HomeOwners for Better Building - Federal Trade Commission & KB Home Consent Order

Federal Trade Commission Consent Order
See - FTC Website

In the Matter of KAUFMAN AND BROAD, INC., a corporation, KAUFMAN AND BROAD HOMES, INC., a corporation, and KAUFMAN AND BROAD HOME SALES, INC., a corporation.

DOCKET No. C-2954

Federal Trade Commission

93 F.T.C. 235; 1979 FTC LEXIS 520

CONSENT ORDER, ETC.,IN REGARD TO ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT
Complaint, February 12, 1979
February 12, 1979

SYLLABUS:

[*1]

This consent order, among other things, requires a Los Angeles , Calif. builder and seller of residential housing to cease misrepresentations of fact and using any other unfair or deceptive practices in the advertising, sale and construction of consumer housing. The firm is also required to furnish prospective customers with disclosures regarding construction materials and components; as well as information relating to the land, taxes and community facilities. Further, the company is required to provide home purchasers with warrantees patterned on the housing industry's Home Owners Warranty program; and to employ the industry's standards in home construction and repair. Additionally, provisions in the order entitle original owners of company homes purchased from January 1, 1972 , to have specified defects repaired, and requires the firm to repurchase the homes at the orginal price, should it fail to make proper repairs in a timely manner. The order also provides that dispute concerning repairs may be settled through third-party arbitration.

COMPLAINT

The Federal Trade Commission, having reason to believe that respondents Kaufman and Broad, Inc., a corporation, Kaufman and Broad [*2] Homes, Inc., a corporation, and Kaufman and Broad Home Sales, Inc., a corporation, have violated Section 5 of the Federal Trade Commission Act, as amended (15 U.S.C. 45), and believing that a proceeding by it in respect thereof is in the public interest, hereby issues its complaint as follows:

For purposes of this complaint, "on-site residential housing" shall mean housing structures, including lots, consisting of single family dwelling units or housing structures consisting of multi-family dwelling units (including condominiums) represented and sold by respondents as completely constructed or partially constructed units.

II.

PARAGRAPH ONE: Respondent Kaufman and Broad, Inc. is a corporation organized, existing and doing business under and by virtue of the laws of the State of Maryland with its principal place of business located at

Respondent Kaufman and Broad, Inc. has numerous subsidiaries in various states of the United States .

Respondent Kaufman and Broad, Inc. uses the trade styles: Kaufman & Broad, Kaufman and Broad, and Kaufman and Broad homes in the course and conduct of its business.

Respondent Kaufman and [*3] Broad Homes, Inc. is a whollyowned subsidiary of respondent Kaufman and Broad, Inc., and is a corporation organized, existing and doing business under and by virtue of the laws of the State of Illinois with its principal office and place of business located at 900 Jorie Boulevard, Oak Brook, Illinois.

Respondent Kaufman and Broad Home Sales, Inc., is a wholly-owned subsidiary of respondent Kaufman and Broad Homes, Inc., an Illinois corporation, and is a corporation organized, existing and doing business under and by virtue of the laws of the State of Illinois with its principal office and place of business located at

PARAGRAPH TWO: Respondents are now and for some time last past have been engaged in the production, advertising, offering for sale or sale of on-site residential housing to the public. Gross sales of on-site residential housing by respondent and its subsidiaries in 1973 was approximately $306,763,000, in 1974 approximately $256,567,000, in 1975 approximately $250,482,000, and in 1976 approximately $283,183,000.

III.

PARAGRAPH THREE: In the course and conduct of its business, as aforesaid, respondent Kaufman and Broad, [*4] Inc. has formulated and established uniform and standardized methods, practices and procedures for the regulation, supervision and monitoring by respondent of the bookkeeping, accounting, financial, purchasing, sales, personnel, customer relations and management operations of its subsidiaries located in various states of the United States.

In the course and conduct of its business, as aforesaid, respondent Kaufman and Broad Homes, Inc., an Illinois corporation, has caused to be published in newspapers of interstate circulation advertisements which are designed and intended to induce the public to purchase respondent's onsite residential housing.

In the course and conduct of its business, as aforesaid, respondent Kaufman and Broad Homes Sales, Inc., an Illinois corporation, has entered into contracts for the purchase of respondent's on-site residential housing with members of the public residing outside the State of Illinois .

Therefore, each of the corporate respondents is engaged in or affects "commerce", as "commerce" is defined in the Federal Trade Commission Act and has been continuously so engaged for several years.

IV.

PARAGRAPH FOUR: In the course and conduct of their [*5] business, as aforesaid, and for the purpose of inducing the public to purchase respondents' on-site residential housing, respondents have made statements and representations in advertising brochures and in advertising inserted in newspapers of interstate circulation.

Typical and illustrative of such statements and advertising representations, but not all inclusive thereof, are the following:

"We're America 's largest publicly held company whose primary business is on-site housing. We know the housing business!"

* * *

"Because Kaufman and Broad is Chicago 's largest home builder, we can build fine homes... our size enables us to use good workmen, quality materials and money-saving tools and techniques."

* * *

"Ask your Kaufman and Broad salesman about our exclusive Buy Back Plan. It is an extra assurance to you made possible by Kaufman and Broad's full confidence in the value and quality construction of the homes they build. After one year, if you are not completely satisfied with your home, Kaufman and Broad will give you your money back..."

