A Personal Note to LEGISLATORS

Thanks for prioritizing your support of the public over that of industry and voting to disband the TRCC. Please continue to explore this site and follow us on Twitter & Facebook. As this legislative session draws to a close, we will be making major changes to our websites and hope you will continue to rely on us as a resource.

Tom Archer, President
Homeowners of Texas, Inc.

This page features information specific to homebuilding issues in this session. Our supporting material includes:

Homebuilding Reform is a Top Priority this Session

Expanding upon Flyer1 -- Texas has a unique opportunity in this legislative session to (1) regulate residential construction contractors, (2) replace builder registration with licensing and accountability, (3) protect the public by reducing the devastating effects of substandard construction, and (4) abolish the ineffective and widely criticized Texas Residential Construction Commission (TRCC).

Why now is the time:

1. Mandatory TRCC Sunset Decision: This hugely unpopular agency will sunset automatically on 9/1/2009 unless it is extended and funded. 
2. Global Economic Recession: The homebuilding industry is widely blamed for sparking a global recession. Americans are angry and demand a return of the regulatory checks and balances that were established in the 1930's but eroded since then.  
3. New Political Climate: The public's outcry resulted in a new President and Congress and a climate conducive to change. Texas builders now have less political influence than when the TRCC was formed. Joe Straus replaced Tom Craddick as Speaker of the House and promises to be more moderate and less influenced by builder money. And our Legislature has more balance between Democrats and Republicans.  

Quick Links:

• 1. Mandatory TRCC Sunset Decision (automatic Sunset pending) 
• • TRCC Unintended Consequences (Why Texans are worse off with the TRCC) 
  • Avoid Four More Years of Homeowner Abuse (about Groundhog Day spoof bill) 
  • Groundhogs Don't Build in Expansive Soil (a primary cause of foundation failure) 
  • Impact of Substandard Homes (economic impact) 
  • The Personal Toll (buying a home is not just a financial transaction) 
• 2. Global Economic Recession (from our white paper on this topic) 
• 3. New Political Climate 
• • Our TEXAS Legislative Agenda 
  • Our NATIONAL Legislative Agenda 

1. Mandatory TRCC Sunset Decision

A decision must be made this session on the controversial $10.5M agency. Options include: (1) kill it, (2) amend it, (3) reform it, or (4) replace it.

Option 1 – KILL IT: HB-1635 follows the advice of the Sunset Advisory Committee Staff Report, which recommends abolishing the agency. The report says the TRCC “fails to provide meaningful oversight and public protection … is fundamentally flawed … and does more harm than good.” Overwhelmingly, the public agreed. 246 public responses during the sunset review said kill it, versus just 14 to keep it. In a 2006 report, Texas Comptroller Carole Keeton Streyhorn, said, "If it were up to me personally, I would blast this TRCC builder-protection agency off the bureaucratic books." Comments from Strayhorn's homeowner survey are especially damning. Afterwards, a law was passed to prevent similar surveys by blocking open records requests of homeowner data.

Option 2 – AMEND IT: The Sunset Committee ignored their staff's recommendations and submitted a bill (HB-2295) to once again fix problems with the agency. But the agency has not used additional enforcement authority that was granted last session, and the minor changes proposed this time amount to "window dressing.” The TRCC can’t fairly mitigate disputes or effectively regulate the homebuilding industry with window dressing. Major reforms are needed.

Option 3 – REFORM IT: HB-2095 adds insurance requirements and stronger enforcement, and other bills address other TRCC shortcomings. Even together, they don't go far enough. The State Inspection Process must be optional, rather than serving as a mandatory roadblock to the legal system. And registration must be replaced with licensing and accountability with criminal penalties.

Option 4 – REPLACE IT: Our licensing bill (HB-2243) replaces TRCC “registration” with licensing, administered by TDLR, and restores the right to voluntary dispute resolution by abolishing the TRCC. General residential contractors will be required to carry general liability insurance, provide a surety bond for each home, and pass a test to prove competency. TDLR is better equipped than TRCC to regulate residential construction. They already administer licensing programs for other professions, including electricians, and they don't suffer from the TRCC's builder bias.

