Angry Homeowners Take to the Web

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Pulte says it provides each new homeowner with a 50-page "Pulte Protection Plan" detailing a limited warranty in which the builder agrees to repairs for one year after the purchase on the house is closed. "We have identified the problem with her home, we've developed a plan to fix it, and we've made the offer to her to fix it, but Ms. Sabin refuses to let us make the necessary repairs to her home," says Mark Marymee, a spokesperson for Pulte. "If Susan Sabin had spent half the energy working with us as she's put into her Web site, this problem could have been resolved by now."

Builders Threaten Libel Suits

Builders do seem to be concerned about the effect of gripe sites on their reputation. Miami-based builder Lennar (LEN) has filed more than one lawsuit against Mike Morgan, a Florida real estate broker who runs www.defective-homes.net. In a complaint filed July 30 in Charleston County, S.C., Lennar alleges that Morgan "engaged in a concerted scheme to defame Lennar publicly with the goal of extracting from Lennar financial payments." On July 20, a federal magistrate judge in Florida recommended a preliminary injunction preventing Morgan from using the word "Lennar" in Web site domain names.

"They want me dead, there's no way around that," says Morgan, who claims he is now bankrupt and unable to afford legal fees. "If I lose these things, it sets precedents for every other group that has a gripe site." If you search "Lennar" on Google (GOOG), Morgan's site, which he says gets 15,000 visitors a month, comes up near the top of the page.

Builders may be able to win a lawsuit against a poster or Web site creator who cannot back up a statement they post online about defective construction. "The angry homeowner who posts messages on these sites is not protected from libel actions," says Susan Grogan Faller, who practices First Amendment law with a focus on media and Internet for Frost Brown Todd in Cincinnati. "False and inflammatory statements are not protected."

Faller says she is unaware of any lawsuit in which a judgment was taken against a poster on a real estate gripe site. But because it's such a new area, posters and Web masters may not realize that they are at risk. "I think people are used to the concept that someone can sue the newspaper, or magazine, or television station for libel, but they're not used to the concept that they themselves can be sued [for posting on the Internet]."

Paying Complainers to Go Away

Because of the binding arbitration clause in many new-home contracts, unsatisfied homeowners rarely make a court hearing—or the headlines. "I think that the problem with construction defects has been under the radar for so long," says Nancy Seats, president of Homeowners Against Deficient Dwellings (HADD), a nonprofit consumer protection group for homeowners dealing with defective construction. "People just don't understand how many people are just being financially destroyed by bad construction and binding arbitration. But now more and more people are going to the Internet to expose their problems and get back at the builder."

What happens instead of a trial, Seats says, is that big builders pay people to shut down their builder-bashing Web sites. It's true that many links to former sites are now defunct, including the once-popular KBHomesSucks.com. "This was the most outstanding Web site, and KB Homes tried to sue them," Seats says. "The vast majority of [now-defunct sites] were people that were paid to shut up and go away." Repeated calls from BusinessWeek to KB Homes (KBH) have, as yet, gone unanswered.

Now homebuilders are hurting, leading some angry homeowners to worry that construction defects may become even more common as builders try to cut costs. Sales of new homes fell 6.6% in June, to an annualized rate of 834,000, and builders have been reporting lousy earnings numbers (see BusinessWeek.com, 7/7/07, "Homebuilders in a Hole"). "The builders are in very precarious shape," says Martin. "It's a very dangerous period right now in the housing industry."

For future angry homeowners, there will no doubt be plenty of new places to complain.

Click through BusinessWeek's slide show for a look at some of the angriest real estate gripe sites.

Roney is Real Estate writer for BusinessWeek.com.