Is Centex doing “the right thing” with its buyback offers?

Centex said in a press release (http://www.rivermistinfo.com/CentexMedia.pdf) that it is extending buyback offers to 27 homeowners displaced by the retaining wall collapse at The Hills of Rivermist in San Antonio. That gesture seems at first glance as the right thing to do, but Centex made no public apology for the damage they caused, and their offer still won’t make the victims whole.

WHAT’S COVERED

Besides buying back the homes, presumably at what was paid, Centex said they will “compensate homeowners for their moving costs, costs of home improvements they may have made, and other incidental expenses, as well as reasonable attorney’s fees to assist homeowners in reviewing legal documents.”

WHAT’S NOT COVERED

Centex didn’t offer to cover the heavy consequential damages and emotional stress that likely resulted when families were forced to evacuate, leave their belongings, and move into a hotel room for weeks at a time. That emotional stress can affect a marriage, a child's school performance, and a parent's work productivity, even threatening a promotion opportunity or the job itself. It's common these days to work 8 hours at the office and another 4 hours at home just to stay employed; but with the evening routine disrupted, work productivity can suffer.

Centex said it won’t pay the fees for legal representation of homeowners who retained an attorney, but that can prevent some from accepting the buyback offer. Because Texas laws are so biased against homeowners in disputes, and because the attorney’s risks in taking on such cases is so high, the only way some people can get legal representation is through a contingency contract. Contingency fees are often at least 30% of the settlement or judgment award, so accepting the Centex offer could cost homeowners $60,000 or more just to settle their mortgage debt and pay their attorney. That’s being victimized twice.

PRESSURE TO SETTLE

Families living in cramped hotel rooms without their familiar surroundings just want this ordeal to end and are likely under tremendous natural pressure to accept the Centex offer. The prospect of making new long-term living arrangements while paying the mortgage on their uninhabitable Centex home makes it worse. Centex knows this, but many families can’t afford to accept the buyback offer. Some may make counter offers that add enough of a cash settlement to also cover attorney contingency fees and use the media to pressure Centex into accepting. Others may walk away from their mortgage loan or negotiate a short-sell with the mortgage company and a willing buyer, but it’s possible that the home’s only value is the scrap building material when demolished. We saw this happen to another defective home that once cost about $250,000 and is now on the tax roles for $1,200.

Centex also is under pressure to settle and settle quickly from a business and PR perspective. The question is whether they learned enough from the 10-year Bob & Jane Cull versus Houston builder Bob Perry case, where a jury recently ordered Perry to pay $58 million in actual and punitive damages. Did Centex-Pulte learn anything about what’s right for the displaced families, the Rivermist subdivision, the City of San Antonio, the Pulte brand, and the Pulte shareholders? The “right thing,” in our view, would have been to take responsibility early and make amends and settle quickly. By waiting so long and offering a settlement that many can’t even afford to accept, this builder sets itself up for expensive lawsuits from displaced families and others in the neighborhood whose home values plummeted. Pulte assumed a huge risk by not acting more decisively, and we might even expect shareholder lawsuits as a result. The best advice I can give the company at this point is to read Jim Collins’ “How the Mighty Fall” (http://homeownersoftexas.org/Builder-Advice.html).