Related Bills – Here's a compilation of more than 50 bills regarding homebuilding, organized, formatted and highlighted for easier reading. They address issues such as:

• Abolishing, amending or reforming the TRCC; 
• Replacing the TRCC with licensing and regulatory oversight that requires education and insurance; 
• Stronger engineering requirements and building codes; 
• Fire sprinkler systems, energy efficiency and air quality; 
• Texas lien laws for contractors and subcontractors; 
• Construction trust funds; 
• Binding arbitration; and 
• Home warranties. 

TRCC Unintended Consequences

The TRCC was established in 2003 through the influence of big builders to oversee parts of the homebuilding industry and reduce lawsuits. The laws, however, were written without consumer representation; and Mr. John Krugh, senior VP and corporate counsel for Bob Perry Homes, drafted the bill establishing the commission. He was also appointed by Governor Rick Perry as the commission's first chairman.

Based on TRCC's own reports, Strayhorn and Sunset Staff reports, and homeowner testimony, Texans are worse off with the TRCC, which supersedes DTPA (Texas Deceptive Trade Practices-Consumer Protection Act of 1973) and RCLA (Residential Construction Liability Act of 1989).

• $10.6 Million agency (2008 budget) fails to protect the public 
• It doesn't prevent root causes of disputes (>29,000 calls in 1Q'09) 
• It doesn't instill confidence & trust (just 186 inspections in 1Q'09) 
• SIRP blocks access to legal system (182 day avg. in 1Q'09) 
• Homeowners still need their own attorney and experts 
• Homeowners can’t use their own inspectors 
• Just 12% of closed cases had satisfactory outcome 
• 88% sought other legal remedies after added cost and delays 
• Illusory warranty terms replace Implied Warranties 
• Builder delay often extends past warranty expiration 
• Lack of enforcement & criminal penalty removes accountability 
• Protection from lawsuits encourages bad behavior 
• TRCC misled the public leading, disguised registration as licensing to considerable distrust 
• Builder disregard (half of Dallas remodelers not registered) 
• Pretending to regulate (registration) enables bad behavior 
• TRCC staff makes binding decisions without legal training 
• Lives have been ruined and neighborhoods decimated 
• Property values, tax base, and public service funding impacted 
• The list goes on, and on (see our Sunset Staff report summary) 

Avoid Four More Years of Homeowner Abuse

February 2nd was Groundhog Day and an opportunity for us to poke fun at Texas and its builder-friendly laws. We quietly distributed a Media Alert that questioned whether legislators would wake up to the light of constituents, or hide behind the shadow of big builders. The alert introduced a "spoof bill” to show what it would be like if all Texas professions, including doctors, nurses and lawyers were "regulated" like the homebuilding industry is.

Our spoof takes Governor Rick Perry’s small-government, low-tax, limited lawsuits and “light touch” regulatory policies to new heights. It (1) rescinds licensing and removes barriers for entering once-restricted professions, (2) eliminates business risks by preventing lawsuits, and (3) returns Texas to the “Wild West Land of the Free and Home of the Brave.”

If passed, the bill would have promised to lower the unemployment rate by making it easier for unemployed workers to start new careers without first investing the time and money once required for prerequisite education. It would have also lowered the cost of critical services like medical and dental care and legal representation.

The Media Alert pointed to eight light-hearted posters to promote the Texas Business Relief and Economic Development Act of 2009.

Groundhogs Don't Build in Expansive Soil

Soil Issues for Residential Construction in Texas is a new white paper that alerts builders, homeowners and policy makers to two concerns about building homes on reclaimed farm and ranch land. The first relates to expansive soils that are unsuitable for building and can cause foundation problems that threaten the structural integrity of homes. The second is residual contamination from industrial waste or toxic pesticides that can cause serious health problems. Read this if your district is in the Blacklands Prairie region where cotton farms are being urbanized into neighborhoods.

