Petition for Rulemaking Under Rule 192 of the Commission’s Rules of Practice
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Petition for Rulemaking Under Rule 192 of the Commission’s Rules of Practice
Standardized Construction-Defect Disclosures by Publicly Traded Residential Homebuilders
Submitted by:
Yalanda D. Williams
August 27, 2026
Pursuant to Rule 192 of the Commission’s Rules of Practice, 17 C.F.R. § 201.192
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Table of Contents
I. Petition for Rulemaking and Requested Action ............................................................................ 3
II. Petitioner’s Interest ........................................................................................................................ 3
III. Construction-Defect Reporting Across Publicly Traded Residential Homebuilders ............. 3
IV. SEC Staff Requests for Additional Construction-Defect Information..................................... 7
A. D.R. Horton: Claim Activity and Resolution Costs .............................................................. 7
B. PulteGroup: Defect Type, Frequency, and Severity ............................................................. 7
V. Disclosure Variance and Investor Comparability ....................................................................... 8
A. Reserves and Claim Activity Measure Different Aspects of Exposure ................................ 8
B. Known Claims, Anticipated Claims, and Expected Recoveries ........................................... 8
C. Defect Categories, Construction Cohorts, and Geographic Concentrations ......................... 8
D. Litigation, Arbitration, and Other Resolution Mechanisms .................................................. 9
VI. Proposed Construction-Defect Reporting Standards ................................................................ 9
VII. Commission Authority .............................................................................................................. 11
VIII. Scope, Privacy, and Feasibility ............................................................................................... 11
IX. Investor Value of Standardized Construction-Defect Disclosure ........................................... 12
X. Requested Commission Action .................................................................................................... 13
XI. Conclusion .................................................................................................................................... 14
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I.
Petition for Rulemaking and Requested Action
Pursuant to Rule 192 of the Rules of Practice of the United States Securities and Exchange Commission,
17 C.F.R. § 201.192, the petition asks the Commission to establish a standardized construction-defect
disclosure framework built around a minimum set of common data elements, standardized definitions,
and, where appropriate, normalized measures. The purpose is to improve comparability across issuers
and over time. The framework would establish a common reporting baseline for construction-defect
information that is currently presented through different categories, definitions, and measures. The
requested disclosure requirements would apply to all publicly traded residential homebuilders. 1
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II.
Petitioner’s Interest
To improve the comparability and usefulness of construction-defect disclosures by publicly traded
residential homebuilders.
III.
Construction-Defect Reporting Across Publicly Traded Residential Homebuilders
The analysis below relies on publicly available SEC filings and SEC filing-review correspondence. Those
records show that major publicly traded residential homebuilders identify, estimate, account for, and
manage construction-defect and warranty exposure. They do not report that exposure using common data
elements, definitions, or measures.
Figure 1 shows the reporting variance side by side. Meritage’s 2025 Form 10-K does not separately
report several basic measures of construction-defect claim activity, including pending claims, new claims
received during the year, claims resolved, aggregate costs associated with resolved claims, or the portion
of its broader warranty reserve attributable specifically to construction-defect exposure. 2
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D.R. Horton reports several of those measures for fiscal 2025: approximately 875 pending constructiondefect claims, 455 new claims, 405 resolved claims, and $57.2 million in total costs associated with the
resolved claims. As of September 30, 2025, approximately 98% of D.R. Horton’s legal-claims reserves
related to construction-defect matters. 3 Horton investors can therefore evaluate claim volume, inflow,
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resolution activity, and resolution cost from the filing. Meritage investors cannot perform the same
analysis from Meritage’s filing. The comparison concerns disclosure and does not establish that one
builder has more construction defects than another.
