Give 'Em Hector

The man from Jim Walter Homes climbed the paint-starved wooden steps and banged on the front door. Brunilda Benavides had to kick the door open. It was sticking. As usual.

He was there for the money. He said she was three months behind on her mortgage for the one-story house that Jim Walter Homes had built for her in Premont, Texas.

She explained she'd never missed a payment on the place--not until her lawyer advised her to stop paying because the house was full of defects and dangers.

She says he snarled: "That's why you Mexicans don't have anything. Because you don't pay. Why don't you pay what you owe?"

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She shot back: "Why don't you fix the house?"

Her husband Oscar, who has cerebral palsy, came to see what the yelling was about.

Benavides says the collector screamed at her husband, too, calling them both gang members. Then her husband had a seizure.

Her cousin, Robert Perez, came over and chased the collector off the property. Benavides and Perez say the Jim Walter man kept yelling from the street: "You all are Mexicans, and you're never gonna have nothin'."

Across the wildflower-strewn flatlands of South Texas, many Mexican-American families have stories to tell about Jim Walter Homes and its powerful Wall Street owners. They tell tales of warped floors, sinking foundations, bad plumbing, and foreclosed hopes. From Premont to Corpus Christi to San Antonio to Laredo, more than 400 families accuse the $2.5-billion conglomerate of targeting them for a massive scam built on the very American dream of owning a home. These low-income and working-class Texans claim the company profited handsomely by selling them shoddy homes at inflated prices.

"Every place you go where they have Jim Walter Homes, you're gonna find people who are pissed off," says the homeowners' attorney, Hector Gonzalez. "Because they prey on poor people's hopes and dreams."

Now, some South Texas homeowners are striking back. They are suing Jim Walter Homes and its owners, an investment group led by Kohlberg Kravis Roberts & Co., the leveraged buyout firm of "Barbarians at the Gate" book and movie fame. In 1988, KKR and its backers leveraged $2.4 billion to swing their "friendly" buyout of Jim Walter Homes and its sister subsidiaries.

For its efforts, KKR made an initial 700 percent return on the $5 million stake it put into the buyout. "It's a pretty fair return," KKR partner Henry Kravis conceded during a 1989 court hearing, not long before the business took a turn for the worse. Three months later, Jim Walter Homes filed for Chapter 11 bankruptcy protection, in what was at the time the biggest financial collapse of a company taken private in a leveraged buyout.

Gonzalez and his clients have sued KKR and Jim Walter Homes in Texas and have pursued them into federal bankruptcy court in Tampa, Fla. For Gonzalez, a freewheeling small-town attorney who revels in South Texas's rough-and-tumble image, it's a case inbrown and white: honest, hardworking Mexican-Americans facing down some of Wall Street's most powerful dealmakers.

Jim Walter lawyers say there's no legal rationale that could possibly link KKR and Kravis to construction complaints in Texas. But Gonzalez has tried to do so in the lawsuits--and he's tried to make it a personal matter. In court papers, Gonzalez refers to "Henry Kravis, hereinafter called Defendant Henry." Gonzalez says over and over that Kravis has used the money that the homeowners have paid on their houses "to make donations to New York museums so he can get social prestige."

Gonzalez claims in one lawsuit that KKR and Jim Walter Homes are using bankruptcy court as a "criminal haven" to protect themselves from the homeowners' lawsuits.

All the while, Gonzalez has tried to bait Jim Walter Homes into a showdown in Texas. He's instructed his clients to stop making their monthly mortgage payments--daring the company to come into the courts in South Texas and foreclose on the houses. This stubborn, brush-country rebellion has already cost Jim Walter Homes more than $3 million.

Brunilda Benavides says it's time people know how Jim Walter Homes treats its customers. Five years ago, she and her husband were living in a one-bedroom trailer with three children. One day she ran into a woman putting up a Jim Walter sign.

Benavides says the saleswoman gave her the pitch and asked how much her family earned. She explained that her husband was disabled and they got by on a few hundred dollars a month in public aid. She says the woman said Jim Walter Homes could put them into a good house for less than $200 a month.

That was on a Friday. The next Monday, Benavides says, the company delivered lumber to a plot of land her family owns. The saleswoman told her, "Your application went through." Benavides asked, "What application?" She says she hadn't signed any papers. Still, it sounded like a good deal, and she wanted to get her family out of their cramped trailer.

From the start, though, things didn't go right. She says the painters didn't come until months after the house was finished. She says a "hot" wire was left exposed inside a kitchen outlet, the doors and windows never opened or closed properly, and the water heater quickly broke. The house is full of warps and cracks. The roof leaks. "They promised us a quality home," Benavides says. "When they promise a quality home, what do you expect? A good home, not junk."

Jim Walter Homes is one of the South's most recognizable homegrown corporations, a longtime Fortune 500 member that has built more than 300,000 houses across the Sun Belt and into the Midwest. From company headquarters in Tampa, Fla., its corporate parent, Walter Industries, has grown from one of the nation's largest builders into a diversified giant with stakes in manufacturing, coal, and gas.