The Impact of Substandard Homes

Sub-prime loans contributed to a record number of mortgage foreclosures. Likewise, substandard construction contributed to falling home prices and an economic recession, which has impacted more than just individuals and families. It has also affected neighbors, entire neighborhoods, towns, the state, and the national economy. 

Each year, thousands of unsuspecting Texans buy new homes that they later find are defective. The defects range from substandard materials and faulty design to bad workmanship, code violations, and improper site preparation and grading. Foundation and moisture problems are especially serious since they can render a home unsafe to live in and impossible to sell.

The impact on families can be devastating and includes loss of property value, mortgage foreclosure, loss of life savings, and years of stress from trying to hold builders or warranty companies accountable. The effect of serious defects extends beyond the individual home. It affects home values across entire neighborhoods, economic development for cities, and the tax base that funds public safety and education programs.

In “Housewrecked,” Consumer Reports Magazine said 15% of new homes (at least 150,000 every year) have two or more serious defects. Many of these can be easily hidden by builders under concrete or inside of walls or siding, unobservable even by professional home inspectors until the damage shows up.

Elected officials in Texas have unfortunately and unwittingly punished homeowners by supporting building industry legislation under the guise of affordable housing. But there is nothing affordable about defective housing.

The Personal Toll

Homeowners and builders look upon construction defects from different perspectives than buyers do. To builders, a new house is a product to sell for profit. To buyers, it's a "home,"   an emotionally charged word that extends beyond the physical dwelling or building structure. Home instills memories of where we grew up or lived.

Your constituents' home is a sanctuary where they rest and recover from the busy day, a safe place to raise their kids, a proud symbol of themselves, and their largest investment. "There's no place like home."

But serious construction defects can destroy the feeling of “home” and inflict emotional and economic harm. When such problems aren't fixed, home buyers can get irate, view home builders as evil home wreckers, and behave in seemingly irrational ways. Public protests and disparaging websites with photos of defects, for example, will almost certainly lower property values but, to many homeowners, the damage is already done. These "victims" just want out from under their defective home, and they want their builder to suffer as much as they have.

As shown above, builders don't have to disclose known defects and risks, but resellers must disclose them all or risk being sued. That often means homeowners can't sell a defective home for anything close to what they paid. And too often if means they're forced to default on their mortgage.

The case of Frank and Sandee Bradshaw is a good example. They left their home, walked away from their mortgage, and accepted the financial consequences. Their home was so defective it became unsafe to live in. Built on a post-tension slab that was inadequate for the expansive clay soils in their Hutto neighborhood, the house now has a cracked foundation and broken pipes inside. Toxic mold filled the home, and Frank's doctor told him to move out or die. His live-in granddaughter also got sick. They left the house vacant and moved in with a relative.

The TRCC confirmed the seriousness of the Bradshaw's defects but was powerless to force the builder to fix them. Surrounding homes have had similar problems. The relatively new neighborhood is already in serious decline. And the property tax revenues that fund public safety and education are in jeopardy.

2. Homebuilding sparked a Global Economic Recession

Decades of political wrangling eroded the regulatory controls that were established in the 1930's. Banks, mortgage companies, brokerage houses, insurance companies, and homebuilders were allowed to behave in an extraordinarily irresponsible manner with no accountability. America's economy overheated and attracted foreign capital faster than we could spend the money or manage growth. The result was trillions of dollars in losses and a global financial collapse, all triggered by a bursting housing bubble. So who’s to blame?

Texas Homebuilding and the Global Financial Collapse is our new white paper describing the role Texas and large homebuilders played. It argues that our laws made the $35B Texas homebuilding industry a magnet for unscrupulous builders, including many from out-of-state. We allowed (and even encouraged) bad builders, substandard construction, and tort reform, destroying the life savings of countless Texans, causing the demise of entire subdivisions, and contributing to the economic recession.

Texas has fared better than most states. With 118,000 single-family housing starts in 2007 (23% of the 776,000 U.S. total per U.S. Census), Texas has become the nation’s biggest homebuilding market. There's an abundant supply of cheap land & labor and no accountability. Texas, in fact, provides special builder protections that aren’t found in any other state or industry. While 28 other states (shown in blue on the map below) have licensing authority to keep builders accountable, Texas substitutes registration for regulation. This all makes Texas a magnet for unscrupulous builders from out-of-state.

