"We Build In Middle Class Neighborhoods Because You Can't Afford To Fight Us"
Meet Michelle. We met Michelle at Arbitration Fairness Day and she told us about being forced into arbitration when she tried to get her poorly constructed home repaired. Now she'd like to share her story with you.
My husband and I are struggling with a housing crisis – and it's very different from the mortgage crisis you've been hearing so much about. Ours was caused by sneaky language in the contract we signed with the home builders. Thanks to a clause requiring "binding arbitration agreement," we are stuck with a poorly constructed house that we might not be able to get rid of.
John is an Apache helicopter pilot serving in Iraq and, between his year-long tours of duty, his unit transferred to Georgia. When we bought our new home in Savannah in 2006, we thought of it as a place representing security, stability and safety for our family – everything a home should be. The associate assured us the defects we noticed when touring the house were "normal" and would be repaired by the builder in a timely manner.
Among the blizzard of documents we had to sign during our closing was a warranty that contained the arbitration clause. We had no idea it meant we agreed to a contract that shielded the builders from legal action no matter how negligent or shoddy their workmanship was. And believe me, it was.
Apparently, all kinds of businesses routinely stick these arbitration clauses into contracts for credit cards, cell phones, nursing homes and employment, to name a few. Like millions of other Americans, we effectively waived our legal right to take the company to court. Instead, our arguments would be handled by an arbitrator – a private company hired by the home builder.
Of the 182 defects we found and reported to the arbitrator, only 39 were approved for repair. Contractor estimates said it will take about $20,000 just to repair those defects, not including the other defects and code violations, doors that don't fit their doorways and mold problems caused by improperly installed showers and doors. Instead of fixing the defects, the home builder has offered us a measly $2,600.
Given the huge difference between the estimated repair cost and the home builder's offer, we appealed the arbitrator's decision. Just submitting the appeal set us back another $1,000.
If we disagree with the arbitrator's final decision, we won't be able to appeal or take the builder or the arbitrator to court – even if the decision seems illegal. Once you've agreed to binding arbitration, the only way to address problems is through that process regardless of facts and evidence. And since arbitrators are hired by the company responsible for the circumstances in dispute, they have a financial incentive to make rulings that satisfy the company that retains them.
Meanwhile, the paperwork and fees keep adding up. Instead of taking care of our home repairs, we have to keep feeding the arbitration beast while we hope and pray that the next decision will be a fair one. We doubt it will. And as the clock ticks, defects like the faulty installed showers and back door are causing more and more damage from water and mold.
John comes home from Iraq in October, and his unit will transfer to Fort Drum, New York, in January 2010. We will have to sell the house, defects and all. We would need to disclose the lingering $20,000 repair estimates, code violations and mold issues. With a mess like this, who in their right mind would knowingly buy this house?
Like so many of our country's economic problems, ours shows the amazing gap between what is legal and what is right. It's just not right for us to be saddled with the expense of fixing this defective home. Nor is it right that we had to sign away our right to sue and become trapped in this frustrating process of binding arbitration.
Unfortunately, the only way out of binding arbitration now is for Congress to change the law to let buyers choose whether they want to settle disputes with an arbitrator or in a court of law.
Michelle also told us that while she was complaining to the construction company, one of their employees told her, "We build in middle class neighborhoods because middle class people can't afford to fight us." People are fighting, though: victims of mandatory binding arbitration and consumer advocates are hitting the Hill today to tell Congress to support the Arbitration Fairness Act. You can ask your members of Congress to support the Arbitration Fairness Act here, you can also check out the Fair Arbitration Now website and sign a petition to ban forced arbitration.
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Comments:
Their story is compelling. I can't imagine what it's like to buy a house and have it be riddled with defects and have little/no recourse. However, when you're spending hundreds of thousands of dollars on a house, there should be no such thing as "sneaky" language in the contract. If you're not competent enough to thoroughly review the contract and notice problematic provisions, you need to hire a lawyer to review it and make you aware of any relevant provisions that might be problematic. "I didn't read the contract" is a piss poor non-excuse that will generally get you nowhere. This isn't a cell phone or cable service; it's a freaking house. For crying out loud, how do you drop that kind of cash (or take on that kind of liability) without knowing what you're signing? I realize it can cost $1k to get an attorney to review the contract, but fuck....this stuff is just absurd. When will people learn that it's REALLY important to read and understand what you're signing? I'm amazed how many people think it's OK to just sign and hope it's all good, then bitch up a storm later when someone says "Well, it's on the contract that you didn't read".
