Homebuyer Beware

Following Texas’s lead, many states have passed builder-friendly laws, leaving lemon homebuyers with little option but to suck it up.


Readers of “Home Sour Home,” by Randall Patterson, in the July/August issue of Mother Jones magazine, might think that fights like the one between homebuyer Jordan Fogal and her homebuilder are local to Texas. Unfortunately, Texas is a breeding ground for builder-friendly legislation that’s being used as a model across the United States.
Because of this, buying the American Dream in any state could easily
turn into Jordan’s Texas nightmare.

“Right to Repair” laws governing new home construction defects have been passed throughout the United States. These laws mandate a bureaucratic process that provides builders a right to inspect and offer a repair before the homebuyer may file suit against them. Moreover, access to our taxpayer-funded court system with a judge and jury has been replaced with a privatized kangaroo-court system called “arbitration”. Contrary to popular belief, arbitration is a costly alternative to the courts. The process is conducted in secrecy with no public record, and the arbitrators, often with ties to the homebuilding industry, are not required to follow the law in rendering their decision.

These developments, which have their origins in the tort reform agenda pushed through by Governor George W. Bush in Texas in the mid 1990’s, have since spread to many other states.

In 1989, Texas passed the first right to repair law in the country, in an effort, supposedly, to reduce the need for litigation. Under the law, before the homebuyer may bring suit for a defective home, the builder must be given the “right to repair” by being issued a formal notice identifying all the construction defects,and be provided an opportunity to inspect and repair. As simple as this sounds, the process, which is expensive and complicated and usually requires that the homebuyer hire an attorney, can last up to 3 months, more time than required to build a home. Many homeowners simply give up.

Nevertheless, right-to-repair laws have been passed in 26 other states and are touted by the homebuilding industry as as model legislation. Meanwhile, in Texas, consumer activists
are busy trying to repeal its right-to-repair law, the inadequacy of which prompted the state legislature in 2003 to create the Texas Residential Construction Commission to replace it. This is yet another model piece of legislation coming your way.

In the mid-90’s homebuilders began hiding mandatory binding arbitration
clauses in new home contracts stripping consumers of their rights
to a civil trial guaranteed by the 7th Amendment of the Constitution. Most
every builder in the every state (California being the exception) has a
hidden mandatory arbitration clause that cannot be declined, removed, or
negotiated.

The building industry has contented in many hearings that the arbitration process provides a low-cost, fair, and fast alternative to court, yet four separate studies, two of them conducted by the Texas state legislature, have found arbitration to be a consumer scam. As Ms. Fogal has learned, the process is grossly
unfair, being heavily slanted towards the builders and relying on arbitrators with strong ties to
the homebuilding industry. It’s also extremely expensive, costing thousands of
dollars just in filing fees.

Tort reform also had its roots in Bush’s governorship in Texas. The homebuilding industry, with close ties to the tort reform groups, benefited handsomely from the reforms proposed by Bush. It should also come as
no surprise that President Bush is now pushing for limitations on lawsuits
on the federal level. But in Texas, things didn’t go so well. None of the benefits touted by the tort reformers — lower home prices among them — have materialized. Nevertheless, homebuilders in other states, such as Alabama, have followed Texas’s lead, pushing their own versions of tort reform.

It’s no accident that state legislatures have favored the homebuilders. The industry, whose primary goal is self-protection against consumer litigation, is one of the most powerful lobbying organizations in the country, and can easily outspend consumer organizations to gain unfair access to elected officials. it has also funded front groups such as Texans for Lawsuit Reform, Citizens Against Lawsuit Abuse, and Americans for Lawsuit Reform, and many similar organizations in other states, which act as surrogates for the builders while claiming to represent the interests of common citizens.

Homebuyers incorrectly assume the biggest investment of a lifetime comes with adequate consumer protection. In Texas homebuyers like Jordan Fogal have learned that the laws have been so skewed in favor of the builders that a major defect can ruin a family financially, physically, and mentally. Yet state legislators across the country trust the homebuilders to advocate for consumer protection.

Americans should draw one basic message from Jordan Fogal’s tribulations: “Homebuyer Beware!”