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A copy of the Application for Hearing must also be delivered to the Deputy Receiver at P.O. Box 152087, Irving, Texas 75015-2087. Failure to file the Application for Hearing in accordance with the provisions of this Report waives any further right to object to the Deputy Receiver's categorization and suspension of payments on indirect claims.

On January 23, 1996, the Deputy Receiver issued a Second Directive that increased the amount being paid on direct claims from 40% to 50%. As a result, 50% of each direct claim is now being paid, and claimants who have previously been paid 40% on their direct claims may be eligible to receive an additional 10% payment on those claims, subject to a case-by-case determination that the additional payment would be proper and fair under the circumstances. The payment of indirect claims remains suspended.

The Deputy Receiver continues to evaluate whether the amount of assets available or the projected volume of future claims would justify an additional increase in the payment percentage for direct claims. The Deputy Receiver will raise the payment percentage for direct claims if the financial condition of the Companies continues to improve and he concludes that he can do so without creating an unlawful preference. In the best case, the payment percentage for direct claims would be raised to 100%, and the Companies would then turn to the payment of indirect claims. After all Class 4 claims had been paid in full, the Companies would then turn to the payment of claims of lesser priority. The Deputy Receiver is hopeful that the payment percentage for direct claims will be increased further; however, at present he can give no assurance that an increase beyond 50% of direct claims can be made. Any claimant who receives 50% of his or her direct claim retains the right to receive the remaining 50%, subject to the availability of funds and a case-by-case determination that additional payments to the claimant would be proper and fair under the circumstances.(4)

How to File a Claim

A. Claims for Builder Default Coverage

Pursuant to the authority granted in the Receivership Order, the Deputy Receiver has revised the dispute settlement and resolution procedures prescribed for claims under the builder's limited warranty which arise within the first two years after the home's construction. This section provides more information on the guidelines for the adjudication of warranty claims.

Requests for Warranty Performance ("RWP") arising from a builder's default under the warranty should be submitted in writing to the Deputy Receiver. If coverage is available, the Deputy Receiver will approve a settlement process in which monetary awards, in lieu of repairs, may be given for covered items.

The Office of Dispute Settlement (the "ODS") was created to review warranty claims and disputes and, if necessary, to arrange for an inspection of the premises. The Dispute Settlement Procedure (the "DSP") implemented by the Deputy Receiver consists primarily of written submission to ODS, which, after evaluation, renders its decision. Under the DSP, the submission to ODS must be complete and under oath. The Home Owner and Member Builder are required to submit documents and other evidence to support their respective positions. The ODS will then make a determination or conduct further analysis regarding whether the Member Builder is responsible for repairing the defect identified in the RWP. If the Member Builder fails to perform in accordance with that determination, the ODS may convert the Home Owner's RWP on the defective item to a warranty claim, which is adjudicated through HOWIC. HOWIC then would perform the Member Builder's obligations as determined by ODS under the HOWIC Warranty (i.e., HOWIC will pay 50% of the amount required for covered repairs, with the balance or increments thereof paid when the payment percentage for direct claims is increased).

To be given effect, RWPs must be filed timely with HOWIC and the defect must have occurred within the warranty period for the covered item. In addition, HOWIC must have received the RWP no later than 30 days after expiration of the two-year warranty period.

B. Claims for Major Structural Defect Coverage

This section provides information on the guidelines for the adjudication of claims for Major Structural Defect coverage. Claims for Major Structural Defects may be made during years three through ten after the home's construction. All Home Owners who believe their homes have Major Structural Defects covered by the HOWIC Warranty, which have not been previously considered by the Companies, must detach, complete, and sign before a notary the Major Structural Defect Questionnaire For Home Owners attached to this Report as Exhibit A. The Major Structural Defect Questionnaire and all appropriate information must be mailed to the Deputy Receiver at the address contained in the "Claim Submission" section of this Part 3 in order for the claim to be considered as a claim of the receivership estate.

C. Other Claims

The Companies may be indebted to a person or entity for reasons other than defects covered under the HOWIC Warranty. For example, a supplier of goods or services may believe that he, she or it has not been paid in full for all such services, a Member Builder may have a claim arising under the Member Builder's Agreement rather than the HOWIC Warranty, or the Companies may be indebted to a person or entity for some other reason. All such claims (which generally are considered Class 5 general creditor claims), including any claims complaining of a decision by the Deputy Receiver, must be presented to the Deputy Receiver in the same manner as claims arising under the HOWIC Warranty.

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(4) For example, additional payment may not be proper and fair under the circumstances if the claimant has assigned the claim to a third party or has received payment for the unpaid portion from another party, such as a Member Builder.

REPORT TO HOME OWNERS - Page 7 

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