not be reached at several phone numbers.
The Cogdells’ contract requires arbitration. Agreeing to that process means that both sides consent to bringing disputes before a private arbitrator, whose decision is binding. It also means that owners give up their right to have a judge or jury decide the case.
Guy Combs, a homeowner in Alpine in West Texas, said arbitration backfired for him. He lined up about 20 expert witnesses and provided several inspection reports to support his claims that builder negligence led to damaged stucco, a leaking roof and mold.
The arbitrator ruled against him, in part because, she said, he contributed to the damages. She ordered him to pay the builder $68,000 for legal fees, which he negotiated to $50,000.
Favoring arbitration
Builders favor arbitration over the courtroom because arbitrators come from a pool of people – attorneys, inspectors, appraisers – who have construction expertise. Critics of arbitration say those ties create a bias. They also suspect arbitrators prefer to side with builders because they want repeat business.
Jeff Adams, a home inspector in San Antonio who worked as an arbitrator, said he received a couple of cases a month until he decided a case in favor of a homeowner.
“I never got another assignment after that,” he said.
Leaders of two of the nation’s largest arbitration providers, the American Arbitration Association and Construction Arbitration Services, say that strict ethical standards guide their practice and that arbitrators have no incentive to favor builders.
We would refuse to do business with any organization in any industry that wanted to influence us in any way,” said Edward Hartfield, executive director of CAS in Clinton Township, Mich. “We will never compromise neutrality and impartiality.”
Both Mr. Hartfield and Richard Naimark, senior vice president of the American Arbitration Association, believe there’s a balance between the percentage of cases decided in favor of builders vs. the percentage won by homeowners.
But they don’t have hard numbers or definitive studies.
By year’s end, the TRCC hopes to have results from a Texas study of arbitration cases and demographics based on discussions with attorneys, builders, homeowners and arbitrators, Mr. Waddill said. The report is to be presented to the Legislature in January.
Mr. Waddill said he requested money for three ombudsmen and two clerical workers to help follow up with homeowners struggling to get builders to make repairs.
The agency also plans to make detailed information about complaints and resolutions searchable on its Web site.
E-
NORTH TEXAS DISPUTES
RICHARD AND OLIVIA TACKETT
Location: Allen
REX C. CURRY / Special to DMN Richard and Olivia Tackett had problems when water came through the synthetic stucco on their Allen home.
Defect: Synthetic stucco on the home’s exterior allowed water to seep in, ruining the framing and baseboards and prompting mold growth.
Response: The builder did not respond to the Texas Residential Construction Commission’s repair recommendations. The Tacketts sued. Both parties agreed to mediation and settled on an amount to pay for the repairs. The exact terms are sealed, but Mrs. Tackett said the couple, “significantly compromised on our demands to settle the dispute.”
Builder: Norman Barfield, Barfield Building Company, of Roanoke
Builder’s comments: Mr. Barfield did not return calls.
SHAYNE AND JAYME WILSON
Location: Hunt County near Caddo Mills
Defect: The Wilsons pointed out more than 20 defects in their home, backed up by a private inspector who said the problems were caused by shoddy construction. But the commission’s inspector ruled that the builder’s only fault was using the wrong paint. He recommended the builder pay to correct the color.
Action: The builder did not respond to the commission recommendation, and he did not address the other issues.
Builder: Richard Willingham, formerly of Garland
Builder’s comments: Mr. Willingham said the Wilsons still owed him money for his work on the house, which is the main reason he didn’t take care of their paint problems. He disagrees with the second inspector’s report. “There was nothing wrong with that house,” he said.
RANDY AND KATHY HEDDIN
Location: Forney
REX C. CURRY / DMN Kathy Heddin said her builder did not make repairs that were promised.
Defect: The commission determined that the builder needed to fix an electrical outlet, level the bathroom floor, repair cracks in the drywall, replace portions of the sidewalk and fix a possible leak that was causing the foundation to shift. Both the homeowners and builder believe the house shifted because of a drainage problem, but they disagree on who is at fault.
Action: The builder did not make the repairs. The Heddins filed a lawsuit and are awaiting the builder’s response. Mrs. Heddin (above) said the builder has threatened to file for bankruptcy.
Builder: Jeffrey Todd Liles, Liles Custom Homes, of Garland
Builder’s comments: Mr. Liles said the Heddins ruined the drainage when they leveled their back yard, causing the foundation to shift. He said he’s willing to take care of all other problems outlined in the report, but the foundation issue stands in the way. “They requested I buy the house back at $200,000, when I only sold it to them for $150,000. It’s way above and beyond what I had any intention of doing.”
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