Jim Walter officials say they have a long record of fair dealing with their customers. "We don't build bad houses to take advantage of poor people," company spokesman David Townsend says. "We have thousands and thousands of customers who've been in our homes for years, and they're very satisfied." As for the sheer number of Gonzalez's clients, a company lawyer says, "It's not hard to accumulate clients when they're put in a position where they don't have to make any payments for a while."

Townsend says it's inconceivable that the company's collectors would harass a customer, or that a salesperson would forge signatures to push through an application. Jim Walter himself, the man who gave the empire its name and remains its chairman, has said his company's goal is "to treat others only as we would have them treat us."

The story of Jim Walter has been told again and again. The year was 1946. Walter, a 23-year-old Navy vet and newlywed, borrowed $400 from his dad and bought a tiny, unfinished house in Tampa. Three days later he sold it for a $300 profit. Then he talked the builder into a partnership. They built a couple of model "shell homes" that were unfinished inside. Their first Sunday of business, they sold 27 houses for $1,000 each.

Walter's shell houses looked good to war veterans and the working poor. Buyers put up their land for security and kept the price of their houses down by doing part of the inside work themselves. In return, Jim Walter offered two enticements: No down payment. Easy financing.

By 1955, Walter had set up a mortgage subsidiary and collected $1.2 million in expansion capital through a stock offering. By 1964, the company made it to the New York Stock Exchange.

Jim Walter Homes had become one of corporate America's great post-World War II success stories. But following this up-by-the-bootstraps story was another, darker tale: a 25-year history of lawsuits and government investigations.

* In 1978, Kentucky's attorney general sued over complaints that the company had built houses with serious flaws and lousy materials. Jim Walter Homes agreed to pay more than $1 million in investigative costs and refunds to about 850 of the 2,100 customers who had bought houses over six years.

* In 1979, Mississippi's attorney general investigated Jim Walter employees who allegedly used forgery and harassment to force homeowners into paying thousands of dollars above their mortgages. One collector wore a T-shirt warning, "If you don't pay, you don't stay." The company--which says it was as much a victim of the scam as the homeowners--fired some employees and settled out of court with the homeowners.

* Through the 1970s and early 1980s, the company was sued by hundreds of customers in Texas, Georgia, and other states who charged it with collection abuses, fraud, and other law-breaking. In Elberta, Ga., the company lost a $200,000 jury verdict and then settled out of court with an uneducated woman who claimed she had been manipulated into buying a home she didn't want. According to testimony, a salesman had sealed the deal by having her 9-year-old son sign the contract.

Nowhere has Jim Walter Homes had more legal problems, however, than Texas. And most of those cases can be traced to one man: Hector P. Gonzalez. Gonzalez was a high school dropout from a Brownsville barrio who joined the Air Force at 17 and went on to become a lawyer. He is a hefty, rumpled man who is as comfortable quoting French or Mexican history as he is telling tales of his legal wars across South Texas.

Gonzalez began his campaign against Jim Walter Homes in 1976, when a former client came to him with complaints about his shell house. He won $30,000 for the man, and more cases followed. It wasn't easy. He says the company smothered him with legal paperwork and high-priced lawyers. During one heated deposition, he fought back by grabbing a Jim Walter lawyer and stabbing him in the back--with a pencil. Gonzalez was called before the Texas bar for a disciplinary hearing to answer why he'd done that. "Because I didn't have a knife," Gonzalez replied. His law license was suspended for 60 days.

But the fight paid off. In 1980, he won more than $4.1 million for about 350 clients to settle claims that the company was charging higher mortgage rates than Texas law allowed. Then in 1981, he and another attorney won well over $3 million for 756 clients to settle lawsuits alleging shoddy building practices.

But Jim Walter Homes thought it had found a way to get rid of Gonzalez. They say they agreed to the 1981 settlement only because Gonzalez promised to never sue them again. Gonzalez says the only promise he made was not to sue for seven years.

In the next years Gonzalez was content to build his personal injury practice. Then, in 1989, the daughter of an old client walked into his office. Deja vu: a complaint about a Jim Walter house. "It was the same story," Gonzalez says. "Promises. Representations. Lies. Fraud." More than seven years had passed, and Gonzalez couldn't turn away the child of a client. Come to my office on Sunday, he told her, and pass the word I'm going to take Jim Walter cases again.

He expected three or four families, but 45 showed up. "Oh shit," he thought. "Here it starts again."

Sylvia Vela Lopez was there that day. She bought her house in Alice in 1981, when she was 23. "I was so young. I was a single parent. I said, 'OK. We can afford it.'" But she says the house had problems from the start. Her closet doors were so out of kilter, for example, that she replaced them with curtains. When she fell behind on her payments, she says, collectors would "call my mother and tell her things" or yell at her in front of her neighbors. Despite her husband and father's best efforts to fix them, the floors are still warped.

