Binding Arbitration

FHA and VA financed home buyers:

You may be able to get out of arbitration with third-party home warranty companies

A third-party warranty company sells policies to builders of new houses, e.g. 2-10 HBW, RWC, and other warranty companies.
Do not assume this protection will be automatically enforced. Avoid arbitration clauses anyway, and if you need to use this regulation be prepared to work hard to enforce it.
It may or may not apply to warranties on resale houses. Typically, the home buyer doesn't get the warranty policy until after closing, so they never saw or bargained for the arbitration
clause or other terms of the warranty. Arbitration can be biased in the company's favor, and it's private so others can't find out about complaints.

Regulation, 24 CFR 203.204(g):
"(g) In the event of any dispute regarding a homeowner complaint or structural defect claim, Plans must, unless prohibited by applicable law, provide for binding arbitration
proceedings arranged through a nationally recognized dispute settlement organization. The sharing of arbitration charges shall be as determined by the Plan.
A Plan must contain pre-arbitration conciliation provisions at no cost to the homeowner, and provision for judicial resolution of disputes, but arbitration,
which must be available to a homeowner during the entire term of the coverage contract, must be an assured recourse for a
dissatisfied homeowner."

For your attorney: The following court decisions and/or statutes may help your attorney with issues of unconscionable, unenforceable arbitration clauses, such as those in builder and/or warranty contracts. This is offered for your attorney’s convenience and is gathered by HADD’s volunteers and/or their attorneys, who have personally dealt with these issues. We are passing it along as a courtesy. It is not legal advice and is not intended to take the place of legal advice.

Meaningful Opportunity for Consumer to Opt Out of Arbitration Agreement Contained Within Packaging Necessary to Form Binding Agreement


A federal court in Illinois held that an arbitration agreement found in the packaging of an American Express gift card was unenforceable because the consumer only agreed to the terms disclosed at point of sale, and because he was not made aware of an opportunity to return the card. … First, the Court "question[ed] whether effective notice [of the arbitration agreement] was provided to Kaufman..." … Second, even though Kaufman had used the card, he did not have a "meaningful opportunity to reject" the purchase of the gift card after he read the insert, distinguishing this case from ProCD and Hill. See ProCD v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996); Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997).

(CASE: v. American Exp. Travel Related Services Co., Inc., No. 07 C 1707, 2008 WL 687224 (N.D. Ill. Mar. 07, 2008))

Screwed by the Fine Print
Mandatory Binding Arbitration: The Worst Choose Your Own Adventure Ever

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