* * *

"Because of our size, we are able to give you a bigger better home for your money..."

* * *

"You can have confidence in [*6] Kaufman and Broad. Most homeowners do."

* * *

"Kaufman and Broad's years of experience also insure sound planning and design in all community developments. The added value of this experience will be appreciated by the home owner in his day-to-day living as he realizes the thought and care that has gone into the development of his home and community."

* * *

"Kaufman & Broad provides a kind of quality control that only can be offered because of its huge size."

* * *

"... the best locations--there are Kaufman and Broad communities in many of the most popular Chicago suburbs. Because we're first, we get first choice of all the prime land that's available."

* * *

"Immediate Occupancy No closing costs"

* * *

"F.H.A. loans available..."

* * *

"... Homes with garages, basements, family rooms, patio kitchens, glamour vanity baths and much more - all the room your family needs"

* * *

"... with a garage and basement,..."

* * *

"3 & 4 bedroom homes from $20,990."

* * *

"... 2, 3 and 4 bedroom homes from $19,990... These low prices available for a limited time only."

* * *

"You needn't stray far from your home in Appletree to reach all the things you need.

[*7] 1. Rich Central High

2. Marion High (Parochial)

3. Southwood Jr. High

4. Willowview Elementary

6. Loretto Lane Kindergarten

7. St. Emeric's Elementary (Parochial)

8. St. John Lutheran School

9. Hillcrest High"

PARAGRAPH FIVE: By and through the use of the above quoted statements and representations and others of similar import and meaning not expressly set out herein, respondents have represented, and are now representing, directly or by implication that:

1. Housing sold by respondents is built in accordance with good construction practices in the housing industry.

2. Housing sold by respondents is of top quality workmanship.

3. Housing sold by respondents is constructed in accordance with the Minimum Property Standards for such housing as required by the U.S. Department of Housing and Urban Development.

4. Housing sold by respondents is constructed in accordance with plans and specifications approved by the U.S. Department of Housing and Urban Development.

5. By and through the use of the words "quality materials", "quality construction", "quality control", and other words of similar import and meaning not specifically set [*8] out herein, respondents' housing is free from structural or other defects that could impair such housing for ordinary use as homes or habitations.

6. Respondents' have a unique quality control program that provides for the inspection of their housing at various stages in construction to insure that such housing is of quality workmanship and is free from structural and other defects. 7. By and through the use of the words "best locations" and "first choice of all the prime land that's available", and other words of similar import and meaning not specifically set out herein, land used by respondents for building sites is not subject to any severe limitations that may affect the use of such land for the construction of on-site residential housing sold by respondents.

8. Respondents' advertised homes are available for immediate occupancy.

9. All homes offered for sale by respondents include a family room and a garage or a basement and a garage in the advertised price.

10. All rooms advertised as bedrooms in respondents' 4-bedroom homes are suitable for sleeping purposes.

11. Respondents' advertised prices for homes are for a limited time only.

12. Respondents' housing [*9] is sold to purchasers free of all closing costs.

13. Schools listed in respondents' advertising are in school districts where respondents' housing is located.

PARAGRAPH SIX: In truth and in fact:

1. All housing sold by respondents was not built in accordance with good construction practices in the housing industry. In some houses, fire walls were improperly anchored, foundation walls were not covered with membrane waterproofing to prevent water seepage into habitable spaces, or weep holes were absent in brick veneer walls for the escape of water.

2. All housing sold by respondents was not top quality in workmanship. In some houses, siding was not properly anchored, roof sheathing did not meet with roof edges, spaces between foundation walls and sill plates were not sealed to prevent the entry of air and moisture, or piping and bathroom fixtures were not properly installed.

3. All housing sold by respondents was not constructed in accordance with the Minimum Property Standards for such housing as required by the U.S. Department of Housing and Urban Development. In some houses, front stoops were improperly supported and/or anchored to foundation walls, sill plates were [*10] not properly matched to foundation walls to prevent seepage of water and/or air into the interior of the house, or paint used on kitchen and bathroom walls was not washable as required by such standards.

4. All housing sold by respondents was not constructed in accordance with the plans and specifications approved by the Department of Housing and Urban Development. In some houses, there were deviations and omissions from such plans and specifications that affected the quality of a component part in the house.

5. All housing sold by respondents was not free from structural or other defects that could impair such housing for ordinary use as homes or habitations. In some houses, walls were not properly supported by foundations, floor girders were not properly supported to prevent sagging floors, or foundations contained cracks due to structural failures.

6. Respondents did not have a unique quality control program that provides for the inspection of their housing at various stages in construction to insure that such housing is of quality workmanship and is free from structural and other defects. In many cases, housing constructed and delivered by respondents to purchasers [*11] has been characterized by defects that could have been avoided through proper inspections by supervisory personnel.

7. All land used by respondents for building sites was not free from severe limitations that may affect the use of such land for the construction of onsite residential housing sold by respondents. In some cases, such land was subject to frequent or continuous water saturation, slow run-off of surface water, ponding of water in various places or poor drainage that could result in frost-heave and shrink-swell.

8. Homes advertised by respondents as available for "immediate occupancy" were in many cases unavailable for occupancy by purchasers until many months after the purchase agreement had been signed.

