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Congress Proposes Changes in Federal Arbitration Act To Protect Homeowners’ Rights Against Construction Defects

07/26/2007
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Two elements of the American Dream – home ownership and the right to seek justice – have been on a collision course as home buyers fighting construction defects learn the hard way that arbitration clauses stack the deck against them.

Responding, in part, to consumer outrage, both houses of Congress have proposed amending The Federal Arbitration Act to restore homebuyers’ rights to take developers to court instead of submitting to mandatory arbitration (H.R. 3010 and S. 1782, filed July 12, 2007).

Consumer organizations such as HomeOwners for Better Building (http://www.hobb.org/) and People Over Profits have argued for years that as major construction defects become more prevalent, binding arbitration rules become, in effect, legislated protection of huge development corporations that cut corners – literally and figuratively – and make home warranties worthless.

Janet Ahmad, president of Homeowners for Better Building, cites case after case of homeowners who, in building their dream house, have encountered instead their worst nightmare: sagging roofs, flooding basements, cracking foundations, and worse. But Federal law allows homebuilders to insist that buyers submit to a private arbitrator instead of taking their case to court. Paul Bland, an attorney with Public Justice (http://www.publicjustice.org/) points out that because homebuilders regularly contract with certain arbitration companies, these companies tend to be on the side of the developers . . . leaving consumers powerless.

In a rare moment of clarity and action, the House bill says of arbitration clauses, “Few people realize, or understand the importance of the deliberately fine print that strips them of rights; and because entire industries are adopting these clauses, people increasingly have no choice but to accept them.” The bill further notes, “Private arbitration companies are sometimes under great pressure to devise systems that favor the corporate repeat players who decide whether those companies will receive their lucrative business.”

Well, duh! And who else often falls into this category? Lawmakers who, over and over again, have subsumed the rights of individuals to the profits of huge corporations that fill their campaign coffers. Dare we hope that a light bulb has gone on in their heads . . . or is at least flickering?

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