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Buyer beware! Texas does little to hold home builders accountable.

The stove in Sherry Huckaby’s newly-built home caught fire the first time she used it last year because of a problem with an electrical outlet.

That was just one of many issues that piled up. Live wires dangled in the attic that could have shocked someone or caused a fire. Her clothes dryer overheated because the vent was installed in a way that promoted clogging. An exterior wall lacked weep holes that help prevent mold.

“It’s frustrating. It’s disheartening,” Huckaby said. “This was supposed to be a very positive move. This was eventually going to be the house I retired in. I don’t know if I want to retire here.”

Things got worse when her builder stopped returning calls and later went out of business. She was left with little choice but to pay for repairs herself.

An evaluation of the new-home construction industry by the Fort Worth Star-Telegram shows a system that is weighted heavily toward builders and against home buyers like Huckaby. The evaluation showed:

- Anyone can set themselves up as a home building contractor in Texas, where there is no licensing process and there are no minimum training standards.

- Purchase contracts favor the builder on newly-built homes, and the law also favors contractors when home buyers seek recourse for problems.

- The municipal inspection process, the only oversight of home builders, covers minimum construction standards. Inspectors are spread thin, and the work is often done by third-party contractors. In some areas, such as unincorporated portions of Tarrant County, municipal inspections are not even required.

Housing industry experts, lawyers, home owners and even some contractors interviewed by the Star-Telegram said changes are needed to protect the buyers of newly-built homes, which go up by the thousands each year in and around Fort Worth as the city grows by 20,000 people a year.

But change is unlikely in a state that has instead reduced regulations for industries — home construction among them. Still, there are many vocations in which the state requires more of practitioners than home builders. For example, a license is required to cut hair, give someone a massage or to provide therapy to someone with dyslexia.

“A laser hair removal technician has more licensing requirements than a housing contractor,” said Sriram Villupuram, a finance and real estate professor at the University of Texas at Arlington, who favors licensing for home builders.

Stuck with repair bills

Huckaby’s 1,600-square-foot home is in the Trails of Fossil Creek neighborhood near Bonds Ranch Road in far north Fort Worth. She lives there with her son and commutes to the Dallas area, where she works at an investment firm.

Her experience shows how gaps in Texas law can leave homeowners stuck with thousands of dollars in unexpected costs, even if a home is still under warranty.

Her builder, Serene Country Homes, went out of business late last year. The failure of the business has left Huckaby and many other residents of the neighborhood to fend for themselves when it comes to construction defects.

Numerous attempts to reach Serene Country Homes officials for comment have been unsuccessful.

Some of the defects in Huckaby’s home should have been caught by the 14 city inspections done during various stages of construction, Fort Worth officials now acknowledge. Others were not code violations, but still evidence of a job done wrong by the home builder.

For Huckaby, the exposed electrical wires in her attic and the lack of weep holes in her exterior brick work were glaring examples of flaws that should have been caught by the builder, if not the inspector.

Huckaby said the exposed wires were discovered in June 2018 — roughly two months after her home’s final inspection — by a technician working on her air conditioner, which wasn’t working properly.

With her builder out of business and the headaches mounting, Huckaby spent a few hundred dollars and hired her own home inspector in July 2018 to provide an objective view of her house’s condition. She wanted a better idea of how many problems there were, and how much it was going to cost to fix them.

Many consumer advocates advise home buyers to hire an outside inspector before closing on their house to improve the chances the home will be handed to the customer in the best possible condition.

The outside inspector Huckaby hired, D. Grant Wilson of McKinney-based Wilson Inspection and Consulting, found many issues in Huckaby’s home, including concrete voids around the foundation that he recommended sealing. The inspector also found inadequate side yard drainage, incorrect drip edge on the roof flashing, caulk missing over front windows and separated interior baseboards.

The inspector found that Huckaby’s dryer vent was routed to the roof instead of the side of the house — an arrangement that, because of the type of vent that was installed, can trap lint and cause overheating. She now will have to either replace the vent, or regularly clean it to prevent it from becoming a fire hazard.

“My neighbor’s (vent) is right,” Huckaby said. “Why is mine wrong?”

Huckaby wanted to know why the city inspectors who visited her home during the construction process hadn’t noticed these issues.

“That was my question to (Wilson),” she said, “and he noted that, unfortunately, it happens all the time.”

City hires third-party inspectors

Randle Harwood, Fort Worth planning and development director, acknowledged in an interview that the bare wires and missing weep holes should have been caught by the private-sector vendor — a company known as Metro Code Analysis LLC — that the city used for the inspections on Huckaby’s home in late 2017 and early to mid-2018.

Harwood’s office oversees commercial and residential inspections. Last year, Fort Worth performed 117,480 inspections on newly-built, single-family homes, records show. Of those, 106,329 inspections — more than 90 percent — were performed by third-party vendors, and the remaining 11,151 inspections were done by city employees.

