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Ten Things Your Home Builder Won't Tell You
Saturday, 12 August 2006

Smart Money
Ten Things Your Home Builder Won't Tell You
By Terrance Noland 
January 2000

1. "I'll build your house on marshmallow."
Having a home built? You may anticipate a few things going wrong, but you'd expect your builder to erect your house on solid ground, right? Don't be so sure.

Population growth and urban sprawl mean there's not much residential land left in many areas. "What's left is not very good," says Daniel G. Knowler, a senior engagement manager at Navigant Consulting, which specializes in construction disputes. A lot of homes are being built on expansive soil — earth that swells when it rains — without adequate safeguards. In mid-1994, shortly after John Duffy and his family moved into their $234,000 home in Highlands Ranch, Colo., long cracks started showing up in the walls, and the porch started pulling away from the house. After badgering his builder for the soil report, Duffy learned his lot was a hot spot for potential swell. Writer Homes, the builder, was ordered to pay Duffy $544,000. John Palmeri, Writer's attorney, says the company offered to fix the Duffys' house, but "they were bent on going to court."

Swelling soil isn't the only problem. In March 1998, four hillside homes built on the site of an ancient landslide in Laguna Niguel, Calif., toppled after the unstable soil gave way. Early in 1999, Capital Pacific Homes (which had bought the builder, J.M. Peters), the lot developer, the grading company and the engineering company that checked the soil agreed to pay about $35 million to the homeowners, the homeowners association and the people whose condos at the bottom of the slope were also destroyed, according to Andrew Kurz, the association's attorney. Capital Pacific declined to comment.

2. "I'll not only cut corners — I'll sever them."
Shoddy work has always existed in home building, but the 1990s housing boom has made the problem worse, says Jonathan Alpert, a Tampa, Fla., attorney representing homebuyers. He has handled cases in which builders didn't seal roofs, in which 2-inch concrete slabs have been used instead of the 4-inch slabs specified, in which sewage pipes have been cross-connected to drinking-water pipes.

In some cases, builders are skipping steps dictated by municipal building codes. In one Sarasota, Fla., gated community called Turtle Rock, four families cut open their houses in 1998 to ferret out the source of some mold growth. What they found, in addition to wet lumber, were several code violations, including missing hurricane straps, which are steel plates that tie the wood frame together and to the concrete base. Says Brian Stirling, the structural engineer hired by the homeowners to investigate, "If we'd had a strong storm, they would have had some serious problems." Like what? "Like losing their top floor." The builder, U.S. Home, agreed last summer to buy back the four houses and said it would make county-supervised repairs on 12 others in the subdivision. "We dispute the extent of the problems," says the builder's attorney, Fred Zinober. But by settling the case, he says, "U.S. Home did the right thing."

3. "I am barely regulated."
Given how complicated it is to build a home, and how serious the implications are if it's done incorrectly, you might expect home builders to answer to serious regulatory authority. Think again.

There are 21 states, including New York, Texas and Pennsylvania, that do not regulate home builders at all (though some individual cities and counties within those states do). Of those that regulate, only 19 issue a home builder's license with some kind of testing or work experience as a requirement. (Both Oregon and Arkansas will start doing so in July.) The other 10 states merely register home builders as business people, though some do require builders to post a bond. "The contractor in Montgomery County, Md., fills out the same form as Madam Helena, the palm reader," says Jordan Clark, president of the Washington, D.C.-based United Homeowners Association.

Don't count on the home-building industry to police itself, either, if past attempts are any indication. Consider the Certified Master Builder program, started in 1992 by the Home Builders Association of Greater Kansas City and touted as "your assurance of quality." In reality, builders who were already HBA members had only to come up with the $475 fee to earn the designation. A handful of homeowners disgruntled with their CMB builders sued the program. In October 1998, HBA started phasing it out. Tim Underwood, HBA's executive vice president, insists "the program did some good," such as requiring builders to offer a one-year warranty. "There isn't any program," he adds, "that is going to give everybody 100 percent resolution of every problem." 

4. "Public inspectors won't catch my shoddy work."
Max Curtis, a Livermore, Calif., private home inspector, says he hears it all the time from his home-buying clients: "Their builder tells them, 'Why do you need your own inspector? This has been signed off on by the municipal building department.'" Sure, the public inspector is required to check out your new house, but only to be sure it is built to code — -essentially, that it is safe to live in — -not that it is well constructed. "They're just looking to see if that wall is up and painted," says Dwayne Jones, a Memphis builder.

And sometimes they don't even do that well. On one recent inspection, Curtis found 64 items that the municipal inspector had missed, including a gas water heater lacking flues (without which the heater may leak poisonous carbon monoxide). "If you don't have your home inspected by your own person," says Clark, of the United Homeowners Association, "you're crazy."

5. "Your warranty may be worthless."
Many home builders tout 10-year warranties as protection against future problems. But these warranties are often extremely limited in coverage, particularly after the second year. "It gives people a false sense of security," says Brent Lemon, a Dallas attorney who represents homebuyers. "Most of these [warranties] basically require that the house fall down on top of you before they kick in."

Consider the warranty offered by Aurora, Colo.-based Home Buyers Warranty. It lists 34 exclusions and, like many warranties, states that the home must be "unsafe, unsanitary or otherwise unlivable" to get structural-defect coverage. Anne Stark, a Dallas attorney specializing in homebuyer complaints, did a review in the early 1990s of three years' worth of Home Buyers Warranty's structural-defect claims and found that 80 percent had been denied. Em Fluhr, the warranty company's president, says, "If [homebuyers] detect any worsening of the situation, they can submit another claim."