Substandard construction has plagued all segments of the Texas homebuilding industry, from starter homes built by volume homebuilders to multi-million dollar custom homes. We talked to many good builders with solid reputations who complained that they have to compete against bad builders who cut corners, use substandard materials and undocumented workers, and hide behind laws that protect them from the public. These good builders are victims too, of increasingly relaxed accountability.

In our survey of 10 large national homebuilders operating in Texas, ALL of them own their own finance companies (mortgage, title & insurance companies). Many also had cozy relationships with subcontractors, material suppliers, home inspectors, and realtors, among others. This vertical integration is a serious conflict of interest. It allows both substandard homes and sub-prime loans to feed “the financial beast,” a beast that's more of a home wrecker than a homebuilder.

3. New Political Climate

Our TEXAS Legislative Agenda

Overall we want the same types of consumer protections for buying new homes as already exist for buying older homes. This would help both home buyers and the homebuilding industry.

There are more protections for buying an existing home than a new one, as shown in the table below and LegislativeFlyer2_LicensingNewUsed.pdf. 

Our NATIONAL Legislative Agenda

We're work on two issues with a national impact and are securing sponsors in Congress. These include:

1. Repeal the Brownfields Law (Small Business Liability Relief and Brownfields Revitalization Act), which shields builders from liability and duty to disclose when building on contaminated land. See:

• Soil Issues for Residential Construction  (HOT white paper) 
• Introduction to Soils (from US Dept.of Agriculture) 
• Shaky ground: Arsenic and old soil (news article) 
• Arsenic in HuttoParke & Hutto Square  (news article) 
• Home Builders Mine for Green in Brownfields (news article) 

2. Prohibit vertical integration of homebuilders and builder-owned finance companies, which creates a natural “conflict of interest” and encourages the bad business practice of pushing risky loans onto home buyers and then offloading the risk in secondary markets as mortgage-backed securities.  At a minimum, regulate non-bank mortgage companies the same way as banks. See:

• LegislativeFlyer3: Texas Homebuilding and the Global Financial Collapse (also coming is a new white paper with details about the role of Texas builders) 
• Letters to Builders: Vertical Integration is Conflict of Interest 

An open letter to Texas and Federal legislators

A home is the most expensive and important purchase we may ever make as consumers. It's the one product that, if built with severe defects, can ruin a family financially.

Until bad builders are made to feel the repercussions of serious construction defects, there is no incentive for safe and sound construction, or ethical business practices.

As taxpayers and constituents, we are in accordance with the following resolve:

• We demand trained, skilled and supervised labor in the home building industry along with licensing, bonding, code enforcement, and law enforcement, for residential builders in Texas and other states. 
• 
  
• We demand emotional distress awards and/or punitive damages for homeowners that have had to suffer greatly. Such awards help a financially devastated family recover all of its costs and act as a deterrent to builders who continually and blatantly ignore codes and laws. 
• 
  
• Knowing that arbitration clauses take away our 7th amendment right under the U.S. Constitution to a jury trial, we ask that a ban on mandatory arbitration be placed on all consumer contracts, as it was never intended to be used in business-to-consumer contracts. 
• 
  
• Knowing that arbitration and out of court settlements with confidentiality clauses, i.e. “gag orders”, limit the pursuit of our 1st amendment right to free speech under the U.S. Constitution, we demand a public database of home builder and warranty company complaints so that home buyers may do meaningful research before choosing these companies, and so that public officials and consumer agencies can investigate abuses without fear of retaliation, for the protection of future home buyers. 
• 
  
• Knowing that Texas homeowners may not be able to recover attorney’s fees and other costs above and beyond actual repairs/damages, we request laws change to make these costs recoverable so that a prevailing homeowner can recover all costs and still repair their house; to “break even,” or be “made whole.” 

Thank you for your consideration in these matters.

Sincerely,

Tom Archer, President
Homeowners of Texas, Inc.