Johnathan Killebrew, president of Metro Code Analysis LLC, said his company has performed Fort Worth inspections as a third-party vendor to the city since 2000. All of the company’s inspectors have 10 years or more of experience, he said.

“Metro Code does do a thorough and complete inspection for every home,” Killebrew said in an email. “If an item was missed due to an oversight or human error, please know that we work to reduce these. We incentivize our employees with additional training and we welcome corrections.”

Killebrew also noted that just because the exposed electrical wires were found after the final inspection of Huckaby’s home doesn’t necessarily mean a Metro Code inspector overlooked the problem.

“We can only verify that the house passed inspection on the date the final inspection was done,” Killebrew said. “We cannot account for any work that was done by the homeowner or builder after that date.”

Municipal inspections cover basics

Fort Worth officials say the city inspections aren’t meant to measure whether a house was built with quality and attention to detail in mind. Instead, city inspections are meant only to ensure that certain features of the home — including the foundation, plumbing, electrical components and heating/air conditioner — are installed according to industry codes.

“It may meet the minimum standard, but it may not meet the best practices,” said Harwood, the city planning and development director.

The Star-Telegram requested city reports from the inspection of Huckaby’s home.

The records show that inspectors from Metro Code visited Huckaby’s home 14 times between Sept. 21, 2017, and April 17, 2018.

The inspection reports showed the date of each inspection and the name of the inspector, but provided little detail about the inspector’s observations. All 14 inspections resulted in a passing grade.

The Star-Telegram also requested inspection records from a second home in the Trails of Fossil Creek. The owner of that home, in the 200 block of Emerald Creek Drive, did not want to be interviewed for this story.

That inspection, which also was performed by Metro Code, showed that 17 inspections were performed on the second home. Deficiencies were found on five occasions, including incorrect flashing on all windows, problems with an air duct connection, a missing outlet at the back of the house and two other unspecified problems. Those problems were remedied and passed a second inspection.

It’s not uncommon for flaws and mistakes to surface in the first few months after a new single-family home is occupied. Even the most reputable builders know this, and they budget for it. Many provide warranties to cover problems that are discovered or develop after closing.

One of the world’s largest residential home builders, Arlington-based DR Horton, keeps a reserve fund of $419.1 million for legal claims related to construction defects, according to the publicly-traded company’s quarterly filing in March. That’s up from $408.1 million the same time a year earlier.

As Huckaby dealt with issue after issue in her new home, she was surprised to learn from the Star-Telegram that Texas doesn’t require building contractors to have a license.

Plumbers, electricians and heating/air conditioning installers must have a license specific to their trade. But most contractors, including general contractors overseeing the job, don’t have to be licensed, pass an exam or even register with the state.

For the most part, anyone can slap a company name on a pickup and declare themselves a contractor.

“They should be licensed,” Huckaby said. “Anytime you have checks and balances, you have a better chance the work is going to be done right.”

Should contractors be licensed?

Dallas lawyer Mazin Sbaiti handles many cases involving home buyers with complaints of shoddy construction, and he favors stronger licensing and education standards for contractors.

Sbaiti recently won a $2.1 million judgment for a Dallas home buyer whose high-end house was improperly waterproofed. The contractor incorrectly installed a plastic wrap around the house, which Sbaiti said allowed leakage during heavy rains, causing so much damage the house had to be torn down to its studs and rebuilt.

Sbaiti says he now gets two to three inquiries per week from North Texans who want to file lawsuits against a contractor for poor residential workmanship, a dramatic increase compared to inquiries in previous years.

“The dynamic we have is, because they’re not licensed they can’t be held very accountable,” said Sbaiti.

Complaints about home purchases are on the rise.

In May, 162,077 complaints were filed against Texas real estate agents, brokers, inspectors and warranty companies. That’s a 4.1 percent increase from the same month a year earlier, according to the Texas Real Estate Commission. The complaints are for both new and re-sale homes and can include issues beyond the quality of construction.

Organizations such as the Better Business Bureau offer a platform for prospective buyers to search for complaints against a specific contractor. Otherwise, it’s difficult to find data on just how many complaints are out there about Texas home builders.

Sbaiti said that because Texas doesn’t regulate home builders, require them to meet minimum education requirements or register on a state database, “a general contractor is only as good as his weakest subcontractor.”

Often, problems arise in a community when the demand for homes is high. General contractors are sometimes forced to use subcontractors they don’t know well, to avoid falling behind in their construction schedule, said Villupuram, the UT-Arlington finance and real estate professor who supports licensing for builders.