9. Homes advertised by respondents as including a family room and a garage or a basement and a garage did not in many cases include such features in the advertised price. Such features were optional rather than standard and available only upon the payment of an additional charge. In some cases, certain optional features were unavailable even for the payment of an additional charge.

10. All rooms advertised as bedrooms in respondents' 4-bedroom homes were [*12] not suitable for sleeping purposes. Rooms represented as bedrooms were unsuitable for such use because they were constructed with insufficient insulation, inadequate waterproofing or other construction defects.

11. Sales prices of homes advertised as being for "a limited time only" were offered by respondents over a substantial period of time.

12. Respondents' housing was not sold to purchasers free of all closing costs. In many cases, charges and fees incident to the sale of respondents' housing were actually imposed upon purchasers.

13. Schools represented as being located in certain school districts were not located in such school districts and were, therefore, unavailable to the purchasers of respondents' homes located in such school districts.

Therefore, the statements and representations as set forth in Paragraph Five above were false, misleading and deceptive.

PARAGRAPH SEVEN: In the course and conduct of their business, as aforesaid, and for the purpose of inducing the public to purchase respondents' on-site residential housing, respondents have made oral representations through their sales representatives and agents concerning the residential housing which [*13] respondents offer for sale.

Among the oral statements and representations made, but neither verbatim nor all-inclusive thereof, are the following:

1. That parks, playgrounds or schools will be built or developed in the near future in certain communities where respondents' residential housing is located.

2. That public transportation facilities will be available within certain communities where respondents' residential housing is located.

3. That landscaping in certain of respondents' housing developments would include four inches of topsoil in each purchaser's lot that would be suitable to support plant growth.

4. That the tax credit furnished at "closing" by respondents to certain purchasers of their on-site residential housing represented the estimated assessed valuation of the property for tax purposes.

PARAGRAPH EIGHT: In truth and in fact:

1. No park, playground or school has been built or developed in certain designated communities, and have not been anticipated or authorized for such building and development in the near future, as represented by respondents to purchasers and prospective purchasers of respondents' residential housing.

2. No public transportation [*14] facilities have been made available within certain designated communities, and have not been anticipated or authorized for such availability in the near future, as represented by respondents, to purchasers and prospective purchasers of respondents' residential housing.

3. Landscaping in certain of respondents' housing developments where four inches of topsoil was to be included did not include four inches suitable for plant growth. The soil furnished was clay or a mixture of clay with gravel or debris.

4. The tax credit furnished at "closing" by respondents to certain purchasers of their on-site residential housing did not represent the actual assessed valuation of the property for tax purposes. At the time such tax credif was furnished by respondents, respondents knew or should have known that the actual assessed valuation of the property was significantly higher.

Therefore, the statements and representations as set forth in Paragraph Seven above were and are false, misleading and deceptive.

VI.

PARAGRAPH NINE: In the course and conduct of their business, as aforesaid, and for the purpose of inducing the public to purchase respondents' on-site residential housing, respondents [*15] have made representations through model home samples and other devices concerning certain features in connection with the sale and delivery of such housing.

Illustrative of such model home representations, but not all inclusive thereof, are the following:

1. That a kitchen displayed in respondents' one-story model ranch home, Style R-24, would be identical to that delivered to purchasers of that particular style house.

2. That an open staircase with wrought iron railing displayed in respondents' Style S-2 McIntosh model home would be identical to that delivered to purchasers of that style house.

3. That mattresses displayed in bedrooms of certain of respondents' model homes were 74-1/2 inches in length.

PARAGRAPH TEN: In truth and in fact:

1. Kitchens delivered to many purchasers of respondents' one-story ranch house, Style R-24, included a walled-off storage area that was not present in the model home displayed to purchasers and which had the effect of reducing the size of the kitchen by approximately four feet by eight feet.

2. An open staircase was not delivered to many purchasers of respondents' Style S-2 McIntosh house. Instead, such purchasers received a walled-in [*16] staircase.

3. Mattresses and beds used as display in bedrooms of certain of respondents' model homes were less than 74-1/2 inches in length thereby causing said rooms to appear larger than their actual dimensions.

Therefore, the representations as set forth in Paragraph Nine above were and are false, misleading and deceptive.

VII.

PARAGRAPH ELEVEN: In the course and conduct of their business, as aforesaid, and for the purpose of inducing the public to purchase respondents' on-site residential housing, respondents have included written statements in their advertising brochures, sales documents, and advertising inserted in newspapers of interstate circulation and in oral representations made by their sales representatives and agents concerning warranties against defects in housing that respondents offer for sale.

Typical and illustrative of said statements and representations are the following:

"Satisfaction Guaranteed by Kaufman and Broad"

"In addition to an unprecedented five-year new home warranty Kaufman and Broad provides 24-hour customer service"

* * *

"Kaufman and Broad explains why you should buy a home NOW... exclusive 5-year structural warranty..."

* * * [*17]

"... every house built by Kaufman and Broad carries our exclusive New Home Structural Warranty. This unique assurance of quality, unheard of in the entire building industry, guarantees the lasting value of a Kaufman and Broad Home."

* * *

"The Home... has been constructed with the greatest care and workmanship... in substantial conformity with the plans and specifications on file in its office.