1
2
3
17 C.F.R. § 201.192; U.S. Securities and Exchange Commission, Petitions for Rulemaking Submitted to the SEC, https://www.sec.gov/rulesregulations/petitions-rulemaking-submitted-to-sec
Meritage Homes Corp., Annual Report (Form 10-K), fiscal year ended Dec. 31, 2025, filed Feb. 13, 2026, SEC Accession No. 0000833079-26000010, https://www.sec.gov/Archives/edgar/data/833079/000083307926000010/mth-20251231.htm
D.R. Horton, Inc., Annual Report (Form 10-K), fiscal year ended Sept. 30, 2025, filed Nov. 19, 2025, SEC Accession No. 0000882184-25000081, Legal Claims and Insurance, https://www.sec.gov/Archives/edgar/data/882184/000088218425000081/dhi-20250930.htm
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Figure 1. Construction-Defect Reporting Across Major Publicly Traded Residential Homebuilders
Builder
How the filing describes the
exposure
How the exposure is estimated or
transferred
What investors can see in 2025 reporting
Meritage
Homes 4
Home warranty and constructiondefect claims are described as
common in the industry and
potentially costly. Meritage also
identifies warranty claims and
construction-defect litigation and
arbitration.
Structural-warranty reserves use actuarial
assistance and historical geographic loss
experience. Warranty accruals generally
range from 0.1% to 0.5% of sale price. The
company uses subcontractor obligations,
indemnification, insurance, and case-specific
reserves, including a stucco-related cohort.
A $26.677 million total warranty reserve and annual
warranty-reserve activity; geographic reserve
methodology; a specific stucco cohort; risk-transfer
arrangements; and express reference to arbitration.
The filing does not separately provide pending, new,
or resolved construction-defect claim counts,
aggregate resolution costs, or a construction-defectonly reserve.
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D.R. Horton 5 Warranty and construction-defect
claims are significant exposures
associated with homes already sold,
including claims that may arise years
after closing.
A separate legal-claims reserve includes
Approximately 875 pending claims, 455 new claims,
known and anticipated future construction405 resolved claims, $57.2 million in resolution
defect claims. Historical claim frequency and costs, a $1.1436 billion legal-claims reserve with
resolution costs are used to estimate the
about 98% related to construction defects, known
liability. The company also records insurance versus anticipated future claims, and estimated
receivables and is largely self-insured for
insurance recoveries.
construction-defect exposure apart from
contractual risk transfer.
PulteGroup 6
Home warranty and constructiondefect claims arise in the ordinary
course of business. The majority of
current construction-defect claims
involve siding, windows, roofing, and
foundations.
Self-insured and deductible exposure is
estimated through actuarial analyses. The
analyses consider existing claims, IBNR,
claim frequency, severity, historical
experience, industry data, and third-party
recovery rates. Insurance and captive
programs also transfer or retain portions of
the risk.
Lennar 7
Lawsuits involving homes sold are
A third-party actuary uses historical warranty The nature of common allegations, the actuarial
described as common in homebuilding and construction-defect data to estimate
method used for construction-defect and generaland often allege failure to build in
unpaid claims, claim-adjustment expenses,
liability programs, contribution mechanisms, and a
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4
5
6
7
A $259.4 million self-insured claims reserve, the
vast majority related to general liability; IBNR and
related expenses equal to about 74% of total generalliability reserves; frequency and severity inputs; and
leading defect categories. The auditor states that the
majority of the reserve relates to IBNR constructiondefect exposure on previously closed homes.
Meritage Homes Corp., 2025 Form 10-K, supra note 2, Warranty Reserves; Note 16; Legal Proceedings.
D.R. Horton, Inc., 2025 Form 10-K, supra note 3, Legal Claims and Insurance.
PulteGroup, Inc., Annual Report (Form 10-K), fiscal year ended Dec. 31, 2025, filed Feb. 4, 2026, SEC Accession No. 0000822416-26-000007, Self-insured Risks and General Liability Insurance,
https://www.sec.gov/Archives/edgar/data/822416/000082241626000007/phm-20251231.htm
Lennar Corp., Annual Report (Form 10-K), fiscal year ended Nov. 30, 2025, filed Jan. 28, 2026, SEC Accession No. 0001628280-26-003870, Legal Proceedings and Self-Insurance,
https://www.sec.gov/Archives/edgar/data/920760/000162828026003870/len-20251130.htm
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Builder
How the filing describes the
exposure
How the exposure is estimated or
transferred
accordance with plans, specifications, and IBNR reserves. Costs may be offset
or applicable construction codes.
through warranty reserves, third-party
insurers, subcontractor insurers, and
indemnity contributions.
