Arbitration Clause Destroys American Dream

Five years ago, Jordan Fogal’s dream house was turned a living hell after her builders ripped her off with shoddy construction and then hid behind the arbitration clause in the contract. Now she’s become a crusader against mandatory binding arbitration.

If arbitration is so wonderful, why is it mandatory? Are we citizens or subjects?

Are you sure your new home is protected? Are you sure your family, will not join the growing ranks of the homeless? Are you sure you understand arbitration and tort reform? Are you sure that the American Arbitration Association, hasn’t stealthily already entered every phase of your life? Do you think you still have the right to a trial by a jury? Do you still think you can sue anyone who wrongs you? Do you still think frivolous lawsuits are those that happen to other people? Do you tire hearing any more about big business flagrantly squashing your rights? Do your eyes glaze over and your mind shut down when you hear all these things? Are you bored by this rhetoric? Is it all just to complicated for you to understand? I understand.

But, please read on. Because you have been majority deluded, confused and overwhelmed … just so these things will slip right by unnoticed.

If you have a new home, new car, a car lease, a Visa, Master Card, American Express, Discover card, bank account, a cell phone, a storage room, electricity or even an exterminator. YOU have given up your seventh Amendment rights. You have given up your seventh amendment rights, you cannot sue any of these people. Sounds crazy doesn’t it? Well, call any of them and ask if you have an arbitration clause in your contract with them … because you do.

We are bombard daily, with harassing telemarketers, a mailbox full of trash offers and clutter … our bills are stuffed with slick adds and offers. We don’t have time to read all this junk….. And there in lies the problem. Big Business knows you don’t. We are the new hurried, fast food, drive by cleaners generation, the multi taskers. … with more on our plates than we can handle. So big business has used your over burdened life style to their distinct advantage. You are screwed. Those little offers or things you think are privacy propaganda, in your bills, they aren’t, they say “if you continue to use our services and do not pay off your account immediately you are now accepted the following terms…..You have now accepted arbitration … and you didn’t even read it.

Not one person in this country, is not bound by an arbitration clause and the shocking part of it … most don’t even know it. But you will, when you become one of the enlightened and destroyed. And believe me you do not want to be.

Ignorance is bliss … and you can remain blissfully unaware of the dangers lurking, that threaten you, your family, your home and your livelihood. But when it hits you, it will be, a rude awakening … like a two by four right between the eyes. AM I am trying to scare you? You bet I am. Because many of us do not have the time to watch fear factor, we live it daily. And, you may have just signed on for a guest appearance.

Take your home for instance. You made your down payment. You make your payments on time, you paid your property tax, you have homeowners insurance. Your investment is safe. You are living the American dream. Not so Kimosabie. You have rolled the dice with your future, put all your money on the pass line, and you weren’t even aware you were gambling.

Example: You have a lovely new home, all decorated, a manicured lawn, a place for your stuff, and somewhere to come home to. But what happens if you start having problems with that new house? You just call your builder for repairs right? What if he doesn’t answer your phone calls, faxes, or emails. What if the problem continues to worsen … as you try to get him to live up to his moral, and ethical responsibilities. You say well I have a contract. And you do.

Now….. you will take the time to read, all that raft of papers that were shoved at you at closing. Uh oh…earnest money contract, arbitration clause. Closing papers arbitration clause…warranty papers arbitration clause.

Your foundation is cracking, your walls have lines that weren’t there before, the carpet is damp and your house is taking on a musty smell. Your children begin to be ill and Fido’s’ hair falls out. What are you going to do? Your wife is frantic. She is calling neighbors, many experiencing the same sort of problems. Many do not want to admit it and “patch up and dump.” Some will get by with it, until the new owner sues them. Yes, the new owner can sue you, just can’t sue your big builder. Big business, little business that is how tort reform works.

And yes, you all paid to have your house inspected and had a relator and you called them all. You can start at the governor’s office and they will refer you into a vortex of time-consuming, catch 22′s that will make you crazy. You will end up lastly at the Heath department. They can try to help you find temporary housing … soon, or maybe later….if you qualify and of course fill out the paper work.

You have now filled out paper work for every agency in the state. You stay up all night filling out this waste of time. Then bleary eyed drag yourself to your day job. No one understands. They think you are a real putz and offer you their lawyer’s phone number…thinking you just are not smart enough to handle your own affairs. Little do they know…yet.