Accepting a builder's warranty could actually do you harm. Many states, through case law, recognize implied warranties based on industry standards that provide more protection, says Lemon. Some builders' warranties usurp that

6. "You'll never see me once you move in."
It's one of the great ironies of building a house: During construction, you can't wait to have the builder out of your sight. But once the work is done and problems crop up, he's nowhere to be found. "One of the biggest problems is that once the home is built, you can't find the builder with a Texas posse," says Clark.

Denise Burton knows all about it. Even before she and her husband closed on their $205,000 Glendale, Ariz., home in September 1997, they knew there were problems. Their walls weren't plumb, for example, and there was no framing behind one. Worried about losing their low interest rate, they moved in anyway, with a promise from the builder, Diamond Key Homes, that everything would be fixed once they got in. It didn't happen. Burton made at least a dozen calls to the Phoenix-based builder over a four-month period and sent letters and faxes. Mostly, she was ignored. And when the builder did send workers out to her house, says Burton, "they'd make it worse." It wasn't until October 1998 that the builder finally made all the proper fixes. And that was only after the state agency that regulates contractors, acting on Burton's complaint, temporarily revoked
Duanibd Det's license. Diamond Key declined to comment.

7. "Good luck suing me."
Buried in nearly every home-purchase contract is a clause that reads something like this: "Any dispute that arises between the builder and the purchaser will be decided in binding arbitration." Most buyers sign on the dotted line, not knowing that they have just waived their right to take their builder to court. "Arbitration is being sneaked into those contracts, and nobody knows what it means until it's too late," says Dennis K. Drake, a San Antonio attorney who represents homebuyers.

What's wrong with arbitration? Well, for starters, arbitrators are less likely than juries to award treble damages, say construction-industry attorneys. Also, arbitration is more costly, believe it or not, than taking a case to court. First there's the filing fee, which, for a homebuyer's claim of $50,000 to $100,000, is $1,250, if administered through the American Arbitration Association. Plus, there's a hearing fee of $150 per day; an arbitrator fee, which usually runs $750 to $2,000 per day (usually split between the parties); and you still have to pay a lawyer because smaller awards mean that it's tough to find attorneys who will work on a contingency basis. The result? "It's so prohibitively expensive that consumers may find they just don't want to pursue a claim," says Drake.

Jim Blackstone found out just how expensive. Soon after he and his wife bought a $165,000 home in Moore, S.C., from Pulte Homes, he came across leaks in his basement and crawl space, cracks in his fireplace and a load-bearing wall built on gravel. When the company didn't fix the problems to his satisfaction, he went to arbitration. In May he was awarded $31,700, much less than the $174,000 he sought. The judgment barely covered the $30,000 he estimates he spent fighting the case. "That's more than he deserves," Bob deHoll, an attorney for Pulte, says of what Blackstone got. "We offered to come back and fix the problems several times."

8. "Your home won't look like the ones we toured."
It's easy to be impressed with the model home your builder shows you. Who wouldn't love the lush curtains and intricate crown moldings? Too bad the house you buy will look nothing like the model.

Few decorative touches are standard, and builders are notorious for using sneaky design tricks to make models more attractive, such as putting in scaled-down furniture to make a room look bigger. Maria Lo Bianco, a buyers' broker in Springfield, Va., admits to playing this game in her previous job as a builder's marketing executive. "If I know it's a small foyer," she says, "my challenge is to get the buyer's eye off it so he has no idea how small it is — until he goes to settlement and can't fit his furniture. If the dining room is visible from the foyer, I might do an exotic color design there and leave the foyer plain."

Some practices are flat-out deceitful. Often, builders will plant grass where the driveway would go to make the lawn look bigger, says Alan Fields, who co-authored Your New House (Windsor Peak Press), a guide to buying a home. "If you think you're getting the model home," advises Tim Carter, a builder and syndicated columnist, "you'd better be writing down language in the contract that says it's going to be exactly like the model."

9. "I haven't budgeted enough for decent light fixtures."
It sounds like a reasonable practice. Rather than specifying every item for the house, a builder will set cost allowances for things such as light fixtures or carpeting. That way the buyer gets to pick out what he wants. The trouble is, many builders use allowances as a bidding strategy, low-balling the cost to keep the total price down and land the contract.

When author Fields and his wife bought their house in 1990, their builder gave them a $500 allowance for all their light fixtures. "We walked into the store and were just floored by the prices," he recalls. The couple shopped for discounts, but still had to spend $1,000. Jones, the Memphis builder, says low-ball allowances are common in his region. He says they usually range from $450 to $600 for light fixtures in three-bedroom houses when the real bill is more than double that. "And that's for cookie-cutter fixtures," he adds.

 

 

10. "You may wind up seeing double."
It's no surprise that if you buy a tract house, you'll eventually come across a carbon copy, probably in your own neighborhood. But you don't expect that to happen when you've ponied up for an "exclusive" design.

That's what happened to Alex Pinchev, president and CEO of software company MainControl Inc. In 1996 he and his wife slapped down $1.6 million for a one-of-a-kind home in tony McLean, Va. The next year the Pinchevs learned that their builder had used the same design for a home across town for high-tech big shot Marc Andreessen, co-founder of Netscape. The Pinchevs' architect sued the builder for stealing the plans. A Fairfax County jury awarded her $140,000 this July. Architects confirm that originality is not the home-building industry's strong suit. "You see the same things in Memphis that you see in Atlanta that you see in Washington, D.C.," says Michael Medick, a Baltimore architect and chairman of the American Institute of Architects' housing committee. "The big builders are not going to mess with something that's still selling." 

 
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