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

Gao ID: CED-77-20 January 5, 1977

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.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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