NVR 8
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What investors can see in 2025 reporting
$336.9 million self-insurance reserve reported net of
expected recoveries. The filing does not provide
Horton-style construction-defect claim counts.
Warranty and product-liability
reserves cover estimated future
expenses from construction and
product defects, product recalls, and
litigation incidental to the
homebuilding business.
Liability estimates consider historical
Warranty and product-liability reserve activity
experience, expected corrective-action costs, showing a $133.095 million beginning balance,
manufacturer and subcontractor participation, $73.318 million provision, $89.851 million in
consultations with engineers, and discussions payments, and $116.562 million ending reserve, plus
with in-house and outside counsel.
the factors used to estimate corrective-action and
litigation exposure. The filing does not provide
construction-defect claim counts.
The accounting categories in Figure 1 are not interchangeable. The underlying construction-defect exposure, however, has common
characteristics that can be reported across issuers.
Pending claims, new claims, resolved claims, resolution costs, known versus anticipated exposure, expected recoveries, claim frequency and
severity, and material defect concentrations can be defined as common data elements. Those elements can be reported regardless of whether an issuer
records the related liability within a warranty, legal, general-liability, product-liability, or self-insurance reserve.
Standardizing those elements would establish a comparable baseline. Each issuer could then provide the additional qualitative and quantitative
information necessary to explain its particular construction-defect exposure.
Meritage illustrates the consequence of this reporting variance. For the fiscal year ended December 31, 2025, it reported a beginning warranty
reserve of $32.693 million, $18.582 million in additions from new-home deliveries, $24.598 million in warranty claims, no adjustment to pre-existing
reserves, and an ending reserve of $26.677 million. Its structural-warranty reserve is estimated with actuarial assistance, and the accrual generally
ranges from 0.1% to 0.5% of a home’s sale price depending on geographic loss history. Meritage also identifies case-specific reserves for alleged
stucco defects in certain homes constructed predominantly between 2015 and 2019. 9 Meritage uses claim and loss information in its geographic
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reserve methodology. In addition, it reassesses estimates as claims develop, incorporates expected recoveries, and identifies some defect cohorts.
8
9
NVR, Inc., Annual Report (Form 10-K), fiscal year ended Dec. 31, 2025, filed Feb. 11, 2026, SEC Accession No. 0000906163-26-000018, Warranty and Product Liability Reserves,
https://www.sec.gov/Archives/edgar/data/906163/000090616326000018/nvr-20251231.htm
Meritage Homes Corp., 2025 Form 10-K, supra note 2, Warranty Reserves; Note 1; Note 16.
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However, its investors do not receive Horton’s view of claim activity. Nor do they receive the IBNR, frequency, severity, and defect-category
information disclosed in other forms by Pulte, Lennar, and NVR. Horton’s filing connects construction-defect claim activity directly to its liability
estimate. Its construction-defect exposure includes both known claims and anticipated future claims. Historical claim frequency and resolution costs
are explicit inputs to the estimate. 10 Horton did not always report this level of detail. SEC staff asked for it.
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10 D.R. Horton, Inc., 2025 Form 10-K, supra note 3, Legal Claims and Insurance.
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IV.
SEC Staff Requests for Additional Construction-Defect Information
A. D.R. Horton: Claim Activity and Resolution Costs
During its review of D.R. Horton’s filings, SEC staff in the Division of Corporation Finance asked for
information concerning pending construction-defect claims, claims filed during reporting periods, matters
dismissed, settled or otherwise resolved, settlement costs, and expected trends. 11
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Horton explained that construction-defect matters varied in how they originated and were resolved. It
also stated that it did not then maintain the detailed aggregate tracking needed to provide all of the
requested statistics.
SEC staff continued to seek the information and stated: “we continue to believe that this
information is important to investors in determining your historical and expected trends.” 12
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Horton then agreed to develop new processes to define, track, and report aggregate construction-defect
claim activity. Horton proposed reporting categories that reflected how it received and resolved
construction-defect claims. It reported new claims received rather than limiting the measure to formally
filed claims. It also reported aggregate costs of resolved claims rather than average settlement amounts.
Horton explained that rounded or approximate figures could be appropriate.
Those reporting categories remain visible in Horton’s current filing, and the history supports two points.