Should any major structural defect exist which, at any time within five (5) years from the date hereof, would directly result in the loss or impairment of such Home as a single family residence, Kaufman and Broad Homes, Inc. hereby binds itself to remedy such defect at no cost or obligation to such Purchaser; provided that notice of such defect is delivered to Kaufman and Broad Homes, Inc...."

* * *

Everything guaranteed for one year

* * *

Covers everything

* * *

Anything wrong would be repaired or replaced

PARAGRAPH TWELVE: By and through the use of the statements and representations quoted in Paragraph Eleven hereinabove, and others of similar import and meaning not expressly set out therein, respondents represent and imply and have represented and implied:

1. That respondents' [*18] five-year warranty represents an unqualified obligation on the part of respondents to remedy all structural defects in their on-site residential housing of the kind that would result in the loss or impairment of such housing as a residence.

2. That under their five-year warranty respondents will remedy any structural defects provided that proper notice is given to respondents.

3. That respondents will repair all structural defects in on-site residential housing sold under their five-year warranty.

4. That all of respondents' on-site housing sold under five-year warranties is in substantial conformity with respondents' plans and specifications for such housing.

5. That the one-year warranty offered by respondents in connection with their on-site residential housing is an unqualified obligation on the part of respondents to repair any and all defects and to repair or replace any and all defective materials used in construction arising within one year from date of conveyance of such housing by respondents to the purchaser.

6. That purchasers of respondents' on-site residential housing who invoke respondents' one-year warranty may reasonably expect that respondents will [*19] repair any and all defects and will repair or replace any and all defective materials used in construction.

PARAGRAPH THIRTEEN: In truth and in fact:

1. The five-year warranty was not an unqualified obligation on the part of respondents to remedy structural defects in the on-site residential housing sold by respondents.

2. In many cases even after proper notice was given to respondents of structural defects under the five-year warranty, respondents neglected, refused, or ignored making repairs under the warranty.

3. Respondents did not, in all cases, repair structural defects in on-site residential housing sold under their five-year warranty.

4. Not all on-site residential housing sold by respondents under their five-year warranty was in substantial conformity with respondents' plans and specifications for such housing.

5. The one-year warranty offered by respondents in connection with their on-site residential housing did not represent an unqualified obligation on the part of respondents to repair any and all defects and to repair or replace any and all defecfive materials used in construction arising within one year from the conveyance of such housing to the purchaser. [*20]

6. When purchasers of respondents on-site residential housing invoked respondents' one-year warranty, respondents did not, in all cases, repair any and all defects or repair or replace any and all defective materials used in construction. When requests for repairs or replacements were made by purchasers under such warranties, respondents, in many cases, failed to make such requested repairs or replacements.

Therefore, the statements and representations as set forth in Paragraphs Eleven and Twelve above were and are false, misleading and deceptive.

VIII.

PARAGRAPH FOURTEEN: In the course and conduct of their business, as aforesaid, and for the purpose of inducing the public to purchase respondents' on-site residential housing, respondents made statements and representations in advertising brochures and in advertising inserted into newspapers of interstate circulation concerning warranties and guarantees.

In connection with such advertised warranties and guarantees, respondents failed to adequately disclose material terms and conditions of such warranties and guarantees such as (1) the nature and extent of such warranties and guarantees, (2) the conditions and limitations [*21] of such warranties and guarantees, and (3) the manner in which respondents will perform under such warranties and guarantees.

Thus, respondents failed to disclose such material facts concerning warranties and guarantees which, if known to certain prospective purchasers, would be likely to affect their consideration of whether or not to purchase respondents' on-site residential housing.

Therefore, respondents' failure to disclose such material facts was unfair, false, misleading or deceptive acts or practices.

PARAGRAPH FIFTEEN: In the ordinary course of their business, as aforesaid, respondents caused members of the public seeking to purchase homes from respondents to enter into written sales contracts with respondents which contracts contain a provision reserving to respondents the right to designate the mortgagee.

By and through the use of said written provisions contained in respondents' sales contracts as aforesaid, respondents have precluded purchasers from the opportunity of comparing various alternative credit terms that may be available to such purchasers on more favorable terms from other sources.

Therefore, the acts and practices as set forth above hereof were [*22] unfair, false, misleading or deceptive.

PARAGRAPH SIXTEEN: In the course and conduct of their aforesaid business and at all times mentioned herein, respondents have been and are now in substantial competition, in or affecting commerce, with corporations, firms and individuals in the construction and sale of on-site residential housing.

PARAGRAPH SEVENTEEN: The use by respondents of the aforesaid unfair, misleading and deceptive statements, representations and practices has had the capacity and tendency to mislead members of the purchasing public into the purchase of substantial numbers of respondents' on-site residential housing.

PARAGRAPH EIGHTEEN: The aforesaid acts and practices of the respondents as herein alleged were all to the prejudice and injury of the public and of respondents' competitors and constituted and now constitute unfair methods of competition and unfair and deceptive acts and practices, in or affecting commerce, in violation of Section 5 of the Federal Trade Commission Act.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this 12th day of February, A.D., 1979 issues its complaint against said respondents.

appearances

For the Commission: [*23] Blanche Stein, Richard A. Palewicz and Jerome S. Lamet.