“In Texas, we’re known for not having stringent regulations on everything, and the good thing about that is, if somebody has a goal of starting a business and succeeding, we give them opportunities,” Villupuram said. “Unfortunately, it also leaves room for those fly-by-night home builders to take advantage of consumers and others who sometimes don’t do their homework.”

Practices vary by state

In other states, the requirements vary widely, according to a list of requirements kept by Next Insurance, a company that focuses on selling policies to small businesses.

In New Mexico, general contractors must be licensed for all jobs, according to Next Insurance. They are required to show proof of education and experience and to pass an exam.

In Oklahoma, no license is required.

In Louisiana, a license is required for projects worth more than $75,000, and acquiring a license involves showing a financial statement and proof of liability insurance and worker’s compensation insurance. A trade exam is also required.

In Arkansas, a license is required for projects worth $2,000 or more.

Some home contractors said they would favor tougher licensing requirements.

David Cartisano is a project manager for Excel Construction, which specializes in storm damage repairs, and also owns his own construction consulting business. Cartisano believes that licensing for all contractors would improve the reputation of the home building industry.

His company has an A+ rating with the Better Business Bureau, including 19 positive online reviews.

“It could get rid of all the unlicensed guys that come in and do shoddy work and undercut all the real contractors,” Cartisano said. “They don’t have bonding. They don’t have insurance. They come in and undercut us by $20,000, and they get the job. They do horrible work, and a month later the home owner is calling us to come fix (their) problems, but now they (the homeowners) are out of money.”

Another contractor, Greg Davis, agrees. Davis’ company, Capstone Homes, typically builds only about 10 custom homes per year in the Fort Worth area, so that he can ensure he has the time to use subcontractors he knows and trusts.

“I’m in the county, where no inspections are required, but I hire a third-party inspector, and I have an engineer to design my slab,” Davis said. “I’m able to provide a 10-year structural warranty.”

Opposition to contractor licenses

But some business and political leaders say government regulation isn’t the answer.

Scott Norman, executive director of the Texas Association of Builders, points out that 17 other states also allow home builders to operate without a license.

“The states that have licensed builders, I don’t think they necessarily have better homes,” said Norman. “The key is code enforcement and strong building codes — which we very much support — and inspections.”

He added that the political climate in Texas generally favors cutting regulations on private businesses, rather than enacting more rules.

State Rep. Charlie Geren, R-Fort Worth, isn’t convinced that licensing more contractors is a solution. Geren has for many years served on a House committee on licensing and administrative procedures.

Geren recently obtained his own building permit for a new house he built in Fort Worth, and he said all it required was a $100 payment at the city’s offices. Himself a real estate broker and owner of Railhead Smokehouse restaurant, Geren eventually turned over responsibility for construction of his new house to a general contractor.

“My builder never touched a hammer or screwdriver. He oversaw the construction, and he oversaw the subs (subcontractors),” Geren said. And, he added that many of the subcontractors are already licensed because of their particular skills.

“The electricians are licensed. The plumbers are licensed right now. The air conditioning people are licensed,” he said.

Home builders have the advantage

Warranties offer home buyers some protection, but Texas law doesn’t require builders to offer them. However, many builders typically offer warranties guaranteeing their work for at least one year.

Specific components of a house, including the air conditioner, furnace, foundation and roof, can be guaranteed for longer periods — some as many as 10 years.

But what’s important for prospective buyers to know is, when they sign a contract for construction of a new home, whatever language is in the warranty is likely the only protection they get, according to a prominent Texas attorney.

“The law is that the builders can give an express warranty of whatever they want it to be,” said Mark McQuality, a Dallas-based lawyer with more than 35 years of experience in real estate and consumer law. “The builder can give any warranties it wants and the consumer can accept those or go to somebody else.”

Also, an overwhelming majority of new home construction contracts include language that specifies any disagreements between buyers and home builders go to mediation and, if that doesn’t work, binding arbitration, he said.

Mediation is meant to encourage buyers and builders to find middle ground and reach a settlement. Arbitration is more like a civil court proceeding, and the ruling made by the arbitrator typically cannot be appealed to a state district court, McQuality said.

Some homeowners are surprised to find themselves at a disadvantage in the mediation and arbitration process, because they didn’t realize the proceedings are mandated by the contracts they signed, McQuality said.

“Lots of homeowners are at a disadvantage because they don’t know what they are getting into,” McQuality said. “They are at a disadvantage because the builders are always going to have their attorney.”

Since the late 1980s, the state’s elected leaders have repeatedly passed laws that loosened regulations for contractors, while also adding proverbial hoops that home buyers must jump through if they wish to pursue a legal claim against a builder. Legislators have also placed caps on the financial damages an unsatisfied customer can win in court.

Ware Wendell, executive director of Texas Watch, a nonpartisan citizen advocacy group based in Austin, said the time and legal costs associated with holding builders accountable have “made it hard for homeowners to receive justice.”