First, SEC staff considered the information important to investors. Second, Horton developed a workable
reporting process even though it did not initially track the data in that form. 13
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B. PulteGroup: Defect Type, Frequency, and Severity
Pulte’s filing-review history shows that SEC staff’s interest was not limited to claim counts. After
reviewing Pulte’s construction-defect and self-insurance disclosures, SEC staff asked for more detail
about the nature of the claims and the assumptions used to estimate the liability. 14
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In a June 13, 2011 comment, SEC staff directed Pulte: “In future filings, please expand your disclosures
to identify the specific nature of the claims that impacted your reserves such as water intrusion, HVAC,
etc.” 15 In the same June 13, 2011 comment, SEC staff also asked Pulte to (1) quantify increases in claim
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frequency and severity that significantly affected its reserves and (2) explain changes in the claimshistory period used in its estimate. The Horton and Pulte comment letters do not establish Commission
11 Division of Corporation Finance, U.S. Securities and Exchange Commission, Comment Letter to D.R. Horton, Inc. (Feb. 8, 2012), SEC
EDGAR correspondence file 000000000012007050, https://www.sec.gov/Archives/edgar/data/882184/000000000012007050/filename1.pdf
12 D.R. Horton, Inc., Response to Division of Corporation Finance Staff Comments (June 21, 2012), at 3, reproducing SEC Staff Comment 1(d),
https://www.sec.gov/Archives/edgar/data/882184/000119312512278613/filename1.htm
13 D.R. Horton, Inc., 2025 Form 10-K, supra note 3.
14 PulteGroup, Inc., Response to Division of Corporation Finance Staff Comments (May 19, 2011), reproducing and responding to SEC staff
comments, https://www.sec.gov/Archives/edgar/data/822416/000119312511145160/filename1.htm
15 PulteGroup, Inc., Response to Division of Corporation Finance Staff Comments (July 8, 2011), reproducing and responding to the staff’s June
13, 2011 comment, https://www.sec.gov/Archives/edgar/data/822416/000119312511184846/filename1.htm
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policy or a generally applicable disclosure requirement. They are relevant because they document
quantitative and qualitative construction-defect information that SEC staff previously considered
important enough to request during review of individual homebuilder filings. 16 The filing-review process
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can result in more detailed disclosure by an individual issuer, but it does not establish a common
reporting baseline across publicly traded residential homebuilders.
V.
Disclosure Variance and Investor Comparability
A. Reserves and Claim Activity Measure Different Aspects of Exposure
The reserve balance reflects what a company estimates it may need to cover. Claim activity shows how
the underlying exposure is developing. For example, in its 2025 warranty-reserve activity section,
Meritage reported approximately $24.6 million in “warranty claims.” That amount covers broader
contractual and statutory warranty obligations and is not separately identified as the cost of resolving
construction-defect claims. Horton separately reports how many construction-defect claims it resolved
and the aggregate cost of those resolutions. 17 Those measures answer different questions. The reported
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balance alone does not show whether claim inventory is growing, whether claims are being resolved
faster than they arrive, or whether resolution costs are changing.
B. Known Claims, Anticipated Claims, and Expected Recoveries
The composition of the reserve also matters. Horton expressly includes known and anticipated future
construction-defect claims. Pulte separately reports existing claims and IBNR exposure. Lennar reports
its self-insurance reserve net of expected recoveries, and its third-party actuary estimates unpaid claims
and IBNR. 18
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A liability driven primarily by known pending claims presents a different profile from one driven by
claims expected to emerge later. Before expected recoveries are considered, that liability can differ
substantially from the amount the company ultimately expects to bear. Insurance, subcontractor
participation, and indemnification can reduce the amount retained by the issuer. Without standardized
disclosure of both the liability and expected recoveries, investors cannot determine on a comparable basis
how much construction-defect exposure the issuer expects to retain.
