Home Builders Are Facing a Torrent of Lawsuits Over Shoddy Construction

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0:33Nicholas Miller:Trump endorses Ken Paxton over incumbent Senator John Cornyn in a tight Texas GOP Senate race. Plus, some of the biggest homebuilders in the U.S. are facing more lawsuits over shoddy construction. Some of the big builders, their reserves for legal liabilities had surged in recent years. Money that they are kind of setting aside in order to pay for settlements and illegal claims that the homeowners bring against them. And Spanish authorities say the son of the billionaire founder of the Mango fashion chain played a role in his death. It's Tuesday, May 19th. I'm Alex Osula for The Wall Street Journal.

1:07Nicholas Miller:This is the PM edition of What's News, the top headlines and business stories that move the world today.

1:16Nicholas Miller:First up on today's show, the talks to end the war in Iran. President Trump said yesterday that he called off a U.S. attack on Iran to make room for negotiations. Now we're reporting that progress seems to have stalled out. Regional mediators and U.S. officials said that Iran's position in the talks hasn't changed much from before. That's raising questions about whether there even is an off-ramp to the conflict. During a White House press conference today, Vice President J.D. Vance said the negotiations are ongoing. So we're going to keep these negotiations private until we've got something, of course, to tell the American people, and at that time we will.

1:50Nicholas Miller:Vance also said that Trump is willing to restart the military campaign if necessary. We are not going to have a deal that allows the Iranians to have a nuclear weapon. So as the president just told me, we're locked and loaded. We don't want to go down that pathway, but the president is willing and able to go down that pathway if we have to. We understand that the U.S. and Israel have been preparing to carry out new attacks within days, and that strikes could still happen by next week. Tehran has warned of a fierce response if it is attacked again. Separately, the Journal has learned that the U.S.

2:22Nicholas Miller:seized an Iran-linked oil tanker in the Indian Ocean overnight. President Trump is keeping up the economic pressure on Iran as well as threatening to resume military strikes. The Pentagon didn't respond to a request for comment. Back in the U.S., President Trump has endorsed Texas Attorney General Ken Paxton for Senate over incumbent Senator John Cornyn. Trump's endorsement throws an 11th-hour curveball into a tightly contested Republican primary. Cornyn has held the Senate seat since 2002. He's been backed by old-school Republican supporters. But Paxton has accused Cornyn of not being firm enough in his backing of Trump.

2:59Nicholas Miller:The election is next Tuesday. In Washington, Acting Attorney General Todd Blanche testified in front of Congress today. He answered questions about the Trump administration's$1.8 billion quote, anti-weaponization fund, which we told you about yesterday. It's drawn criticism from lawmakers in both parties. Blanche will appoint the commission members who will decide how to dole out the funds. He said that none of Trump's family members will receive a direct payout. That is not what the AG order that I signed yesterday says. It does not limit it to President Trump or President Trump's friends. To the contrary, President Trump isn't taking a dime.

3:35Nicholas Miller:But the agreement that created the$1.8 billion settlement fund has now expanded in a way that could be a significant financial benefit to the president. The deal has now expanded to end all pending tax audits of President Trump and of his businesses. A DOJ document posted today said the government would be, quote, forever barred and precluded from pursuing certain claims against Trump, his businesses, and family members, including anything related to previously filed tax returns.

4:07Nicholas Miller:This spring, we've been covering how the U.S. housing market is doing and whether a hoped-for recovery could still happen. Today, we've got some different ways to gauge how it's doing. First, Home Depot reported lower profit in its fiscal first quarter. Chief Financial Officer Richard McPhail told the Journal that homeowners are still pulling back on big home improvement projects because of economic uncertainty. Meanwhile, there's a growing trend in the world of mortgages. Lenders are increasingly turning to alternative loans. According to the real estate data firm Inside Mortgage Finance, mortgages using alternative lending practices made up nearly 6 % of all home loan originations last year.

4:45Nicholas Miller:That's a small portion of the market in the scheme of things, but that's the highest percentage since the housing crash two decades ago, and it's doubled in size over the past three years. Non-conforming loans offer an opportunity for homebuyers who might not otherwise qualify for traditional loans, like people who are self-employed. They carry a higher interest rate for the borrower, but they also come with more risk for lenders. Lenders are accepting those risks to boost lending activity during a slower period. And a growing number of people who bought a new home are suing the builders over what they say are defects in construction.

5:18Nicholas Miller:They say that builders are using cheaper materials, cutting corners, and hiring unqualified subcontractors. The legal liabilities for some of the country's biggest home builders, like D.R. Horton and Lenar, have surged in response. For more on these lawsuits and how they're affecting the housing market, I'm joined now by journal reporter Nicholas Miller. Nicholas, what are some examples of the kinds of defects that people are suing over? Yeah, it could be kind of everything. There is litigation going on right now between the Seminole Tribe of Florida versus Lenar involving over 400 homes that the tribe says involve all sorts of problems, including improperly installed roofs and mold issues.

5:57There's another kind of legal dispute going on in a community in Nevada that alleges that their builder, which is Pulte Group, improperly prepared the soil underneath the community so that the homes, they allege, are literally sinking into the ground. Blake and Beth Horio, they are retirees. They moved to Henderson, Nevada, and they very quickly started having problems. We're all seniors here. This is a 55-plus community. This is our retirement. We worked hard to get here, and we can't enjoy our home, the backyard, the pool, the jacuzzi. I can't even have coffee outside. There were cracks spreading across their ceilings.

