FTC & HUD’s Flood of Complaints Prompt Investigations
The first-time homebuyer’s market elevated KB Home to one of the largest, most profitable homebuilders in the nation while the company was under federal investigation.  Prompted by a flood of complaints and news media reports, HUD and the FTC began their inquiry of KB Home for its questionable building and business practices four years ago.  Just 2 weeks ago the price of KB Home stock reached a new 52-week high of $85.45.  However, following back-to-back fines by HUD of $3.2 million and FTC of $2 million, KB Home stock has fallen by $10.95 to $74.50 as of last Friday...official records confirmed that KB Home foreclosures soared to nearly 30% in at least one community studied, revealing that 1 in 4 families were involved in a foreclosure. The lowest foreclosure rate found in the study was 11.2%, and that KB home foreclosure rates are double the nearest competitor builder...  10/21/05 Related updated article:KB Home Stock Down $21.17 - Can Martha Stewart Help

FTC & HUD’s Flood of Complaints Prompt Investigations
August 7, 2005

The first-time homebuyer’s market elevated KB Home to one of the largest, most profitable homebuilders in the nation while the company was under federal investigation.   Prompted by a flood of complaints and news media reports, HUD and the FTC began their inquiry of KB Home for its questionable building and business practices four years ago.  

Just 2 weeks ago the price of KB Home stock reached a new 52-week high of $85.45.  However, following back-to-back fines by HUD of $3.2 million and FTC of $2 million, KB Home stock has fallen by $10.95 to $74.50 as of last Friday. 

On July 7, 2005 , the Department of Housing and Urban Development (HUD) imposed its fine citing irregularities in KB Home mortgage lending practices as the reason for its action.

In a recent Special Reports titled KB Home Foreclosure Rate More Than Double Other Builders, official records confirmed that KB Home foreclosures soared to nearly 30% in at least one community studied, revealing that 1 in 4 families were involved in a foreclosure. The lowest foreclosure rate found in the study was 11.2%, and that KB home foreclosure rates are double the nearest competitor builder, leading to serious concerns and speculation that poor quality, construction defects, lack of warranty repairs by KB Home and irregularities in lending practices are the causes. 

The Federal Trade Commission’s action modifies a 1979 consent order for the second time since KB Home initially entered into the settlement agreement for a series of defectively constructed homes and its failure to address warranty issues.  

The new August 3, 2005, agreement enjoins KB Home from violating the 26-year-old federal order prohibiting it from restricting customers' rights to sue over construction defects and requires KB Home to: 1) modify the dispute resolution provisions of existing warranties to comply; 2) comply with the warranties as modified; 3) extend for one year the two-year warranty coverage for major home components for homeowners whose homes were delivered during 2002 through 2004; and 4) reimburse homeowners for fees they had to pay to arbitrate warranty disputes. 

FTC Statement:  According to the Commission’s amicus brief filed earlier in private litigation involving KB Home, the company knowingly violated the consent order’s provisions. Despite having sought and received a staff advisory opinion in 1995 that explained to do so would violate the 1979 order, KB Home nonetheless provided homeowners with warranties that provided for mandatory binding arbitration of warranty disputes. In addition, the amicus brief contended that KB Home violated commitments to the FTC staff that it would not seek to enforce its binding warranty arbitration provisions while the staff was investigating its conduct. The amicus brief and the press release announcing its filing are available from the FTC’s Web site at http://www.ftc.gov/opa/2003/08/fyi0350.html. 
See: FTC Announcement