For the respondents: Elroy Wolff, Sidley & Austin , Washington , D. C.

ORDER:

DECISION AND ORDER

The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondents named in the caption hereof, and the respondents having been furnished thereafter with a copy of a draft of complaint which the Chicago Regional Office proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge respondents with violation of the Federal Trade Commission Act; and

The respondents and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by the respondents of all the jurisdictional facts set forth in the aforesaid draft of complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondents that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commission's Rules; and

The Commission having thereafter considered the matter and having determined that it had reason to believe [*24] that the respondents have violated the said Act, and the complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, and having duly considered the comments filed thereafter by interested persons pursuant to Section 2.34 of its Rules, now in further conformity with the procedure prescribed in Section 2.34 of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings, and enters the following order:

1. Respondent Kaufman and Broad, Inc. is a corporation organized, existing and doing business under and by virtue of the laws of the State of Maryland , with its principal office and place of business located at

Respondent Kaufman and Broad Homes, Inc. is a wholly-owned subsidiary of respondent Kaufman and Broad, Inc. and is a corporation organized, existing and doing business under and by virtue of the laws of the State of Illinois with its principal office and place of business located at

Respondent Kaufman and Broad [*25] Home Sales, Inc. is a wholly-owned subsidiary of respondent Kaufman and Broad Homes, Inc., and is a corporation organized, existing and doing business under and by virtue of the laws of the State of Illinois with its principal office and place of business located at 900 Jorie Boulevard, Oak Brook, Illinois.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents, and the proceeding is in the public interest.

ORDER

DEFINITIONS

"On-site residential housing" shall mean housing structures, including lots, consisting of single family dwelling units or housing structures consisting of multi-family dwelling units (including condominiums) represented and sold by respondents in the United States as completely constructed or partially constructed units.

An "express warranty" as used in this order shall mean any written affirmation of fact or written promise made or assigned by respondents to a purchaser as part of the transaction of the sale of a unit of on-site residential housing.

The "HOW warranty" as used in this order shall mean the warranty issued under the Home Owners Warranty Corporation's national home warranty [*26] program.

A "major construction defect" as used in this order shall mean a "major construction defect" as defined in the Home Owners Warranty Corporation Home Warranty Agreement attached hereto as Appendix A.

The term "approved standards" as used in this order shall mean "approved standards" as defined in the Home Owners Warranty Corporation Home Warranty Agreement attached hereto as Appendix A.

A "legal holiday" as used in this order shall mean any one of the following business holidays: New Year's Day, Washington's Birthday, Memorial Day, Independence Day, Labor Day, Veteran's Day, Thanksgiving Day, Christmas Day.

"Closing costs" as used in this order shall mean all the charges and fees imposed directly or indirectly upon a purchaser incident to the sale of real property. Specifically excluded herefrom are escrow deposits and impounds.

"Past purchaser" as used in this order shall mean "past purchaser" as that term is defined in Part VII and Part VIII of this order.

"Repurchase price" as used in this order shall mean the price at which the home was purchased by the original purchaser from respondents or from any of respondents' subsidiaries.

"Receipt" as used in this [*27] order in connection with the receipt by respondents of written requests for repairs from purchasers and past purchasers of respondents' housing shall mean three (3) days following the date post-marked on any letter sent through the United States mail, provided that the actual date of receipt of any written request may be established by other means regardless of the method of delivery that was, in fact, used.

IT IS ORDERED that respondents Kaufman and Broad, Inc., a corporation, Kaufman and Broad Homes, Inc., a corporation, and Kaufman and Broad Home Sales, Inc., a corporation, their successors and assigns, and their officers, and respondents' agents, representatives and employees, directly or through any corporation, subsidiary, division or other device, in connection with the conduct and operation of their business in or affecting commerce as "commerce" is defined in the Federal Trade Commission Act in the production, advertising, offering for sale or sale of a unit of on-site residential housing, do cease and desist from:

1. Selling and delivering any housing unit for use as on-site residential housing which is not built in accordance with the approved standards or which [*28] contains a major construction defect without taking the necessary action to repair, replace, or to pay the cost of repairing or replacing the defect in such housing unit in accordance with the provisions of respondents' express warranty required under Part III B of this order.

2. Failing, in connection with the express warranty required under Part III B of this order to:

(a) Make repairs in a workmanlike manner to a unit of on site residential housing where such repairs are required under respondents' warranty.

(b) Make repairs with materials or components identical to, or of an equal or better grade or quality than, the materials or components used in the original construction of the particular unit of on-site residential housing where such repairs are required under respondents' warranty.

3. Failing to adhere to Minimum Property Standards for the construction of on-site residential housing as required by the U.S. Department of Housing and Urban Development or the U.S. Veterans Administration where such standards are applicable.

4. Making variances, substitutions or omissions in the construction of on-site residential housing from the schedule of specifications made available [*29] for inspection purposes in accordance with the requirements of Part V 8 of this order that are not subject to approval by the U.S. Department of Housing and Urban Development or by the U.S. Veterans Administration and which would significantly reduce the quality of the material or component in which the variance, substitution or omission was made.