C. Defect Categories, Construction Cohorts, and Geographic Concentrations
The type and concentration of claims can matter as much as their aggregate amount. Meritage identifies a
stucco-related cohort involving homes constructed predominantly between 2015 and 2019. Pulte
16 U.S. Securities and Exchange Commission, SEC Staff to Publicly Release Comment Letters and Responses, Release No. 2004-89 (June 24,
2004), https://www.sec.gov/news/press/2004-89.htm; Division of Corporation Finance, Filing Review Process,
https://www.sec.gov/about/divisions-offices/division-corporation-finance/filing-review-process-corp-fin
17 Meritage Homes Corp., 2025 Form 10-K, supra note 2; D.R. Horton, Inc., 2025 Form 10-K, supra note 3.
18 D.R. Horton, Inc., 2025 Form 10-K, supra note 3; PulteGroup, Inc., 2025 Form 10-K, supra note 6; Lennar Corp., 2025 Form 10-K, supra note
7.
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identifies siding, windows, roofing, and foundations as the issues underlying the majority of its
construction-defect claims. SEC staff previously asked Pulte to identify specific claim types affecting its
reserves. 19 A material concentration may arise from a particular defect type, construction period, building
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system, product, or geographic area. When it does, the filing should identify that concentration in
aggregate. This would show investors what is driving the liability without disclosing individual
homeowners or claims.
D. Litigation, Arbitration, and Other Resolution Mechanisms
Meritage states that it is involved in “litigation and arbitration proceedings alleging construction defects.”
The filing, however, does not quantify the number of construction-defect matters in either forum. It also
does not disclose their aggregate financial exposure, resolution costs, or the extent to which those
proceedings account for the company’s overall construction-defect exposure. 20
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A general statement that litigation or arbitration exists does not show investors how significant those
proceedings are to claim inventory, costs, or liabilities. When litigation, arbitration, settlement, or another
formal resolution mechanism represents a material component of construction-defect exposure, aggregate
reporting should identify its role and financial significance.
The requested disclosure can be aggregated. It does not require disclosure of confidential or case-specific
information.
VI.
Proposed Construction-Defect Reporting Standards
I ask the Commission to consider a standardized Construction-Defect Exposure and Claim Activity
Disclosure for publicly traded residential homebuilders. The objective is not to produce identical results
from companies with different claims experience. It is to establish a minimum set of common data
elements reported under standardized definitions.
Proposed common data element
What it would show
Pending construction-defect claims as of the
Existing claim inventory.
reporting date
New construction-defect claims received
Claim inflow.
during the reporting period
Construction-defect claims resolved during the Claim outflow.
reporting period
19 Meritage Homes Corp., 2025 Form 10-K, supra note 2; PulteGroup, Inc., 2025 Form 10-K, supra note 6; PulteGroup, Inc., July 8, 2011
response, supra note 15.
20 Meritage Homes Corp., 2025 Form 10-K, supra note 2, Legal Proceedings and Note 16.
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Proposed common data element
What it would show
Aggregate costs associated with resolved
Realized resolution cost.
claims
Reserve attributable to known or reported
Estimated liability associated with identified
construction-defect claims
claims.
Reserve attributable to anticipated or IBNR
Estimated liability associated with claims
construction-defect exposure
expected but not yet reported.
Expected insurance, subcontractor,
Amount and proportion of estimated construction-
indemnification, or other recoveries
defect liability expected to be transferred to third
parties.
Estimated construction-defect liability net of
Portion of estimated exposure the issuer expects to
expected recoveries
retain.
Construction-defect reserve activity during the Additions, adjustments, and amounts charged or
reporting period
paid against the reserve.
Material changes in claim frequency and
Changes in incidence and cost.
severity
Material defect categories, construction
Concentrations driving the exposure.
cohorts, building systems, or geographic
concentrations
Material changes in actuarial assumptions or
Changes affecting estimated liability.
methodology
Material changes in claim-resolution patterns
Changes in how claims are resolved.
Aggregate use of litigation, arbitration,
Role of formal resolution channels.
settlement, or other formal resolution
mechanisms when material
Material transfers between litigation and
Changes in resolution channel that may affect
arbitration or other formal forums
timing or cost.
Horton’s experience demonstrates one workable approach. Claims can be reported as received rather than
limited to formal filings. Resolution costs can be reported in aggregate. Its experience also shows that a
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builder can develop a tracking process when the information is not already maintained in the requested
form. 21
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VII.
