Texas residents who purchased a KB Home within the past 10 years will get notice this summer that they don't have to use binding arbitration should they ever have a warranty dispute, according to an agreement reached in a Laredo district court.

The proposed settlement would be the second involving KB Home and binding arbitration. In August, the builder agreed to pay a $2 million federal civil penalty.

Consumer advocates have long opposed corporations imposing arbitration clauses in consumer contracts, arguing that the process gives big companies unfair advantages. In contrast to the courts, arbitration is closed to the public, exploration into company actions is more limited, decisions can't be appealed, and awards tend to be smaller.

Janet Ahmad, president of HomeOwners for Better Building, said the significance of the ruling is that KB Home must notify all customers individually, going back to the company's entrance into the Texas market when it acquired San Antonio-based Ray Ellison Homes.

"This is going to tell the consumer, in a straightforward manner, that the mandatory binding arbitration clause is null and void," Ahmad said.

Ahmad expressed hope that other builders would follow suit, and that other states would take notice that this decision was based on the Federal Trade Commission's influence over KB Home's business practices.

The settlement brings to a close a class action that occurred independent of an investigation by the FTC. On Aug. 3, KB Home agreed to a civil penalty to settle charges that it violated a 1979 consent order by mandating arbitration in warranty disputes and requiring homeowners to pay fees and costs to initiate and go through arbitration.

The FTC investigation was under way in 2003, and KB Home responded that year by introducing a new 10-year warranty with a nonbinding arbitration process. A company spokeswoman emphasized then that binding arbitration was standard in the home-building industry, and KB Home was the only major builder in the nation not using it.

The notice going out this summer will tell KB Home customers that as of July 13, 2003, any warranty-related arbitration clause is binding on KB Home, but not on the homeowner.

Should the customer choose to use arbitration, "KB Home will pay all of the fees and expenses of the organization conducting the arbitration, including the fees to initiate the arbitration and the cost of the arbitrator," states the sample notice in the court filing.

KB Home and the attorney for the class action, Alice Oliver-Parrott, agreed in the settlement not to make statements to the media without each other's consent. A company statement issued Thursday reiterated KB Home's commitment last summer to the FTC.

"The (Trevino v. KB Home) settlement requires KB Home to send a Warranty Modification Notification to homeowners in Texas, informing them of the modification through their home warranties," said corporate spokeswoman Caroline Shaw.

Another condition of the settlement was that Oliver-Parrott transfer control to KB Home of two inactive Internet domain names that were intended to set up forums where the public could complain about the company's products.

KB Home and Oliver-Parrott must now agree to the final wording of the notification. Forty-five days after the final hearing, KB Home is to conduct the mailing.

The builder also will have to pay attorneys' fees and costs, which could amount to $850,000.

The settlement is independent of and has no effect on a recent Texas law regarding disputes between builders and homeowners. On houses where construction is completed, the Texas Residential Construction Commission has primary jurisdiction. Disputes must go through it before moving on to court or arbitration.

Created in 2003, the commission has been blasted by critics — including gubernatorial candidate and Texas Comptroller Carole Keeton Strayhorn — who see it as a builder protection agency that creates hurdles to discourage consumers.