5. Making variances, substitutions or omissions in the construction of on-site residential housing where such variance, substitution or omission deviates from approved plans and specifications filed with the U.S. Department of Housing and Urban Development or the U.S. Veterans Administration and which have not been approved by such agencies with respect to such housing and which would significantly reduce the quality of the material or component in which the variance, substitution or omission was made.

6. Failing to repair, replace or to pay the cost of repairing or replacing any major construction defect or any other defect in accordance with the provisions of respondents' express warranty required under Part III B of this order or in the performance of respondents' obligations under Part VIII of this order within a reasonable time [*30] after receipt of written notice of such defect from the purchaser or past purchaser of respondents' on-site residential housing; provided, however, that:

(a) Where respondents for any reason are unable to complete such requested repairs within thirty (30) calendar days after receipt of written notice of such defect from the purchaser or past purchaser of respondents' on-site residential housing, respondents shall furnish to such purchaser or past purchaser (as defined in Part VIII) a written statement setting forth the reason or reasons why such requested repairs cannot be undertaken or completed within such thirty day period and a scheduled date on which the requested repairs are, in fact, to be completed within the next sixty (60) day period.

(b) Where respondents are or were prevented from completing repairs by the scheduled date referred to in subparagraph 6(a) above due to intervening circumstances beyond their control, such as labor strike, supplier or subcontractor failure to deliver materials or perform work, or unsuitable weather conditions, such repairs will be completed within a reasonable period of time not to exceed sixty (60) days from the date of the termination [*31] of the intervening circumstance.

(c) Where respondents for any reason elect not to honor such request for repairs, respondents shall, within twenty-one (21) calendar days of receiving such request for repairs, notify the purchaser or past purchaser in writing why respondents will not honor the request.

7. Failing to take reasonable steps to insure that all inspections required to be made of each unit of respondents' on-site residential housing by appropriate local and other governmental authorities are, in fact, made at the stage of construction at which such inspections are normally required to be made and retaining copies of such inspection reports for each particular unit of such residential housing and, upon request, making such reports available for inspection by purchasers promptly and without charge.

8. Representing through any means, directly or by implication, that the land upon which respondents' on-site residential housing is constructed is suitable for the construction of housing unless respondents have performed the necessary site preparation and construction techniques in a manner satisfactory to the U.S. Department of Housing and Urban Development or the U.S. [*32] Veterans Administration or to state and local planning and zoning authorities to render the land suitable for residential construction.

9. Representing through any means, directly or by implication, that any of respondents' housing is available for immediate use or occupancy by purchasers or prospective purchasers unless such residential housing units are, in fact, available for immediate use or occupancy.

10. Representing through advertising, advertising depictions or similar means, directly or by implication, that the advertised price for respondents' housing includes as standard items certain features, equipment, architectural design, construction or any other item or characteristic for which respondents in fact make an additional charge; provided, however, that nothing in this Paragraph 10 shall prohibit respondents from picturing or depicting a housing unit complete with optional items or characteristics so long as there is a clear and conspicuous disclosure in immediate conjunction therewith that such items or characteristics are available for an additional charge.

11. Representing through any means, directly or by implication, that any room in respondents' housing [*33] is suitable for use as a habitable area where such room has not been properly insulated or constructed for such purpose.

12. Representing through the use of the words "for a limited time only" or through any other means or device, directly or by implication, that any change in the price of any of respondents' housing is imminent unless, at the same time and in conjunction therewith, respondents clearly and conspicuously disclose the date such limited time offer expires.

13. Representing through any means, directly or by implication, that sales of respondents' housing to purchasers are free of "closing costs" when in fact such sales do include closing costs, as "closing costs" are hereinabove defined.

14. Representing through any means, directly or by implication, that public schools and housing offered for sale by respondents are or will be located in the same school district unless respondents advise purchasers of the title or office, address and telephone number of the responsible school district authority from whom respondents obtained such information.

15. Representing through any means, directly or by implication, that respondents' housing is planned, developed, constructed [*34] or located with regard to children's recreational needs without disclosing in immediate conjunction therewith the specific means provided or facilities which respondents have constructed to meet the recreational requirements of children.

16. Representing through any means, directly or by implication, the existence of or plans for any educational, recreational, transportation, medical or other facilities adjacent to or in the vicinity of communities in which respondents have built or propose to build their on-site residential housing unless such facility actually exists or, with regard to planned facilities, respondents advise purchasers of the title or office, address and telephone number of the appropriate authority or public official from whom respondents obtained such information.

17. Misrepresenting through any means, directly or by implication, the amount or quality of the topsoil to be furnished to the purchasers of respondents' on-site residential housing.

18. Representing through any means, directly or by implication, that the on-site residential housing purchased from respondents will be taxed at a rate that is lower than the most recent official tax estimate and [*35] rate obtained from the officially responsible tax assessing authority, or making any representation relating to the assessed valuation or tax rate of such housing without disclosing the identity or title, address and telephone number of the officially responsible tax assessing authority.

19. Misrepresenting through any means, directly or by implication, that any feature, item of equipment, architectural design, construction, appurtenance or characteristic present in model homes is a standard inclusion in such model or style that will be duplicated in residential housing sold and delivered by respondents to purchasers of such model or style at the advertised or offered price. Provided, however, the following will be deemed to be adequate notice to prospective purchasers that such items and features are not included as standard in respondents' on-site residential housing:

(a) A conspicuous sign or signs in or adjacent to the model homes listing items which are optional or unavailable; or

(b) Labels on specific optional and unavailable items; and

(c) Lists available to each prospective purchaser at the entrance of each model home complex which disclose optional and unavailable [*36] items; or

(d) Lists in the brochures which describe the particular model or models of respondents' on-site housing which disclose optional and unavailable items.

