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Old 8/22/13, 4:05 PM
Roy Lewis, CMI's Avatar
Roy Lewis, CMI Roy Lewis, CMI is online now
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Default KB Home Estimates Defect Repairs to Cost $43.2 Million

California-based builder expects to spend $43.2 million to repair more than 1,000 homes in central and southwest Florida with water damage caused by construction defects.

Fixing construction defects in more than 1,000 Florida homes is expected to cost KB Home $43.2 million, according to the builder's second quarter filing with the U.S. Securities and Exchange Commission.

There are 1,140 central and southwest Florida KB houses built between 2003 and 2009 that need more than minor repairs from water damage caused by defective framing, stucco, roofing, and sealant installation. The $43.2 million sum is for repairs to those houses as well as fixes to homes the company thinks are likely to be identified later.

The magnitude of the repair problems prompted KB to reassess the assets it has set aside from the proceeds of each home sale into a reserve fund to cover potential future warranty issues on all its homes. As a result, KB determined it needed to add $15.9 million more to the pool, causing it to log a loss rather than a profit in its second quarter.

In the end, though, KB executives hope to recover some of the repair costs from future insurance settlements. For instance, in an unrelated situation, the company successfully gleaned $27 million in recoveries for its costs to remedy defective Chinese drywall.

As of May 31, KB had spent $15.4 million of the total $43.2 million to repair 297 homes. About half the costs were to fix two attached home communities.

The company reports it expects to be finished with the repairs by mid-2014.

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