If you cross out the items regarding binding arbitration in your contract and initial said crossouts before signing, is that a legal way of saying "no" to binding arbitration? If so, can the contract provider refuse to accept your signed contract?
I'd just like to know before I go ahead and try this on my next contract...
Can you tell us the name of the builder?
@unobservant: Your crossed-out version would likely count as a counteroffer, which doesn't have to be accepted as a contract by the party you're negotiating with (and in the land of form contracts, almost certainly won't).
Did they not get the house inspected before they bought it? If they didn't they deserve what they bought.
Since they are a military family it is safe to assume they used the VA loan which from what I understand means the house has to be inspected before closing.
@unobservant:
They don't have to accept it. hegemonyhog is right, it's a counteroffer. Depending on the company (and how badly they want the sale), they'll probably say "sorry, we won't accept that". Even more problematic is the fact that the person you are dealing with, especially if it's a large corporate-type homebuilder, probably doesn't have the authority to alter most terms of the contract. That's actually usually stated in the contract itself, that "our agent doesn't have the power to change these terms".
I guess the homeowner is not allowed to slip a binding arbitration clause into the contract when he/she sells? How come there's never a sleazy real estate agent around when you need one?!
So here's a question - I've heard numerous times that if there is a part of a contract you do not agree to, you cross it out and sign as normal. How do you go through with a deal if the contract contains mandatory arbitration but you refuse to agree with it?
@Oranges w/ Cheese:
Crossing it out and signing it has no effect until the other party signs it accepting your changes. Before they sign, they're totally within their rights to say "Sorry, we won't accept that modification".
I once went through a developer (Centex) to build a McHouse close to my office. I had a relatively good outcome, because I went to the house nearly every single day and required a number of things to be corrected during the construction process. Even if I thought I could stand to live in another McHouse in another HOA-controlled suburban wasteland, I would never ever buy a spec house... My house had fewer problems than those of any of my neighbors who were less involved in the construction process than I was.
There just doesn't seem to be much quality control from the builder's side, you have to force it upon them, and not everyone has the time, inclination or experience to do that. One item I brought up repeatedly was ignored for weeks until I told the construction supervisor that if he thought I'd just forget about it and go along if he put up the sheetrock before he moved the plumbing and outlets for the washer and dryer to the appropriate sides (per the plans, that would fit the way the doors on my front-loader washer and dryer open) he was sadly mistaken and I'd make him rip out the sheetrock and correct it before I closed. Interesting enough, it was corrected the next day when I came by to inspect after work.
@jasonof2000: And (unless I'm totally imagining things) isn't there such a thing as PCS support from USAA? I can't see them approving a mortgage without a home inspection either...seeing as you need to promise them your first born son to Deposit @ Home. I don't want to blame the OP (as sometimes finding these resources and the ones the govt offers can be a minefield) but there are people to send the contract to so it can be reviewed.
The should file against the closing title company.
The binding arbitration should have been explained to them by the closing agent.
@Oranges w/ Cheese: Lots of places won't do business with you if you do that. Try it when signing up for a cell phone and they'll point you to the door.
A house sale might have some leeway...but of course these jokers won't do the deal without the arbitration clause.
@Esquire99: Even if they read it many people have an (obviously unwarranted) assumption of fairness. OK, "binding arbitration", that sounds OK (and I suppose there is some way it could be, it just isn't).
A whole lot more people are going to get burned on this before it gets the shit-canning it so richly deserves.
@j-o-h-n:
The concept of Binding Arbitration isn't unfair, it's the current implementation of it that carries an inherent bias.
And this is why you should ALWAYS have a good lawyer with you at closing to explain everything in plain English.
@Esquire99: When I bought my house (existing home, not a newly-built one, not that it makes a difference in the procedure), one of my upfront expenses was for the real estate lawyer. You are absolutely correct as to the need for a lawyer to review anything and everything before you sign it. If the lawyer says "hey, this isn't good - get rid of it" and the other side won't, then don't do the deal.