20. Using beds or mattresses of less than 74-1/2 inches in length as display or decoration in rooms presented as bedrooms in respondents' model homes without conspicuously disclosing by means of a sign in such room (a) that the bed or mattress is shorter than standard size, or (b) the dimensions of the room.

III

A. IT IS FURTHER ORDERED that respondents, in connection with the advertising, offering for sale or sale of on-site residential housing, shall cease and desist from representing through any means, directly or by implication, that respondents' residential housing is warranted by an express warranty without clearly and conspicuously disclosing:

(a) That the warranty is the standard warranty issued pursuant to the Home Owners Warranty Corporation's national home warranty program, or a warranty substantially identical to such warranty including the specific duration of the warranty;

(b) Or, the following:

(i) The nature and extent of the warranty including disclosure of the parts of said housing that are warranted; [*37]

(ii) The specific conditions and limitations of such warranty;

(iii) The specific duration of the warranty;

(iv) The steps that anyone claiming under the warranty must take before respondents fulfill their obligations under the warranty; and

(v) The manner and time in which respondents will perform their obligations under the warranty.

B. IT IS FURTHER ORDERED that respondents shall furnish purchasers of each unit of respondents' on-site residential housing with a warranty that is substantially identical to the insurer's and the warrantor's undertaking in the Home Owners Warranty Corporation's Home Warranty Agreement (hereafter referred to as the "HOW warranty") currently in use and attached hereto as Appendix A and incorporated by reference in this order, including the procedures for the settlement of disputes, provided that respondents' undertaking for major construction defects shall be for a term of at least four years from the commencement date of each such warranty furnished, and provided further that nothing in this order shall relieve respondents from complying with the Magnuson-Moss Warranty Act, Section 101 et seq. (15 USC 2301 et seq.), the rules [*38] promulgated thereunder, and interpretations issued by the Federal Trade Commission in respect thereto.

C. IT IS FURTHER ORDERED that in the event disputes arise between respondents and purchasers relating to respondents' lia bility for defects under Part III B of this order, and such disputes cannot be settled on a mutually agreeable basis within a reasonable period of time not to exceed forty (40) days from the date such dispute arose, then respondents shall notify each such purchaser in writing and at the same time as respondents finally reject the purchaser's claim, that such dispute may be submitted to third-party dispute settlement under the procedures required in Part III B above, provided that purchasers shall not be precluded from exercising rights under the warranty required in Part III B above in respect to making a warranty or insurance claim or filing a demand for dispute settlement at any time prior to the expiration of such forty (40) day period; and, provided further, that no later than ten (10) business days excluding Saturdays, Sundays and legal holidays from the receipt of a written request for dispute settlement from purchasers, respondents shall take action to [*39] initiate such dispute settlement proceedings.

D. IT IS FURTHER ORDERED that respondents shall specifically perform in good faith and without unreasonable delay or make payments timely as determined under the dispute settlement procedures required in Part III B above in each instance where the use of such procedures results in a decision in favor of the purchaser subject, however, to such rights under law as either purchaser or respondents may have in connection with the dispute.

IT IS FURTHER ORDERED that respondents, directly or indirectly, in connection with the sale of any unit of on-site residential housing, shall not enter into any contracts or employ any other means which prohibit or prevent any purchaser from selecting, within a reasonable length of time, a lending institution of the purchaser's own choice, or that may otherwise have the effect of restricting where the purchaser may seek or secure credit; provided, however, nothing contained herein shall prohibit respondents, or any affi lia te thereof, from entering into mortgage commitments, mortgages or other similar financing agreements with their purchasers.

IT IS FURTHER ORDERED that in connection with the [*40] advertising, offering for sale or sale of on-site residential housing, respondents shall make available to each and every prospective purchaser who visits respondents' sales offices or model homes a brochure or a written statement relating to such housing that will include the following disclosures in a clear, conspicuous and affirmative manner:

1. For on-site residential housing not covered by the National Flood Insurance Program administered by the U.S. Department of Housing and Urban Development, the identity, address and telephone number of the individual, business firm and government agency that conducted soil tests on land used in the construction of the residential housing offered for sale. In addition, respondents shall require their contractors to state in non-technical language to each prospective purchaser who contacts such contractors whether the land tested is suitable for residential use;

2. The identity or title, address and telephone number of the responsible public school district authority who will furnish information relating to the identity and location of schools for the particular housing unit;

3. Each room or area of the particular housing unit to be [*41] purchased that is not insulated to retain the same degree of warmth as rooms designed for use as principal living areas;

4. Each room or area of the particular housing unit to be purchased that is constructed without waterproofing adequate to render such room or area suitable for use as a habitable living area;

5. The most recent official tax rate and estimate obtained from the officially responsible tax assessing authority and the identity or title, address and telephone number of such tax assessing authority;