They think they are not in any danger…and that you just do not understand how to hand these things.

You call you insurance company…you know that agency that has you safe in their out stretched hands. That agency you pay those hefty premiums to each month. Guess what, substandard construction and builder defects are not covered items.

You are on the phone with your lawyer, he has looked over your papers, and informs you, YOU cannot sue your builder, you have signed an arbitration clause.

You say, well lets arbitrate … it is faster and cheaper and my house is deteriorating as we speak, my investment is being destroyed. He really doesn’t want the case, but will take it for a substantial upfront fee. He knows neither of you are going to be happy with the outcome, so he gets his upfront. Many of these legal eagles also have arbitration clauses in their own contracts. The contract you must sign to have legal representation. And you have to have a lawyer no matter what AAA arbitration tells you.

Your shower falls out. Black puffy balls are growing out of your carpet. Your windows are leaking, your hardwoods have begun to buckle, the children are sick, their eyes are all red, they have constant sore throats, you are having migraines you think from all the stress, your wife is crying, and her nose is bleeding …and your cat just died. ( Am I Exaggerating … No unfortunately, I am not.) I am just reliving part of what happened in our neighborhood, compliments of our greedy, unethical, unscrupulous builder. He sold us our homes after filing a lawsuit against the roofer and subcontractors with no disclosure. Yes, I said, he sued … the big boys still have the right to sue, this only applies to you and me, the little guys.

Arbitration is great protection for the mass builder. First, most of you can’t afford it and second if you can roll out 30 to 100,000 dollars it is still an unfair playing field. The builders team of high priced, sleazy prostitutes can make chopped liver of you in short order. They do this for a living. In our case, one of the builders’ law partners, was/is also a AAA arbitrator. You want him to rule on your case?

Why didn’t you repair your own house?

First you didn’t think that was your responsibility, it was the builders. Second you had no idea the amount of damage and third, when you found out how many thousands of dollars it would cost … you couldn’t afford it.

You hadn’t planned on the down payment, the new drapes, the new lawn mower and then repairs? TO A BRAND NEW HOUSE! Did you figure an extra 20 to 150 thousand for that in your budget? Like us, you probably bought a new home so repairs would not be an issue.

Well, guess what else you can’t afford? You can’t afford arbitration. Nobody tells you what it costs. The American Arbitration Association will not even give you a total cost, but if you can’t afford it … they will be more than happy to send you a form that authorizes them to just charge all their monstrous fees as they occur, on to your credit cards. How ever many it takes. Do I have you attention now? Do you think you have entered the twilight zone. Well, welcome to our world.

Homeless in Houston

Jordan Fogal Please google my name for more information or check out HADD.org or HOBB.org, tort deform

3003 Memorial Court #2407 Houston Texas 77007

713-802-9727

PREVIOUSLY: Tremont Homes Sells Rotten Lemon, Provokes Victimized Homebuyer Into Five-Year Consumer Crusade
Jordan Fogal Responds To Your Comments About The Rotten Lemon Tremont Homes Sold Her

Comments

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  1. Balisong says:

    I haven’t been able to comment on this person’s story before, so I just want to say that I’m glad consumerist is following it. I had read about this house years ago on another site and had always wondered if it had been resolved. The article at that time had focused on the housing bubble, which I now know has nothing to do with what happened, and I’m glad I’m more informed now. It’s a terrible thing that happened to you, Jordan, keep fighting!

  2. jeffjohnvol says:

    What if your mortgage gets sold. Does the new company get the arbitration clause too? I would think so.

  3. the_oaktree says:

    i guess this must be the way the lawyers get their revenge for all the lawyer jokes we told.

  4. lightaugust says:

    Jordan… You’re on the right track, and this is a cause well worth fighting for. Except you need to tighten up the narrative. The above comes off as an angry rant rather than a call to action with a specific direction. And don’t call me “Kemosabie.”

  5. darkened says:

    You have my deepest sympathies, I for one am sure if I was in your shoes there would have been an unexplained accident for my builders, like they accidently tripped and landed in some cement that dried and they fell into a lake on the way down.

  6. warf0x0r says:

    My girlfiends new Dell computer came with an Arbitration clause.