6:41They're sliding glass doors wouldn't open, and their foundation sank, kind of leaving a gap underneath the house, creating all sorts of problems.

6:49Nicholas Miller:The Horeos are involved in a legal dispute with Pulte Group. A Pulte representative said that some of the homes in the community could have been affected by the, quote, compression of native soils in isolated areas. He said Pulte follows strict quality standards and is committed to completing needed repairs. But, Nicholas, the homebuilders that have seen this increase in lawsuits, how many suits are we really talking about, and is it affecting their operations? It really depends. One thing I know that's looking through the financial statements of some of the big builders, including D.R. Horton and Lenar, is that their reserves for legal liabilities had surged in recent years.

7:24Money that they are kind of setting aside in order to pay for settlements and illegal claims that the homeowners bring against them. In D.R. Horton's case, their reserves rose to over a billion dollars at the end of 2025. D.R. Horton resolved 405 claims for a total cost of$57.2 million last year. Both of those numbers are more than double the number of claims and their costs in 2022.

7:52Nicholas Miller:What do the companies say about these suits? Principally that the number of claims that are involved are a tiny fraction of the total number of homes that they build. And they also say that some of the plaintiff lawyers who are bringing these claims are, you know, adopting kind of aggressive strategies to kind of drum up some of these claims, knocking on doors in new communities, sending out flyers, encouraging homeowners to pursue dubious claims. You know, Nicholas, we've been talking on the show a lot this spring about this key home buying season and how it's like kind of shaping up to be a bust, at least so far.

8:30Nicholas Miller:What does this rise in lawsuits mean for the housing market writ large? So the thing that's difficult for builders here is that they are trying to save costs wherever they can. Labor costs are very expensive because of the shortage in skilled labor. Materials costs are also rising. A lot of the homeowners bringing these cases, they allege that using cheaper materials, cheaper subcontractors that create some of these problems. That was WSJ reporter Nicholas Miller. Thanks, Nicholas. Thanks so much. Coming up, used car Titan Carvana is expanding into new cars. We'll get into what that means for the traditional dealership model after the break.

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9:48Nicholas Miller:It was another day of caution on Wall Street as investors worried that without a diplomatic breakthrough on Iran, oil prices will keep rising. All three major indexes fell. NASDAQ led the losses, falling 0.8 percent.

10:05Nicholas Miller:The company Carvana brought buying used cars into the digital age. Buy a car online and get it delivered to your door, no test driving or visit to a dealership. Now, though, it's also expanding into new cars. Chris Otts, who covers the auto industry, is here now with more. Chris, what kind of threat does this present to the traditional dealership model? What we've seen in the data that we've been able to get access to is that when Carvana takes over an old school dealership, they have a lot of power to ramp up the sales very quickly. So really interesting test case, you know, on the outskirts of Phoenix, this little dealership that they bought about a year ago was doing 30 to 50 sales a month.

10:50As of April, it is the number one dealership for Stellantis in the country. That's Jeep, Chrysler, Dodge, Ram, doing about 350 sales a month now.

11:03Nicholas Miller:Are there changes expected in the way people buy cars long term from this? It's a really tricky question because in the United States, franchise automotive dealers really dominate the new car space. And they have a lot of protection for their business model in terms of state laws, rules that they agree to with the automakers. So it's a very difficult space to disrupt with a new model. Those franchise dealers, by and large, sell in their local areas and sell the way that has been done for decades where people come in and do the whole thing in person. They've been trying to move more online, but it is a big, complicated transaction.

11:49So dealers today, you know, a dealer in Florida, there's nothing that prevents that dealer from selling, you know, a new Jeep to somebody in Missouri. It's just that that dealer in Florida hasn't built a nationwide network to deliver it cost effectively, right? So just the basic economics gets in the way. Carvana has this scaled approach that they are trying with new cars, but they have to service those cars. They have to keep up with all the obligations of being an automotive dealer. There's lots of costs involved with that. It's just a very complicated, tricky system to come in and disrupt. So it'd be really interesting to see how far they go with this.

12:34Nicholas Miller:That was WSJ reporter Chris Otz. Thanks, Chris. Thank you.

12:41Nicholas Miller:And finally, we go to Spain, where there's been a big development in a long-running investigation into the death of a major business figure. The billionaire founder of fashion chain Mango, Isak Andik, died in 2024 after falling more than 300 feet during a hike. Now the founder's son, who was the only other person with him on the hike, has been arrested by Spanish police. He's accused of playing a role in his father's death after learning that he planned to change his will. Jonathan Andik was questioned today by authorities at a police station near Barcelona. He was released after paying bail of more than a million dollars.

13:16Nicholas Miller:Isak Andik was one of Spain's most celebrated business figures. He was chairman of Mango and he controlled the family's holding company, which owned a 95 % stake in the business. Jonathan is now chairman of the family holding company, which he inherited along with his two sisters. Jonathan hasn't yet been charged with an offense, and both he and the Andick family have maintained his innocence in his father's death. And that's what's news for this Tuesday afternoon. Today's show was produced by Pierre Bien-Aimé and Danny Lewis with supervising producer Tali Arbel. I'm Alex Oselev for The Wall Street Journal.

13:48Nicholas Miller:We'll be back with a new show tomorrow morning. Thanks for listening.

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