“Meanwhile, the home builders pad their bottom line through cheap and shoddy work,” he said.

It’s possible for home buyers to file lawsuits in state district court alleging offenses such as negligence, fraud or breach of contract. But those cases are comparatively rare, because state laws passed in recent years make it difficult for home buyers to demonstrate that they have a case fitting into one of those categories.

Because of changes made to state law between 1989 and 2009, the Texas Deceptive Trade Practices Act, a 1973 law that protects consumers from being ripped off in the purchase of goods and services, can only be applied on a limited basis to the purchase of a newly-built home.

“I don’t understand why you have more rights in some regards when you buy a toaster than when you buy a million-dollar house,” McQuality said.

Also, Texas law doesn’t allow residents to collect damages for mental anguish in cases involving home construction, he said — a type of damages allowed in most other consumer cases.

In a paper on the home construction legal issues published in 2009, McQuality traced the change to 1989, when the Texas Legislature created the Residential Construction Liability Act. That law gave builders an opportunity to make repairs or a settlement before a case proceeded.

In 1993, the law was amended to put limits on the types of damages and how much a home buyer could collect in a winning case, including the elimination of exemplary damage and mental anguish.

In 2003, the Texas Residential Construction Commission was created. Critics said it was an effort by some lawmakers — backed by the home building industry, which made generous campaign contributions to lawmakers — to do away with a law that ensured consumer protections.

The Texas Residential Construction Commission was disbanded in 2009, after legislators determined it was doing more harm than good in terms of assuring quality home construction.

Since then, McQuality said, there has been little effort in state government to toughen requirements for home builders and their contractors.

“We never would have bought here”

Donna and Doug McVaigh - who bought a newly-built home in September - agree that more is needed to protect home buyers in Texas. They live in the Trails of Fossil Creek - the same neighborhood as Sherry Huckaby.

Weeks after the McVaighs moved in, as the weather grew cooler, Doug McVaigh, who is retired, realized the furnace wasn’t working.

When he tried to call the installer, he found out the company had gone out of business.

McVaigh initially worried that he might be stuck with a $1,600 service call to fix the leaking Freon and other problems with his heating and cooling units, even though he was still supposed to be covered by a one-year warranty on his new home. He eventually found another installer who made the repairs and honored the warranty.

He attributed the problem to the installer, but also noted that the builder, Serene Country Homes, had selected the installer and should have shared responsibility.

“I’m not big on government getting involved and government regulation and everything, but it seems to me there should be something to prevent this from happening again,” Doug McVaigh said.

“If we had known what was going on behind the scenes,” McVaigh said of the numerous complaints in the neighborhood, “we would have never bought a house here.”

BEHIND OUR REPORTING

How we did this story

The Dallas-Fort Worth region, and in particular the Fort Worth area, has been in the midst of a single-family residential construction boom for several years.

During that time, the Fort Worth Star-Telegram and other news organizations have reported on several incidents in which home buyers weren’t satisfied with the quality of work done on their homes.

During the past several months, the Star-Telegram took an in-depth look into the new-home construction industry, focusing on what requirements are placed on builders and how that compares to other states. We also examined laws in place to protect home buyers.

The Star-Telegram visited neighborhoods where homeowners had reported problems, and requested home inspection records for those properties from Fort Worth’s planning and development department. The city inspections provided little insight into the overall quality of construction, but were focused on whether certain aspects of construction, such as electrical and plumbing work, met the minimum required by industry codes.

We also requested to ride-along with Fort Worth home inspectors for a day, to get an idea of what their jobs are like, but were told by city officials that it would be too difficult to arrange because the inspectors’ schedules were so busy and varied. We learned that roughly nine of every 10 residential inspections in the city is performed by a third-party vendor hired by the city.

Several homeowners were interviewed, including some residents who appeared in the story and others who didn’t. We also spoke at length with real estate and finance experts from two area universities, two attorneys with consumer protection expertise and an official with a statewide consumer watchdog group. These sources all favored a new state law that would toughen the licensing and education requirements for home builders.

The Star-Telegram also sought varying viewpoints from sources such as contractors, the Texas Association of Builders and an elected leader with years of experience on a legislative committee that oversees licensing matters.

We researched changes that have been made to state law regarding new home construction, and found numerous actions by the Texas Legislature between 1989 and 2009 that reduced regulations for builders — some of whom are well-known for making large contributions to political campaigns.

During the same time period, state laws were changed to make it more difficult for home buyers to initiate a legal action against a builder.

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Gordon Dickson joined the Fort Worth Star-Telegram in 1997. He is passionate about hard news reporting, and his beats include transportation, growth, urban planning, aviation, real estate, jobs, business trends. He is originally from El Paso, and loves food, soccer and long drives.
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