There are two ways builders can pass home inspections.

  1. Build quality homes to code
  2. Hire their own inspectors

Following is an email from a building inspector for the city of Ft. Meyers, forwarded to me by Mike Morgan.

Hi Mike, I am a building inspector for the City of Ft Myers. We try to do a good inspection job on the big builders but our hands are tied when the builder hires a private inspection firm to do all of their inspections. State Statutes 553.791 (please read) was passed to help the big guys because they feel they do not get a timely inspection from the local jurisdiction. My opinion is the inspectors or inspection firm works directly for the builder. The reason for this e-mail is, did the contractor rely on local jurisdiction or a private inspection firm. You also refer to a home inspector hired by the owner which is another opinion. Hopefully everyone is using the FBC.

Mish note: FBC stands for Florida Building Code.
There you have it. If Florida homebuilders say their houses pass inspections exactly how does that prove a thing?

Following are two email updates from Morgan, both on inspections.

Hello Everyone,

Two updates regarding Lennar. A well respected South Florida architect has completed his inspection of one of the new homes Lennar built in Martin’s Crossing. Confirming our own inspectors concerns, the architect found dozens of defects and building code violations. In fact, he found a variety of issues our engineering inspector did not even look at. The architect was amazed that our County Officials issued a Certificate of Occupancy. We are going to find out who is responsible for issuing these COs and why, and what is going on here. The dirty laundry will be aired. Lennar’s defective home issues are multiplying daily. Moving forward we will be contacting County Officials in all areas throughout the State of Florida where Lennar is building or has plans to build.

The second issue in this update, is something we were not aware of until we received the email below from an Investigator working for a prominent law firm. The RESPA violations referenced below involve Federal law, and the US Government comes down very hard on RESPA violations. Obviously, something has changed at Lennar during the last few years. At least here in Florida, Lennar is facing serious issues in regards to the defective homes they have built, sold to clients, and represented to County Officials, not to mention the Federal RESPA issues.

Regards,

Mike

RESPA stands for Real Estate Settlement Procedures Act.

RESPA is about closing costs and settlement procedures. RESPA requires that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD.

Here is the Email Morgan received on RESPA violations:

I am an investigator with the law firm of ****************** a very well-known consumer rights law firm in *****. You can check out our website at www.**********

We are currently investigating the possibility that Lennar Homes may be violating the Real Estate Settlement Procedures Act (RESPA) by inducing customers to utilize a particular title company through the offer of discounts in home sales prices.

I saw your website regarding problems with Lennar homes. If your clients were induced to use a particular title company, they may have been victims of this federal violation.

I would be very much interested in speaking with you at a time and place that would be convenient to you. Please contact me at ******** or email me at ******** and I will be happy to answer any questions you might have.

Thank you and I look forward to talking with you.

I do not know one way or other if Lennar or other homebuilders are violating RESPA but we do know that it is being researched.

Here is a second Email from Mike Morgan:

To demonstrate the complete disregard for “doing the right thing,” think about this. One of my clients has a Lennar home ready for closing. I told Lennar that I was afraid this home would come back with a failing inspection report, so I suggested Lennar consider this option: An agent came to me with a contract on the home, willing to buy it from my client with a simultaneous closing. I warned Lennar that if the home came back with a failing report, there would be no possible way for my client to sell the home to the new buyer. I suggested to Lennar that they return my client’s deposit, and sell the home directly to the other agent’s client. Lennar refused. We inspected the home. It was littered with code violations and building defects. In fact, even after Lennar called us in for a re-inspection, insisting they fixed everything . . . the home failed the second report miserably. And I mean miserably. Now Lennar has pissed off another one of my client’s and they are trying to force her to close on the defective home. Lennar’s troubles are just beginning, as more and more County Officials realize Lennar has been building defective homes.

I spoke with Morgan on the phone today and he was describing a phone call he just received from a person under contract to buy a home in Newport Isles (A Lennar development in Port St. Lucie). The buyer wisely decided to have it inspected first. The inspection report turned up over 100 defects and code violations. We are both itching to get our hands on that report, but mid-conversation the caller had second thoughts about making it public for fear it would jeopardize his odds of getting out of the contract.

It will be interesting to see how Lennar handles this. One possible option would be to let the buyer out of the contract, refunding the down payment, but requiring some sort of non-disclosure agreement protecting the seller from adverse publicity. This contact was not one of Morgan’s direct clients so we may not find out the end of this sad story. However, if we can obtain a copy of the inspection report, I will gladly post the details.

Yesterday in Foreclosures Rise I was trying to figure out exactly what dollar amount of mortgages would have their rates reset and when. I had two numbers: $1 trillion and $2.5 trillion. Both are correct it turns out. Jack McCabe was kind enough to respond to my question with this breakdown.

2006 – $500 billion adjusts first time
2007 – $1 trillion adjusts first time
2008 – $1 trillion adjusts first time

Total: $2.5 trillion – first time adjustments
Data was from MBA earlier this year.

Bad inspections, dwindling cash, and Bernanke hiking away as rates are resetting are all going to wreck havoc. The foreclosure party has only just begun.

Mike Shedlock / Mish/