  7. DeeJayQueue says:

    Jesus, it’s friday. TLDNR!

  8. Techguy1138 says:

    It seems like at some point the mortgage holder would have a stake.

    You will be legitimately crushed if you continue through the arbitration process on your home, but you really don’t own it.

    If you let the bank know that the collateral the loan is based on is faulty and you would rather default and let them take the home then watch it fall down you might get bank lawyers involved on their behalf.

    It seems to be along and uncomfortable gamble but banks don’t want to foreclose and they really don’t want to own a foreclosed home that is legally uninhabitable.

  9. othium says:

    I personally have no arbitration clause on any of my accounts. Opted out of them all. I also pay cash and store my monthly receipts in two different locations. the rare payment I make that requires a check or money order is sent registered mail and I even get that notarized.

    Haven’t run into any problems so far.

    This story scares me.

  10. taney71 says:

    I hope that bill in Congress passes. Some arbitration reform would be nice.

  11. baltwade says:

    Yikes . . . that is some horrible writing. I read the whole thing three times and I still don’t know what I reading. Is it that if you sign an arbitration clause that you cannot sue the person you entered into that agreement with? And that an arbitration cost money? And that basically in the end you’re going to get screwed and there won’t be any other options available to you because you signed an arbitration cause?

  12. Bulldog9908 says:

    @Techguy1138: That won’t work. If the bank takes your home, they sell it on the open market–often at an auction and often for far less than the value of a private sale. Then, you are responsible for the spread between what you owe and what the bank got for selling the house.

    If he takes that route, the only way out of the debt would be to declare bankruptcy.

  13. sonichghog says:

    I know I have some of those darn clauses. But I did not realise untill reading the consumerist that they were not fair. It sucks.

    If something like that happend to my home, I would have to take up the bad habbit of smoking……..

  14. GearheadGeek says:

    I realize that the topic here is arbitration (which is evil.) The specific topic, the purchase of a home, is one where we could actually get rid of arbitration clauses. How? DON’T BUY COOKIE CUTTER DEVELOPER CRAP. The houses are not worth what you’re paying for them, or the developer wouldn’t be making a profit selling it to you at that price.

    I’ve made the mistake, once. My undergraduate degree is in architecture, and I was at the building site nearly every day, and nearly every week I had some concern to bring up to the construction supervisor. Sometimes it took a couple of cycles to get things corrected. One item came down to a point at which if the construction had continued it would have been difficult and expensive for them to go back and correct it, and I asked the supervisor if he thought I wouldn’t make him rip out the drywall in that room to correct what I’d initially brought up 3 weeks before… the next day it was suddenly corrected. The result was that I got a nice, sound, livable home that I actually liked pretty well and didn’t realize how overpriced it was until I tried to sell 5 years later and (after real estate vampires sucked out their blood) lost a little money. My neighbors who were less involved in the construction process didn’t fare so well… they thought the builder would actually produce a quality product on their own (after all, that’s what they’re in business to do, right?)

    My current house was 55 years old when I bought it. I can look up and down my street and no two houses look quite alike (I couldn’t say that in my previous neighborhood.) I didn’t have an arbitration clause in the contract to purchase this house, and wouldn’t have accepted one if it were proposed. If I ever build a new house, it will be one I’ve designed or at least have contracted directly with a local, reputable builder who stands by his work and doesn’t require an arbitration clause.

    A house doesn’t require the engineering and infrastructure to build that a car does. There’s no real reason to have a national home-building chain, and absolutely no reason to buy a house from one. (Yes, I realize that Jordan Fogal bought from a “local” Houston company… small enough that if they know they build good products, they’ll probably accept a contract without arbitration, and if they don’t, you leave. Simple.)

    These schlocky builders throwing up stick-built slab-foundation crackerboxes in sprawling suburbs on the bad side of arduous commutes to where their residents work are NOT good for us. They’re not in the business to build quality homes, they WANT us to be dissatisfied with our homes and “trade up” as soon as we can afford it, that’s what keeps their hands in our bank accounts. They’ve convinced Americans that 2500 square feet is only marginally big enough for a family of 2 or 3. We need to buy and heat and cool and pay property taxes on bonus rooms and family rooms and formal living and dining rooms and extra bedrooms used 2x/year. Then we need to decide our 5-year-old house is too cramped and tatty and out of style that it’s time to call another builder and build a bigger, more-wasteful house farther from where we work and start the whole process again.

