Sharon McCann

Perhaps We Can Consider This Progress

Well, at least perhaps we can consider this progress: the March 2007 Money Magazine included an article about home building and home buying. The article by Sarah Max included a small box of information under the title “Don’t Build A Lemon.” The four means of avoiding lemonhood? Know your builder, Question whether the builder is in over his head, Have a lawyer read your contract and Be a regular at the job site.

The kicker here is that under “have a lawyer read your contract” they note: “If it includes a binding arbitration clause, you’ll waive your right to a trial. Ideally, you want to strike this section, or at least ask to name what arbitration firm will be used.” This is actually the advice of Home Owners Against Deficient Dwellings, an advocacy group. Well, I guess this is progress. It does not say anything about surety bonds. Of course I went through the list to see what we had done wrong.

Hmm, I checked to see that the builder was licensed, I checked for complaints, I called the Attorney Generals office and wrote to see if there were complaints, I got references and spoke to them and visited their homes, I got a credit report from his banker, I spoke to his suppliers. Check, did that.

Question whether the builder is in over his head. Well, exactly how do you do that? I checked to see if he had built our type of home before, he had. I checked his suppliers to see if he had worked with these types of materials before, he had. So of course when I asked him if he could handle this of course he said yes. Unless it is a development, there is no way for you to know how many projects your builder has taken on. He is not obligated to tell you.

Have a lawyer go over your contract. OK Here is where we got in trouble. We had a lawyer check the contract, but he didn’t recommend striking the arbitration clause. Why not? He said arbitration was cheaper and less confrontational than court. He was wrong.

Be a regular at the job site. Well, I had that covered, I was there every day. I brought donuts to the subs, that is how I learned how badly things were going and why.

But, there is still no mention of the one thing that could have saved us- surety bonds.

In the article, there is a story about a couple who had an addition built that was structurally unsound. Neither arbitration or court would have saved them, despite winning an agreement to do the repairs, the builder went bankrupt without completing them. This is mentioned parenthetically in the article, as if it is of little import to the essential story. Striking the arbitration clause would not have saved these people. They still have a huge mortgage on a house they cannot occupy. Some of these methods may save you from a builder who screws up a job, but a truly unscrupulous builder or one who gets in over his head after you sign your contract, will declare his company bankrupt and start a new one. No where in this list of recommendations does it tell you to check the builder’s credit. Why? Because for the most part, you cannot check this. The builder had to agree to this. If he had refused, I would have taken it as a warning sign, but most people don’t think of this or cannot get it done. Still, you cannot know what happens to that business between when you sign your contract, and when they build your house. This time frame can be anywhere from a month to a year depending on a huge number of variables.

In the case of bankrupt builders, what arbitration does is keep the situation prolonged. By the time it is all over, the court has disposed of all assets and you are left in the dust.

Getting a respected magazine to tell people to strike the arbitration clause is a great step. At least now, some people will hear that arbitration is not going to help them. But, financial advisors and apparently many attorneys have a long way to go in protecting their clients against builders. And, the laws designed to protect people entering into contracts do not stand a chance in this environment.

New home orders are down significantly this quarter. Perhaps it is the economy, or perhaps it is people hearing so many horror stories that they decide to buy an older house.

Perhaps the builders have finally screwed people out of believing in them.

Posted at 12:13 PM, Mar 05, 2007 in Permalink | Comments (2) | TrackBack (0)