KB Home scraps restrictive clause

0 Comments | Oakland Tribune, Jul 2, 2003 | by Alex Veiga, Associated Press

LOS ANGELES -- Kaufman and Broad Home Corp. has dropped a restriction in thousands of its home construction contracts and related warranties that forced homebuyers to accept an arbitrator's decision in warranty disputes with the company.

The company, which built 25,000 homes last year and is one of the major homebuilders in the Bay Area, has begun sending letters to policyholders in 10 states, telling them that their contracts' mandatory binding arbitration clause is no longer in effect, KB Home spokeswoman Debra Hotaling said Tuesday.

The policy update was a voluntary change, made to "reflect the way we conduct our business every day," Hotaling said.

"If we go to arbitration and a homeowner disagrees with the result, he can go to court," she said, adding that the company, however, will remain bound to the arbitrator's decisions.

Hotaling said the company had been discussing the policy change with the Federal Trade Commission, but stressed the change was voluntary, not compelled by the agency.

FTC officials declined comment, citing a policy of not divulging information on its cases.

Attorney Alice Oliver-Parrott, who represents a homeowner in Laredo, Texas, who sued KB Home in federal court over the mandatory binding arbitration clause, said the company changed its policy to try to get out of a legal jam.

"They're hoping to avoid any scrutiny or accountability to the FTC or the federal court," she said.

Oliver-Parrott's client has asked the

court to declare the binding arbitration provision in his warranty contracts illegal and unenforceable. The case is pending.

"What they're offering to do is better than nothing, but the fox wants to clean out the hen house, and I think someone other than the fox should do it," she said.

Warranties with clauses calling for binding arbitration are not uncommon in the homebuilding industry, said David Jaffe, attorney with the National Association of Home Builders.

The courts encourage the use of arbitration as a way to avoid clogging the legal system with disputes. It works best when the parties agree to be bound by the arbitrator's decision in a given dispute, Jaffe said.

But the situation for KB Home is different.

In 1979, the company entered into a consent decree with the FTC that prohibited the company from including clauses in its warranty contracts requiring arbitration to be binding. The FTC and KB Home reaffirmed the decree 12 years later.

Under its new policy, KB Home will offer buyers who close on their homes after July 21 the option of a 10-year warranty without a binding arbitration provision, or a 12-year policy with the binding arbitration clause.

The states where KB Home sent letters to customers are California, Arizona, Nevada, Colorado, New Mexico, Texas, Florida, Georgia, North Carolina and Utah.