What's Hiding In Home Contracts

Most Arbitration Clauses Work Against Consumers

(CBS)  When Mary Cohn tried to sue the company that built her home for producing a house filled with defects, she didn't exactly find a welcome mat at the courthouse.

"Our home was infiltrated with mold and water. It made my children ill living in this home," Cohn says.

Unknown to Cohn, there was a waiver included in her closing papers which forfeited her right to file a lawsuit, reports CBS News Correspondent Jim Acosta.

"It's a rigged poker game," she says.

The dispute had to be settled through binding arbitration.

"This is the finest consumer defect case that I've seen in my career and you're going to lose it," Jim Moriarty, a consumer fraud attorney, told Cohn.

Consumer advocates claim arbitration rules are designed to protect business. Instead of a courtroom, cases are tried in a private conference room. Instead of a judge and jury, there's an arbitrator whose decisions are almost always final.

After finding structural flaws in their home, Lynda and Jerry Reier faced arbitration with their builder. "The whole house was crooked," says Lynda Reier.

The Reiers didn't win their arbitration and were told they had to pay the builder. The builder's award would have been $53,000, but the Reiers say they were able to prove their arbitrator had not disclosed a prior relationship with the builder's attorney. A court agreed and tossed out the award.

Big business defends arbitration clauses, which are showing up in the fine print of all sorts of contracts from credit cards to long distance phone service.

"They've become common because the courts have become clogged and litigation has become extremely expensive," says Stephen Bokat, general counsel at the U.S. Chamber of Commerce.

The American Arbitration Association insists in its system most consumers win.

"It's very very difficult for an individual to take on a corporation in a lawsuit," says Rich Naimark of the American Arbitration Association. "They'll outlast you. They'll outspend you. They'll drive you into the ground if they choose to do that," he says.

Unable to sue and opposed to arbitration, Mary Cohn instead put a sign on her house blasting her home builder. Now, the builder is suing her.