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JUNE, 2002


House Building Arbitration

New House  Building: Money Saving, Convenience and Healthy House Tips

James Todd
June, 2002 
Happy Father's Day!


  1. House Building Contracts and Binding  Arbitration
      Special Feature Article, by Nancy Seats,  President HADD
 2.  Small Claims Court 
 3.  Useful Links
 4. Thought for the Day
 5.  Subscription Information

Please forward  this newsletter to anyone whom you think may be  interested!


1. Binding  Arbitration and Building  Contracts

This issue of the House-n-Home  Newsletter features the topic of binding arbitration.
This is an important and timely  article for all of you, our subscribers, who are or will be building homes in  the near future.

Builders can and do use it to the buyerís  disadvantage.

Homeowners Against Deficient Dwellings, Inc. (HADD) encourages homebuyers not  to sign
into arbitration clauses in home purchase contracts.  Arbitration...or Alternative Dispute
Resolutions, ADR, as it is referred to,  should simply be just that, an alternative. In order for
this to happen,  legislation should be enacted to prohibit Arbitration Clauses in home purchase
contracts. Homebuyers should have the right to choose if arbitration is in  their best interest
when problems with defects and or workmanship arise, and  only then under the sage advice
of legal counsel.

What Is Binding Arbitration?

The superficial answer is that binding arbitration is an alternative means of  settling legal disputes.
Instead of going through the public court system,  parties involved in a legal controversy can
waive their rights to public  court and instead submit the dispute to a private arbitrator. The
arbitrator  will then review the case and make a legally binding decision. Insurance  companies,
car dealers, banks, and other businesses tout it as  cost-efficient, time-efficient, and fair. These
pro-arbitration factions say  that it is simply an issue of choice; consumers who do not like
arbitration  are free to seek products and services from businesses that do not require  customers
to sign arbitration agreements. That theory sounds good on the  surface, but it doesnít reflect the
real life dilemma that faces Too often, people who are in the market for a
new car,  real estate, insurance, or a checking account with a major bank may find that no  matter
where they turn for these products or services, an arbitration  agreement will probably be required.
(From Alabama Consumers Against  Arbitration, with thanks from HADD)

Russian Roulette

Mandatory binding arbitration clauses are increasingly found in "preprinted"  homebuyer purchase
contracts, or seller/buyer agreements. Today it is  important for consumers to make informed
decisions when signing a home  purchase agreement. Arbitration simply means relinquishing their
right to a  trial by their peers, a decision that many consumers have unsuspectingly made  and
regretted. This up and rising trend of arbitration clauses in consumer  contracts means one party,
an arbitrator, will resolve any dispute. Not  surprisingly, most homeowners have found this to be a
little similar to  Russian Roulette when having their disputes resolved through arbitration.  Reasons:

  • Often there are no options for appeal. The arbitrator's decision is final.
  • Often plaintiffs are denied discoveries and or witnesses.
  • Homebuyers are unaware of the perplexity of arbitration, along with hidden  costs.
    Many homeowners found the cost of arbitration to far exceed court  costs.
  • No jury of your peers to weigh the facts, reports, photos, and other  documentation,
    or relate to the hardships-- hardships that often include  living with illness due to toxic molds,
    fear for one's safety, excessive  stress and financial losses. All need and deserve to be heard
    by oneís  peers.
  • Bias. Many arbitrators are used often by developers and those in the  building industry and
    develop a rapport, something Homeowners Against  Deficient Dwellings is seeing far too often.

As advocates for distressed homeowners, we too often hear, "I didnít  understand the implications of
what I signed and/or understand how it could  affect me if problems arise with my home." The
mandatory pre-dispute binding  arbitration clauses that are in consumer contracts are buried all too
often  in fine print, written in legalese and with wording that varies from contract to  contract. Or they
may just say enough to sound like a good idea at the time.  Consumers are all too often unaware that
they have waived the right to go to  court. By signing a contract with such a clause in it, they have
effectively  abrogated that option.

When they havenít committed themselves to binding arbitration, and the  homeowners have the chance
to consider arbitration as an alternative to  litigation, they will frequently find that the steep costs of
arbitration,  the inconvenience of traveling to the arbitration hearing site, and their  attorney fees are
far more than the typical $100 filing fee at their local  court house.

Should consumers trust arbitration?

"No," says Hunter Ford of Alabama Consumers Against Arbitration, "there is  climbing evidence that
arbitrators are often biased to big business and the  consumer loses." A Washington Post story recently
reported that First  USA, the nationís largest second-largest issuer of credit cards, has won 99.6  percent of arbitrated consumer disputes. Recently Business Week headlines read, "FORCED INTO ARBITRATION? NOT ANY MORE." More employees  are saying it's unfair--and many judges agree.

