Effectiveness of the Builder's Warranty on New Houses with Mortgages Insured by HUD or Guaranteed by VA]

CED-77-20: Published: Jan 5, 1977. Publicly Released: Jan 5, 1977.

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Federal agencies can suspend or debar builders who refuse to repair warranted defects, but can not require compliance with warranty provisions. In some cases, the Department of Housing and Urban Development (HUD) and the Veterans Administration (VA) are authorized to correct defects or compensate home buyers.

From an examination of 181 complaint files, it was determined that 48 builders had been suspended or debarred or had gone out of business. Defects in homes, mostly of a serious nature, were not corrected. Better protection for homeowners and the Federal Government could be obtained from a comprehensive warranty by a third party such as the National Association of Homebuilders. Other possible approaches are holding builders' funds in escrow to insure correction of defects, or requiring builders to obtain performance bonds.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: HUD should initiate a pilot program to test these protection alternatives. If results indicate that one is most effective, it should be expanded and its use encouraged.

    Agency Affected:

 

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