  15. Bulldog9908 says:

    This story has _NOTHING_ to do with tort reform; please don’t characterize it at such.

    Tort reform does not include forcing or increasing the use of mandatory binding arbitration. Tort reform has more to do with loser pays systems and punishing plaintiffs for filing frivolous lawsuits.

  16. CSchnack says:

    I went through a construction defect case a few years ago and came out convinced that almost nothing we “THINK” about the legal system is accurate. There are many assumptions about how it works, mostly based on what we think is “fair,” or based on tort reform propaganda that seeps into our minds almost subconciously as we always read about frivolous lawsuits and runaway jury awards. In reality, it’s hard to recover even actual damages, and in arbitration the consumer’s chances are even worse.

    For example, in my case:

    Severely defective new house. Defects were concealed until damage started to show up shortly after closing. Numerous experts hired by all sides confirmed this.

    There was no arbitration clause in the builder’s contracts nor the loan. (In fact Fannie and Freddie I believe stopped buying loans with an arbitration clause in about 2004 so obviously they recognize a problem with it too.)

    Actual damages of over $100,000.

    Builder made excuses, lied, and failed to honor his warranty. Told us to file a claim with the 10 year 3rd party home warranty co, a policy he bought, and that we never saw until after closing.

    10 year 3rd party warranty company agreed house was defective but denied claim. This is where it would’ve ended in disaster if we’d had to arbitrate, as the ARBITRATION CLAUSE WAS IN THE 3RD PARTY WARRANTY POLICY. This is enforceable despite the fact we never saw or agreed to the clause, believe it or not.

    HOWEVER, we had a government insured mortgage, which requires of 3rd party warranty co’s that COURT be an option along with arbitration. This law is in the Code of Federal Regulations, Title 24, section 203.204(g). NO lawyer found this for us. We got it from a consumer advocacy org, HADD.com. The warranty company tried to deny this law existed. We had to get HUD TWICE to confirm to the warranty co. that it did. I’ve since found an offical ruling on the HUD site from 1996 that says this is what the law means…no arbitration required if the homeowner doesn’t want to. (FHA and VA are govt insured loans and I suspect USDA rural development loans would be in that category too.)

    We had found out arbitration was a joke so we fought hard to get out of it. In the end the builder, his insurance co., plus the warranty co., all contributed to a settlement that covered our damages. I do NOT believe we’d have gotten much if anything if forced to arbitrate, because early offers ranged from total denial of the claim to peanuts.

    This struggle took 5 years and was my full time job. We had a bad lawyer in there who wasted about two years of our time plus a lot of money. We fired him and respresented ourselves. I don’t recommend self respresentation, but if you have no choice it can be done. The KEY was avoiding arbitration and preserving the RIGHT to sue, IMO.

    Arbitration keeps complaints secret so other consumers can’t find out. It also has inherent bias, because arbitrators do repeat business with corporations, not consumers. The warranty co. in this instance required arbitration through CAS, a company with documented problems.

  17. Echodork says:

    So where’s the fact in this story? Or is it still Halloween and nobody told me?

  18. CSchnack says:

    ECHODORK, which story are you asking for facts on, Jordan’s or one of the comments?

  19. INconsumer says:

    arbitration makes me so mad that i can’t even say anything now besides how i want to repeatedly kill the person who created it.

    if you read this website on a regular basis, you should know what it is. if you don’t you owe it to yourself and the rest of the nation to educate yourself on it. it is the ultimate reason we as consumers get screwed so blindly…..becuase the corporations and business know you can’t do anything about it.

  20. pkrieger says:

    While I can empathize with the owner of the house, I have trouble with his writing style. Too long. Too many rhetorical questions.
    His situation is awful. Has a larger news outlet picked up this story? Houston news has tons of consumer watchdogs.

  21. Instigator says:

    @GearheadGeek: You are absolutely right! A relative of mine is a contractor who has worked for most of the production builders in the Central Florida area at one time or another over the past 30 years. His tenure seldom lasted long because of the shoddy construction and sleazy business practices he encountered. He frequently got in trouble with bosses for refusing to sign off on work he knew was substandard or make promises to customers that the company had no intention of fulfilling. He is still in the industry, but out of the construction end, and is much happier.