Suzanne Burroughs' house in Banquete has cracks all over the ceilings and walls. It sags so much to one side there's a one-inch gap between the kitchen counter and the wall. "The thing that gets me: They would hire just anybody to do the work," says Burroughs, one of a handful of Anglos in the suits. "I'm not saying an 80-year-old man can't do it, but I felt sorry for him. It took him forever." Now, she wants the company to haul the house off her lot. "I come from a good family. And I was used to having nice things. This was supposed to be my dream house, and it's a joke."

Jim Walter officials contend that many of their legal wrangles have been blown out of proportion. Still, they concede that the Kentucky suit was "a black eye"--and that there are problems with some of the houses in South Texas. They say they would fix them if Gonzalez would drop his demands for a multimillion-dollar settlement.

After Gonzalez sued, company employees inspected 201 houses. Jim Walter lawyers said they would give the home-owners "the benefit of the doubt" on many claims and come up with $330,000 for repairs--an average of $1,633 per house.

David Fowler, a University of Texas engineering professor who has worked as an expert witness for Jim Walter Homes, says that most of the problems stem from poor maintenance on houses that average more than 10 years in age. But he did find foundation problems with six or seven of the 25 he inspected after the current litigation began. "Like any builder, they're going to make some mistakes," Fowler says. "I haven't detected any kind of scam where they're trying to rip somebody off. In general I've found Jim Walter makes a pretty good house."

David Castro disagrees. A former city inspector in Corpus Christi, Castro has checked about 600 Jim Walter houses as Gonzalez's building expert. Not one met minimum building codes, Castro contends. He says the problem with these houses is building defects and cheap materials, not poor maintenance. Castro estimates most of the houses he's inspected in the last four years need $10,000 to $20,000 each in repairs.

Joe and Noemi Morales say they've already put thousands into fixing up their house in Alice. "But it's still getting the same way again," Joe Morales says. Tom Trinidad, who lives in Saspamco, says he's done all sorts of repairs, such as replacing a wooden joist that fell through the living room ceiling. "To me, Jim Walter is a good company," Trinidad says. "But I think they hired those guys who did the work, the carpenters, real cheap." When his daughter, Cynthia Ritzen, had a Jim Walter house built last year, she also had complaints. "I figured since this lawsuit was going on, maybe they would do a better job," Ritzen says. "And they didn't."

As more people have signed on, the legal battle has taken on the air of a social movement. The homeowners collected 7,000 signatures from friends and neighbors and sent a petition to Texas Attorney General Dan Morales asking him to investigate Jim Walter Homes. When Gonzalez wants to meet with his clients, he rents the VFW Hall in Alice. They pack the place. Taking the microphone at a recent meeting, Noemi Morales, a schoolteacher, exhorted the crowd: "We have to stand united in order to win this case. We're all together in this."

Gonzalez first sued in Texas, but the company had the case moved to the U.S. Bankruptcy Court of Judge Alexander Paskay in Tampa. Gonzalez has objected. He claims in one lawsuit that Paskay "does not bother concealing how little he thinks of Texas jury verdicts or of construction-related complaints."

Gonzalez contends in the suit that no matter where or what he and his clients sue for, the case will be moved to Florida. "With the threat of Paskay, the Defendants insulate themselves and the monies their illegal conduct obtained . . ."

Jim Walter officials say Gonzalez's allegations are ridiculous. David Townsend says that the company's bankruptcy was caused not by Gonzalez's lawsuits, but by asbestos claims against Celotex, a former subsidiary that Jim Walter Homes sold in 1988. The cloud of that litigation, combined with turmoil in the financial markets, left the company unable to repay $600 million in bonds. However, Paskay recently cleared Walter Industries of any liability for the Celotex claims.

Company officials are circumspect about their longtime nemesis. "I like Hector," company attorney Warren Frazier says. "I talk to Hector. He calls me all the time. He called me yesterday. But I can't tell you why he put some of the things he did into his complaint."

Judge Paskay has been less restrained. During court hearings, he referred to Gonzalez as "Speedy Gonzalez" and "Little Jose." Paskay also questioned the English of two homeowners. Told they spoke fluent English and had in fact served in the Army, the judge said, "Whose army, Mexican?" The Congressional Hispanic Caucus called for Paskay's removal. A federal judicial panel ruled those remarks and others Paskay made were "inappropriate," but said he could stay on the bench.

Gonzalez expects the court battle to drag on for a long time. In the meantime, he and the homeowners are trying to shame Jim Walter Homes into caving in to their demands. Over the years, Gonzalez has developed an odd relationship with the company--the dance of two old enemies who are bound together and know each other's secrets.

Once, Gonzalez says, Jim Walter officials even approached him: What could they do to avoid these hassles? How could they keep their customers from suing them?

"I told them, 'Just advertise your houses as pieces of shit. Then they can't say you lied to them.' "

He shakes his head and laughs. "They didn't take my advice."

Mike Hudson received an Alicia Patterson Fellowship to study the problems of low-income consumers.

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