6 P's: Prior Planning Prevents Piss-Poor Performance. A good rule to keep in mind.
All this being said, the builders still appear to have done a piss-poor job of building the home.
@nybiker:
Totally agree on the piss-poor job by the builders. But a little due diligence on the part of the buyer could have easily prevented, or at least mitigated, all of this.
The builder should suffer for the shoddy handiwork. However, the city's building inspectors should be on the hook as well. It is their job to make sure that the building plans were followed. For every evil capitalist, there's a government entity enabling the action.
One of these days, people will take justice into their own hands.
@Gene Gemperline: Lawyer? Hah! People buying from these big developers buy a house like they'd buy a car... They're sold features and a monthly payment, and the developers talk up all the "amenities" and how wonderful it is that the HOA will keep your neighbor from leaving his trash can in front of his house on the wrong day. I delayed my closing because they couldn't get me a copy of the paperwork the night before so that I could go through it without the title company agent twiddling their thumbs (and the title company was a division of the developer's parent corporation, go figure!) I said I was going to read before I signed, and I could do it the night before or I could take as long as it required in their office. They agreed to provide the papers and push back the closing, imagine that!
I'm wondering what legal aspect building code violations falls into. If the problems were cosmetic, I can see how, legally, the owner would be forced into arbitration. However, if the homebuilder violated building codes -- city statues -- then does it not potentially become a criminal matter, regardless of what the contract says? If I write up a contract for you to kill someone for me, that doesn't make the act not illegal any more.
Has anyone tried suing the arbitrator? Sure you agreed to arbitration, but the builder picked them. And maybe they aren't directly responsible for the damages, but they are preventing you from getting compensated for them. Seems like it should be worth a shot. I bet the specter of being sued would make arbitrators think twice before bulldozing consumers in favor of their patrons.
Maybe John should fly his Apache helicopter to the next arbitration meeting...
@Oranges w/ Cheese: I did this with Wachovia Dealer Services on loan paperwork. They went ahead and financed the loan, took two payments on the loan, and then (illegally, in my opinion) reversed it to the original interest rate. They then reported to credit agencies that I had been late on payments.
I agree but since the they already bought the house would they become responsible for code violations ? Or perhaps it would be a good idea to bring an inspector out for the stuff they won't fix since the arbitrator apparently already agreed to some code violations .
I'd also call local code enforcement to see they actually did fix any existing violations or gigs .
I hate to say if but this is just another example of a business/homebuilder that is more worried about their contracts than their actual product .
@Bryan Fernandez: I still don't see how arbitration could possibly trump state/federal law. By not building a house according to building codes, the builder violated the law. How can the builder point to binding arbitration as a way to skirt laws?
More importantly, how can I use binding arbitration to my advantage to get out of speeding tickets, or beat a murder trial, or force someone to take my cat?
@Esquire99: Oh, for crying out loud. How about a little blame for the companies who sneak this crap into the contract, and then try to persuade people that it's no big deal?
@unobservant: If it is a boilerplate contract, then the other party will just back out, since they can't make any changes.
If you are really negotiating something, and it's not just boilerplate, my expectation is that the LEAST the other party is going to do is want to run it by their legal department, even if the representative believes they can make the changes you want.
With something like removing a binding arbitration clause, I'd be surprised if anyone who regularly includes such a clause would be willing to forgo it under any circumstances. They understand how arbitration limits their exposure to lawsuits, liability, and the law in general, which is why they are in favor of such an arrangement.
@nybiker:
This, exactly. A real estate Lawyer was an absolute necessity for us. We didn't think there was any other way. My husband and I are intelligent people, but real estate law is not our bag!
A lawyer--a good one--could have prevented some of that, I think. I feel bad for them anyway. That sucks.
@nybiker: My lawyer dropped the ball, though, so there's no guarantee. (Fortunately it didn't hurt me too badly, but it was annoying as hell.)
@unobservant: It can be accepted, but it doesn't have to be. Something was left out of the contract when we bought our home, and so I wrote it in. Since it was something that had previously been agreed to, the other party had no problem accepting it and it was honored. However, they could have refused to sign and we would have had to negotiate again.