  22. yahonza says:

    I have to agree that this is sloppy emotional writing. A clear statement of what happened would be nice. There is a lot of empty rhetoric here, whatever the legitimate complaints. Spell checking would lend credibility too.

    Calling the Governor? Not quite a rational response.

    Also, and I will say this every time Arbitration comes up, going to court is not going to get you a faster or cheaper resolution than arbitration.

  23. bunnymen says:

    @pkrieger: Agreed. It’s harder to take something seriously if it’s filled with unnecessary/incorrect punctuation and poor grammar.

  24. jordy777 says:

    Arbitration is a good thing when the disputes are between businesses, and should be favored in those situations. However, binding shrink-wrap arbitration clauses need to be put in check. I certainly hope that none of you anti-arbitrationists are Republicans, because if you are, you might want to reconsider your political alliances and the lock-step pro-business positions that you are supporting.

    But you know what, trading constitutional rights for lower taxes is a pretty sweet deal.

  25. Buran says:

    OK, arbitration is bad … but I’m a little confused by the story — is it just me or is it all just a confusing jumbled ramble rant? (a justified one, mind you).

  26. magus_melchior says:

    @yahonza: Yes, going to court will take more money and time out of you, but mandatory binding arbitration practically eliminates any possibility of restitution. Sort of like a company’s “godmode”.

  27. Techguy1138 says:

    @Bulldog9908:
    When things start getting that bad with arbitration, failing health and huge housing repairs how far from bankruptcy will you be?

    I guess it was a long shot, in a way the bank is getting defrauded by the builder also.

    I don’t think I’ll every buy a new house. I’ll suck up the as is and plan on repairs.

  28. BigNutty says:

    If in person, I always cross out the arbitration clause and the sales person never notices it. Online we are stuck as almost every “I agree” box you click on contains an arbitration clause in the Terms of Service (you know, that thing you never read and click on “I agree” so you can continue on.

    Congress is finally waking up and noticing how unfair this is as the arbitration companies win 94% of cases.

    Gee, I wonder if it is because these arbitration companies are hired by the businesses.

  29. JiminyChristmas says:

    A somewhat germane anecdote from early in 2007:

    Mary Pawlenty, wife of Minnesota governor Tim Pawlenty (a Republican), gave up a judgeship to take a job as general counsel for the National Arbitration Forum. She quit after about 1 month, for somewhat ambiguous reasons. A related detail: the founder of the NAM is a heavy Republican contributor, including Gov. Pawlenty’s 2006 campaign.

    In my experience, even when people in a new job feel they might have chosen poorly they give it a try for maybe three months. So, if a prominent hire abruptly quits a job, at a firm run by a wealthy political ally, that tells me she found something extremely distasteful (or unethical) about the company.

    Likewise, the manner and timing of her quitting was guaranteed to make the newspapers. She had to have known that, and she still quit. It had to have been pretty bad.

  30. humphrmi says:

    @BigNutty: The trouble is that in a legal contract if you cross something out they have to acknowledge it (i.e. initial the change) otherwise it’s not a valid change. You might feel happy that you did that, but if you ever find yourself with a legal issue concerning the contract you will end up in arbitration anyway.

  31. yahonza says:

    I’ve got something to say about this “94% win rate for business in arbitration” figure that is bandied about like gospel.

    You should read that actual report at [www.citizen.org]

    It’s a screed, which makes it automatically suspect in my book, but there are some very important underlying numbers that make the “94%” very very misleading.

    First, its obvious that this figure related to only one single aspect of arbitration: credit card companies that file collection actions against consumers.

    You would expect that number to be very high in favor of the credit card company for fairly obvious reasons, including especially that most collect actions are defaults, i.e. the consumer does not reply at all, giving the CC company an automatic win.

    But here is the rub: the 94% figure has NO, I repeat NO NONE NADA relevancy to arbitration of, let’s say, construction issues.

    If there is data on that, I’d love to see it. I am more than willing to bet that arb clauses are not the “god mode” that people have been mislead into believing.

  32. shelleyp says:

    “If there is data on that, I’d love to see it. I am more than willing to bet that arb clauses are not the “god mode” that people have been mislead into believing.”

