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- House Building Contracts and Binding Arbitration
Special Feature Article, by Nancy Seats, President HADD
- Small Claims Court
- Useful Links
- Thought for the Day
- Subscription Information
1. Binding Arbitration and
This issue of the House 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 buyer’s
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 doesn’t reflect the
real life dilemma that faces consumers...today. 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
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 one’s peers.
- Bias. Many arbitrators are used often
by developers and those in the building
develop a rapport, something Homeowners
Against Deficient Dwellings is seeing far
As advocates for distressed homeowners,
we too often hear, "I didn’t understand the implications
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 haven’t 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
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 nation’s 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 jury’s
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 homeowner’s
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 can’t
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
Nancy Seats, President, Homeowners Against Deficient Dwellings
For more info go to the HADD web site at: www.hadd.com
2. Small Claims Court?
Following the legal theme of this newsletter, presented below is an
excerpt from the
House 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
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 Judy’s 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 doesn’t 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
This is a fairly comprehensive consumer
protection site for homeowners and home buyers.
- A home
inspection website with a comprehensive House Facts library.
- A useful "how to" site for home owners.
4. Thought for
Everyone is as God has made them, and oftentimes a great
deal worse. - Miguel
5. Subscription Information
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