Commission Authority
Rule 192 permits any person to petition the Commission for the issuance, amendment, or repeal of a rule
of general application and allows the petition to state the text or substance of the proposed rule. 22
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Section 13(a) of the Securities Exchange Act authorizes periodic reporting requirements prescribed by
the Commission for the protection of investors. 23
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Section 23(a) also grants the Commission rulemaking authority to carry out the Exchange Act and
permits different requirements for appropriate classes of issuers. 24 The requested rule concerns that
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disclosure function. Publicly traded residential homebuilders already discuss construction-defect
exposure, reserves, actuarial assumptions, expected recoveries, and related contingencies in periodic
reports. The petition asks whether those disclosures should include a minimum set of common
construction-defect data elements. Standardized definitions and normalized measures, where appropriate,
would improve comparability across issuers and over time.
VIII. Scope, Privacy, and Feasibility
The Commission should define construction-defect claims for reporting purposes and establish
appropriate reporting thresholds. Routine service requests and ordinary warranty work should not
automatically be treated as reportable construction-defect matters.
The disclosure should be aggregated and should not require homeowner names or addresses, individual
settlement terms, confidential arbitration submissions, privileged communications, attorney work
product, individual engineering reports, or other case-specific information unnecessary for investor
analysis. In addition, the rule should distinguish between data that can be reported directly from issuer
tracking systems and amounts that necessarily involve estimation. Claim counts, claim status, payments,
and transfers between resolution forums should be reported from the issuer’s records.
Estimated liabilities, anticipated claims, and expected recoveries necessarily involve judgment. Those
amounts should reflect management’s current estimate using the methodology applied in its reserve
analysis. The estimates should be updated when material changes occur. Horton initially told SEC staff
that it did not maintain the detailed aggregate claim information being requested. It subsequently
21
22
23
24
D.R. Horton, Inc., June 21, 2012 response, supra note 12.
17 C.F.R. § 201.192, supra note 1.
Securities Exchange Act of 1934 § 13(a), 15 U.S.C. § 78m(a).
Securities Exchange Act of 1934 § 23(a), 15 U.S.C. § 78w(a).
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developed a reporting process that remains in use. 25 Current filings from Meritage, Horton, Pulte, Lennar,
24 F
and NVR show that these companies already maintain substantial construction-defect information. That
information is used for claims management, actuarial analysis, accounting, insurance, and reserve
estimation. 26
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In many cases, the proposed framework would standardize information already generated in the ordinary
course. It would not require an entirely new dataset.
IX.
Investor Value of Standardized Construction-Defect Disclosure
A standardized disclosure framework would allow investors to ask the same questions of each publicly
traded residential homebuilder:
1. Are construction-defect claims increasing or decreasing?
2. Are new claims arriving faster than existing claims are being resolved?
3. Are resolution costs increasing or decreasing?
4. How much of the estimated liability relates to known claims, and how much relates to anticipated
or IBNR exposure?
5. What portion of the estimated liability is expected to be recovered through insurance,
subcontractors, indemnification, or other sources, and what portion does the issuer expect to
retain?
6. Is a particular defect category, construction period, building system, product, or geography
materially affecting the exposure?
7. Are changes in claim frequency, severity, actuarial assumptions, or methodology affecting the
liability estimate?
8. What role do litigation, arbitration, settlement, or other formal resolution mechanisms play in
claim inventory, timing, and resolution cost?
Those questions bear on contingent liabilities, future cash requirements, reserve adequacy, estimation
uncertainty, and the development of product-related claims. The disclosures would not tell an investor
which company to buy. They would allow investors to evaluate each issuer using the same reporting
baseline. These disclosures are also used by lenders, insurers and reinsurers, credit analysts, researchers,
policymakers, government agencies, industry participants, and consumers. A major publicly traded
residential homebuilder can evaluate claims across thousands of homes and multiple communities. It can
also analyze patterns by construction period, geographic market, subcontractor, material, or building
system. Investors and other external users generally do not have access to that issuer-wide information.
25 D.R. Horton, Inc., June 21, 2012 response, supra note 12.
26 Meritage Homes Corp., D.R. Horton, PulteGroup, Lennar, and NVR annual reports cited supra notes 2-8.
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Standardized disclosure would make a defined portion of that information available for investor analysis.