    Rephrase the latter part of your sentence, please. What do you mean by ‘God mode’.

    As for data, the arbitration companies will not release any data, at all, and only released the California data because of legislated demands. Even then, the state had to sue NAF to get them to releae its figures.

    As for ‘defaults’, there is no requirement that the credit card companies make any real attempt to notify the person other than sending a registered letter. In addition, many people are very ill formed on what ‘arbitration’ is, and frankly, think it’s a joke. Something not to be taken seriously. Why? Because our populace has never been educated on what arbitration is. We assume we still have a court system.

    Jiminychristmas, yes that was a very interesting piece of information. Frankly, I respect Ms. Pawlenty for leaving.

    Bignutty, do you have health insurance? A bank account? Phone? Cable? Than you’ve signed an arbitration clause.

    As for the emotional context of Ms. Fogel’s story — she’s had a long time trying to tell this story, trying to work for reform, to get the message out. I would think that considering the events, some members of the discussion group might want to consider cutting her a little slack?

    I believe one commenter mentioned costs. I bet I could show that 94% of cases held in front of arbitration would have been cheaper in court. I’d say more, but 94% has such a nice ring to it.

    For instance, NAF mentions how it’s only 25.00 to file for arbitration. However, what NAF neglects to mention is that filing is on a sliding scale based on amount being contested. Than there are the additional fees, because the filing fee is just that — it covers the cost of the filing, not the arbitration, itself.

    How much can the arbitration costs run? As an example, a contest amount of about 20,000 would run about 2500.00 or so; for 30,000 about 7,000. How much would court costs be for this amount? In Missouri, 65.00 for the one, 325.00 for the second amount.

    So, no, arbitration is only more effective when it’s between companies of equal stature, who are equally motivated to make arbitration work.

    Arbitration is not _bad_. Binding mandatory arbitration agreements are bad.

  33. InThrees says:

    how about having your mortage company sue the builder for fraudently passing off a piece of shit as a valuable house?

    I’m pretty sure the value of your house when you signed your mortage was “artificially inflated”, or I’m pretty sure some AG or another is suing some banks over that.

  34. CSchnack says:

    Adhesion, duress, one party not having any bargaining power in the contract, unconscionability, etc, are all out the window as far as getting a court to say the clause is unenforceable in MANY cases now. The Arbitration Fairness Act of 2007 would make such clauses in consumer contracts unenforceable.(Bill numbers: H.R. 3010, and S. 1782)

    It’s too bad that the law doesn’t see these shoddy houses and toxic loans as the fraud they are. Law enforcement sees “fraud” as the small time contractor who takes a deposit and doesn’t do the work, more than a builder who builds a defective house. The number of complaints can also matter more than severity.

    MANY houses are/were fraudulently inflated in value. Aside from appraisal fraud issues uncovered during the housing boom, IMO any defective new house should be considered fraudulently inflated in value. What “should be” and what IS are two different things. Consumer advocacy org’s are constantly trying to change this insanity, but are up against a building industry which spends MILLIONS annually on campaign contributions and lobbying.

    The importance of avoiding arbitration clauses is IMO retaining the right to sue, because it’s important leverage and public record. MOST cases settle before going to trial. But they won’t likely settle if the builder knows the arbitrator favors him.

    As for author’s writing, if a person has been through this kind of ongoing stress it’s completely understandable that they write in anger sometimes. Her quality of writing has nothing to do with the validity of her complaint. I review thousands of complaints a year for a consumer org. It’s rare to find anyone who isn’t emotional when their financial future is at stake, and some jerk has caused it and isn’t being held accountable.

  35. JustAGuy2 says:

    @Bulldog9908:

    Depends on the state. A number of states (including CA) require non-recourse mortgages – the bank can’t go after your other assets – the only security for the mortgage is the house itself.

  36. Mark 2000 says:

    Sad and all, but i didn’t read it. It’s longer than most newspaper articles. Note to future letter writers/editors: Don’t put a novel on screen when a synopsis will do. Especially since blogs are break time reading, not a sit down exercise on a lazy sunday.

  37. Her Grace says:

    No matter how legitimate the complaint, writing in such a manner as this post will just get you dismissed as a crazy, tinfoil-hat-wearing conspiracy theorist.