6. A list containing each and every architectural design, construction feature, appurtenance, optional item or equipment or other characteristic or feature exhibited to the particular purchaser in connection with a model home sample or style offered for sale to such purchaser which characteristic or feature is not included in the model or style of respondents' housing unit offered for sale to such purchaser at the offered or advertised price;

7. A list containing each and every construction feature, appurtenance, optional item or equipment or other characteristic or feature exhibited to the particular purchaser in connection with a model home sample or style offered [*42] for sale to such purchaser which characteristic or feature cannot be included or duplicated in the particular housing unit offered for sale to such purchaser even upon the payment of an additional charge because of the style, size, location or any other reason associated with the land or the design of the particular housing unit offered;

8. A notice that plans and specifications for each home being offered for sale are available for inspection by prospective purchasers at respondents' sales offices during normal business hours; provided that such specifications shall include a full description of the materials and components used by respondents in the construction of their on-site residential housing; and provided further, that such description will be satisfied if it substantially includes the type of information contained in the "Description of Materials" disclosure statements required by the United States Federal Housing Administration (FHA Form 2005, as revised from time to time) or the United States Veterans Administration (VA Form 26-1852, as revised from time to time);

9. A notice that purchasers of respondents' housing may select any lending institution of their choice for [*43] the purpose of securing a mortgage and are not limited to the lending institution provided by respondents;

10. A statement setting forth respondents' arrangement for repairs and the satisfaction of warranties or in lieu thereof, a copy of the warranty required by Part III B of this order that will be furnished with the housing being offered for sale and a statement of the procedure for the settlement of disputes under such warranty.

IT IS FURTHER ORDERED that respondents shall secure a written acknowledgement from each purchaser of respondents' on-site residential housing which shall state the following information:

1. That the disclosures referred to in Paragraph V of this order were received.

2. The date on which the disclosures referred to in Paragraph V of this order were received.

VII

For the purpose of this Part VII, "past purchaser" shall mean the original purchaser of the unit of respondents' on-site residential housing who purchased such unit as new from respondents or from any of respondents' subsidiaries during the period commencing January 1, 1972 and ending on the day immediately preceding the effective date of this order, and who has continued to retain [*44] title to such unit as of the effective date of this order.

A. IT IS FURTHER ORDERED that respondents, in connection with on-site residential housing units sold to past purchasers shall repair, replace, or pay past purchasers the reasonable cost of repair or replacement of defects pursuant to all of the terms, conditions, definitions, approved standards, and exclusions contained in the Home Owners Warranty Corporation Limited Home Warranty Agreement (HOW warranty), which is attached hereto as Appendix A and incorporated by reference herein, when the following conditions exist:

1. In units where respondents transferred title to past purchasers on or after January 1, 1972 :

Major construction defects;

2. In units where respondents transferred title to past purchasers within two (2) years prior to the effective date of this order (including the day immediately preceding the effective date of this order):

Major construction defects, or defects in the plumbing, electrical, heating, or cooling systems due to non-comp lia nce with the approved standards, except defects in app lia nces, fixtures and items of equipment;

provided, that nothing in this Part VII A shall serve to limit or [*45] change respondents' undertaking for remedial action for on-site residential housing units sold and warranted by respondents prior to the effective date of this order with a Home Owners Warranty Corporation's Home Warranty Agreement.

B. IT IS FURTHER ORDERED that respondents, in connection with the remedial action required by Part VII A of this order, shall:

1. Require all claims by past purchasers for remedial action to be made by affidavit and in the form attached hereto as Appendix C and Appendix D, as applicable and incorporated by reference in this order, and addressed to the office of respondents as designated in the letter of notification required by Part VII C;

2. Process all claims made by past purchasers in the priority in which received at respondents' designated office;

provided, that respondents shall not be required to honor any claim from a past purchaser for remedial action made pursuant to subparagraph 1 hereinabove that is postmarked later than fifty (50) days from the date the letter of notification required by Part VII C of this order is mailed by respondents.

C. IT IS FURTHER ORDERED that respondents shall, within sixty (60) days from the effective date [*46] of this order, mail by United States first class mail to the address of each unit of on-site residential housing sold by respondents during the period January 1, 1972 to the day immediately preceding the effective date of this order, a notification informing past purchasers of respondents' obligations under Part VII of this order, and shall include with such notification affidavit forms for the use of past purchasers in submitting claims for repairs, provided that respondents shall not be required to mail such notification to the address of any unit of on-site residential housing where respondents: 1) prior to the effective date of this order furnished the past purchaser a Home Owners Warranty Corporations' Home Warranty Agreement, or 2) within one year prior to the day immediately preceding the effective date of this order furnished the express warranty attached hereto as Appendix B. Such notification shall also include a clear and conspicuous statement that: Claims from past purchasers for repairs must be postmarked within fifty (50) days from the date of such notification; and disputes concerning respondents' lia bility for defects may be settled at the past purchaser's option [*47] through the procedures described under Part IX 4 of this order. Respondents' notification to past purchasers shall be substantially identical in form and content to the letters of notification attached herewith as Appendix E and Appendix F which are incorporated by reference in this order.

D. IT IS FURTHER ORDERED that respondents, in connection with claims for repairs received from past purchasers under Part VII A of this order, shall:

1. Respond in writing within forty-five (45) days from the receipt of each past purchaser's affidavit which asserts a claim for repairs. Such response shall i