It would not establish that any particular home is defective. Nor would it replace an inspection,
engineering evaluation, warranty review, or other consumer due diligence. It could make broader patterns
visible when the underlying information is available to the issuer but fragmented across disclosures or not
separately reported. Investor disclosure remains the primary purpose. Public availability creates
secondary value for other users.
X.
Requested Commission Action
For these reasons, I ask the Commission to:
1. Review the Division of Corporation Finance’s prior filing-review experience involving
construction-defect claim activity, reserve composition, defect categories, frequency, severity,
and other quantitative and qualitative information requested from individual homebuilders;
2. Examine how publicly traded residential homebuilders currently report construction-defect
claims, liabilities, reserve activity, resolution costs, anticipated exposure, and expected recoveries;
3. Determine whether current disclosures provide investors with comparable and decision-useful
information about construction-defect exposure across publicly traded residential homebuilders;
4. Consider requiring a Construction-Defect Exposure and Claim Activity Disclosure that would:
a. establish standardized definitions, reporting thresholds, estimation conventions,
normalization methods where appropriate, and privacy and privilege protections;
b. require a minimum set of common data elements addressing pending claims, new claims,
resolved claims, aggregate resolution costs, reserve attribution, known versus anticipated
or IBNR exposure, claim frequency and severity, and material defect categories,
construction cohorts, building systems, or geographic concentrations;
c. disclose expected insurance, subcontractor, indemnification, and other recoveries,
including the amount or proportion of estimated construction-defect exposure expected to
be transferred and the resulting net exposure expected to be retained by the issuer;
d. provide aggregate information concerning litigation, arbitration, settlement, and other
formal resolution mechanisms when material to understanding construction-defect
exposure; and
e. identify material changes or transfers between resolution forums when relevant to the
timing or cost of resolving construction-defect claims.
5. Initiate rulemaking, issue interpretive guidance, conduct further study, or take another action the
Commission considers appropriate to establish a standardized reporting baseline for publicly
traded residential homebuilders.
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XI.
Conclusion
The filings reviewed for this petition show that major publicly traded residential homebuilders already
identify, estimate, and manage construction-defect exposure. Investors, however, cannot evaluate that
exposure using a common set of data elements, definitions, and measures. Meritage’s 2025 filing does
not separately disclose pending, new, or resolved construction-defect claim counts. It also does not
separately disclose aggregate construction-defect resolution costs, the portion of its reserve attributable to
known versus anticipated construction-defect exposure, or the amount of expected insurance,
subcontractor, or indemnification recoveries associated with that exposure.
The comparison with other major publicly traded residential homebuilders confirms the absence of a
common reporting baseline. Horton provides construction-defect claim counts, resolution activity, costs,
and reserve attribution. Pulte provides information about defect categories, IBNR, frequency, and
severity. Lennar provides actuarial information concerning unpaid claims and IBNR and reports its selfinsurance reserve net of expected recoveries. NVR provides reserve activity and the factors used to
estimate corrective-action and litigation exposure. Each filing provides a different portion of the
information needed to evaluate the same underlying category of exposure. 27
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SEC staff has previously requested both quantitative construction-defect claim information and
qualitative information about the nature of that exposure. In its review of Horton, SEC staff requested
quantitative claim activity and resolution information and stated that the information was important to
investors evaluating historical and expected trends. In its review of Pulte, SEC staff requested greater
qualitative detail about the nature of construction-defect claims and quantitative information about
changes in frequency and severity. Those filing reviews improved individual issuer disclosure but did not
create a standardized baseline across the industry.28
A minimum set of common construction-defect data elements and standardized definitions would provide
that baseline. Normalized measures could be required where appropriate. Issuer-specific qualitative and
quantitative disclosure could then explain the particular factors driving each company’s exposure. The
result would be more comparable and decision-useful construction-defect information across publicly
traded residential homebuilders and over time.
Respectfully submitted,
Yalanda D. Williams
27 Meritage Homes Corp., D.R. Horton, PulteGroup, Lennar, and NVR annual reports cited supra notes 2–8.
28 D.R. Horton, Inc., June 21, 2012 response, supra note 12; PulteGroup, Inc., July 8, 2011 response, supra note 15.
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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.