KB Home Frees Buyers From Binding Arbitration
By Queena Sook Kim
July 1, 2003
 

KB Home, one of the nation's largest homebuilders, is sending letters to
tens of thousands of its home buyers releasing them from a
binding-arbitration provision in their warranties and purchase contracts,
freeing them to press any disputes in the courts.
The move comes as the Federal Trade Commission has been asking the Los
Angeles-based home builder about its use of binding-arbitration clauses. KB
Home entered into a consent decree with the FTC in 1979 which didn't allow
for such arbitration. The two sides reaffirmed the consent decree in 1991.
KB Home says its revised policy wasn't required by the FTC, but acknowledged
that it has been in discussions with the agency about conflicting
interpretations of the order. "Some of this was part of our conversation
with them, but we decided to make the changes voluntarily," said KB
spokeswoman Deborah Hotaling.

 

The Wall Street Journal The move comes as the Federal Trade Commission has been asking the Los
Angeles-based home builder about its use of binding-arbitration clauses. KB
Home entered into a consent decree with the FTC in 1979 which didn't allow
for such arbitration.

 

The two sides reaffirmed the consent decree in 1991.
KB Home says its revised policy wasn't required by the FTC, but acknowledged
that it has been in discussions with the agency about conflicting
interpretations of the order. "Some of this was part of our conversation
with them, but we decided to make the changes voluntarily," said KB
spokeswoman Deborah Hotaling.
The FTC declined to comment on the KB move. However, Robert Frisby, an
assistant director in the division of enforcement, said that the FTC
informed the home builder in 1995 that binding arbitration "would not comply
with the order."
The original 1979 order came after FTC regulators said the company was
building faulty homes and offering inadequate warranties. It required the
builder to provide construction warranties without binding arbitration. KB
maintains that most home builders have adopted binding arbitration so that
it should be allowed to do so as well. KB is the only home builder to be
operating under an FTC consent agreement.
Consumer advocates oppose binding arbitration because they say it is stacked
against the homeowner. "I only know one homeowner who has ever won in
binding arbitration," said Nancy Seats, president of Homeowners Against
Deficient Dwellings, a consumer group in Liberty, Mo. "Homeowners usually
lose and have to pay the homebuilder for attorney costs," she added.
KB's action comes at a time when the pace of new home building and
construction-defect claims are hitting a record pace. Plaintiff attorneys
say that home builders have required binding arbitration to keep complaints
out of the courts. Binding-arbitration provisions require homeowners to give
up their right to sue and take their disputes to a third-party arbiter whose
decision can't be appealed.
Critics of binding arbitration say that its cost, which can be as much as
$6,000, discourages homeowners from pursuing claims. Plaintiff attorneys may
accept cases on a contingent-fee basis, making it easier for disgruntled
homeowners to file lawsuits.
The revised policy continues to require arbitration for disputes, but backs
away from making the decision binding.
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