It's probably easier to get stuff like that agreed to when you're buying from an individual instead of buying from a corporation or agreeing to a contract with a corporation.
@Esquire99: There's two ways I read into Mandatory Binding Arbitration.
The first is the implementation itself. If you don't agree to it, you're virtually powerless to do anything about it. Unless a large demographic stops doing business with companies that employ MBA, it's not going to stop and the average consumer is essentially forced into accepting MBA.
The second pertains to the abuse of the MBA system. Large companies are essentially circumventing civil and criminal law using MBA as a shield.
@DrWebster: I agree. A contract that contains violations of civil statutes or federal law should be inherently illegal due to it's inclusion.
In this case, the home builders apparently did not live up to building codes which should automatically invalidate the contract.
@unobservant: I just tried this out with my Zecco account. I applied for a margin account but crossed out the arbitration clause. If they activate my margin account, I assume it means that they accepted my offer. If not, then oh well.
@PlanetExpressdelivery: Exactly. MBA is used to get out of the oversight of a neutral judicial system, and into a private court system where the companies own the judges.
Arbitration can be just as terrible for the other side of the fence. My dad was a contractor and before he passed away he got sued by a (terrible) client, and the judge threw the case out. So then they appealed to the licensing board and now my mom is stuck in a messy arbitration with their word against my (late dad's. Arbitration is suppose to "rectify" the injustice of the court, but seems like it's just for people who are trying to weasel their way out of a fair court of law.
@Esquire99: If you were their lawyer, would you have told them not to sign the binding arbitration clause? Just curious.
@PlanetExpressdelivery:
Companies aren't circumventing anything. At best, they're circumventing the civil system. MBA doesn't affect the states ability to criminally prosecute. Either way, MBA is currently a legally acceptable alternative to the court system, so I don't agree that they're circumventing anything. They're simply choosing a different route that, in theory, offers dispute resolution in a faster and cheaper form than full-blown litigation.
Well, I don't know if Michelle will read this, but writing from Watertown, NY, home of Fort Drum's 10th Mountain Division, I hope everything works out for her.
It's true that when you buy a house it's supposed to be "a place representing security, stability and safety for our family," just as she said. There are a lot of programs offered on base and throughout the surrounding communities to help foster those feelings of community and stability in this unstable time of extended deployments. Make the most of them, and you can really make the most of your stay in Watertown.
Again, I really hope everything works out for you in Georgia, but you'll love the North Country. It's beautiful here!
@mythago:
I MIGHT buy your argument when it comes to small-time consumer services, like cell-phones and internet service. When it comes to purchasing (for most people) the largest item they will EVER purchase, not reading and fully understanding the contract is simply inexcusable. For the vast majority of the population, a real estate attorney is an absolute necessity for purchasing a house. Some people try to skimp and not hire one, and they get bit in the ass when stuff like this comes up that they claim they didn't know about. Simply inexcusable to not read a contract that you're signing to buy a house, no two ways about it.
@Esquire99: I'm surprised that the issue of "code violations" doesn't give them a right to sue. I'm fairly certain that if you have code violations in NYC you have major problems if you try and transfer the deed. Forget about getting a C of O.
Still no reason not to get the home inspected before they sign any paper work. On something that big and expensive they were stupid not to.
@ecwis:
Did you actually read the contract to see if it permitted any changes? Many contracts now contain clauses that the language is basically non-negotiable and can only be changed by a certain person at corporate, etc.
@Esquire99: What if every builder puts a binding arbitration clause in their contract? All the understanding of the contract in the world doesn't help then.
@dorianh49:
IANAL. but I think with something like that, especially if you know it's a deal breaker for the other side, all you can do is make the client aware of what MBA is, how it affects their rights and what the process will be like if they have to go through it. At that point, the decision is up to them. I think the lawyers job, in that situation, is to present objective advice and make sure the client is well-informed and understands what the language means.
One of the worst parts of arbitration is that it contributes to the overwhelming practice of Americans not reading contracts at all - and it's a perfectly rational response, given that most people aren't going to (and in many cases, can't) investigate a process controlled by the company you're contracting with.
We effectively have a system of microtransactional private law in the United States which turns the majority of our economic decisions into abrogations of our rights.