Just who is really being harmed the most by arbitration clauses?

The burden of mandatory arbitration clauses is likely to fall most heavily on  socially and economically
disadvantaged consumers who are the least  sophisticated, the poorest, and the least educated. This
group has  benefited, perhaps more than others, from jury decisions enforcing their legal  rights. For
those in low income housing, coming up with a few thousand  dollars for arbitration may never be a
possibility at all.

Jury decisions are still the best way to send a message to corrupt businesses  and corporations who
would walk on the rights of the consumer. Arbitration  decisions are private; therefore they serve no
public function in warning  consumers of those involved in unscrupulous business practices. A juryís
decision is a matter of public record and can save other consumers a lot of  hardship.

Homeowners have found overwhelmingly that  they are on the losing end of arbitration,  the National
Association of Home  Builders (NAHB) was instrumental in writing the American Arbitration Association
(AAA), Construction Industry Arbitration Rules which were adopted in 1996  and have become the
industry standard for arbitration hearings.  Simultaneously, NAHB led an effort to promote an
industry wide prorogated  Builder Sales Contract containing a mandatory binding arbitration clause
stipulating: AAA as the arbitrator, conducted under the AAA Construction  Industry Arbitration Rules. 
In the last four years we have only seen two  homeowners made whole by arbitration, and those
were both independent  arbitrators....not AAA.

A young family attempted for 5 years to get a large developer to fix the  construction defects
in their home.

They finally were forced into binding arbitration. The developer chose the  arbitrator -- a retired judge. He
awarded the young family $100,000 in  January, 2000. Why are we using a judgment in a homeownerís
favor to make a  point about our opposition to arbitration? Simply to illustrate on those  occasions that we
do win, collecting awards is next to impossible. The  family still has not collected their award because the
developer appealed  the decision saying that the arbitrator was senile and incompetent. Mind you --  the
developer chose the arbitrator! About two weeks ago the appeal was  thrown out and the judgment upheld.
We are assuming the developer is  planning to appeal again, as the family still does not have their award.
The  time involved and the legal fees incurred here have to be just as much as if the  family had gone to a
jury trial. This horrible mess has caused a split that  canít be repaired in this family. Sad to say -- I have
seen this happen far  too often. The mental, emotional, and financial stress of extremely shoddy  construction is often more than a marriage can handle. A home is the largest  single investment a family makes, and we need consumer protection passed in  every state that will hold unscrupulous builders accountable and responsible.

Now, more than ever, we need to retain our jury system that best sends this  message to the public sector
and not have it effectively emasculated by  binding arbitration agreements.

Nancy Seats, President, Homeowners Against Deficient Dwellings  (HADD)
For more info go to the HADD web site at:

2.  Small Claims  Court?
Following the legal theme of this newsletter,  presented below is an excerpt from the
House-n-Home  Guide which discusses the use of Small Claims Court.  It can be an  effective
and inexpensive tool for home owners to use, when  they have disputes with builders.

Building your new home should be an  enjoyable process. Unfortunately, this process is so
detailed and involved  that it is not uncommon for misunderstandings to arise. Hopefully,
these  will be small, and you can resolve them amicably, with some give and take.  However,
in the event that differences cannot be resolved, I would  definitely recommend small claims
court, before getting a lawyer involved.  Small claims court is like Judge Judyís court on TV.
Both parties get up and  give their side of the story and present their evidence without the
requirement of having a lawyer represent you.

The use of small claims court doesnít prevent  you from appealing a decision or getting
a lawyer involved if the judge  rules against you. Also, the mere fact that you initiate a claim,
may be  sufficient pressure on your builder to just settle the disputed issue(s) so he  can get
on with his normal business.

Most small claims court filing fees are inexpensive, around  $50, and the size of the allowable
claim is substantial. In most areas,  claims of about $2,000 are allowed, and in some areas,
this figure is  approaching $10,000.

3.  Useful  Links
The following are useful links that I have come across that  might be helpful to you in
your home building project.

Homeowners  Against Deficient Dwellings (HADD).  This is a  fairly comprehensive consumer
protection site for homeowners and home buyers.

US  Inspect - A home inspection website with a comprehensive House Facts  library.

Super Handyman - A useful  "how to" site for home owners.

4. Thought for today: People
Everyone is as God has made them, and oftentimes a  great
deal worse. -
Miguel de Cervantes

5. Subscription  Information
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