THIS SUMMER, 60,000 TEXAS RESIDENTS who purchased houses from KB Home over the past decade will receive notices that warranty disputes with the builder don't need to be settled through binding arbitration.

A May 16 hearing in U.S. District Court in Laredo, Texas, should finalize a settlement between Los Angeles–based KB and homeowners represented in a class action filed in 2003. Janet Ahmad, president of San Antonio–based advocacy organization HomeOwners for Better Building, says that this agreement makes KB the first builder in the country to be barred from requiring binding arbitration. The option for arbitration, however, would remain open to homeowners.

KB's warranty dispute resolution policies have been scrutinized since 1979, when a Federal Trade Commission (FTC) investigation forced the builder to sign a consent decree that included offering warranties with standards set by the FTC and HUD.

KB was found to be in violation of that decree twice, in 1991 and 2003. On Aug. 3, 2005, the builder agreed to pay $2 million in civil penalties to settle federal charges that it had strayed from the decree by mandating arbitration over warranty disputes and requiring owners to pay fees and costs to initiate any arbitration proceedings.

Sierra Wilson, a KB spokesperson, says that the recent class-action settlement requires her company to notify customers of a commitment it made to the FTC last summer to offer a 10-year limited warranty with arbitration that is binding on KB but not homeowners. The notice will state that the effective date of the change is July 12, 2003.

“All we want them to do is build a better home,” Ahmad told the Laredo Morning Times.

Learn more about markets featured in this article: Laredo, TX.