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set forth in the Receivership Appeal Procedure. Appeals to the Commission take the form of lawsuits filed in Richmond, Virginia. These lawsuits are governed by the rules of practice and procedure applicable to practice before the Commission as well as the supplemental rules of procedure adopted by the receivership court for this particular receivership. Unless the Commission enters orders to the contrary, appeals filed with the Commission will be treated as lawsuits and may be subject to depositions, interrogatories, and other formal discovery. The appealed cases may also result in a full trial. However, trial by jury is not available in the Commission under applicable Virginia law or the orders of the Commission.

Under the laws of the Commonwealth of Virginia, a decision by the Commission is appealable as a matter of right to the Supreme Court of the Commonwealth of Virginia. Such appeals will be governed by the rules and procedures adopted by the Virginia Supreme Court and are subject to all of the policies, procedures, rules, and traditions that govern other appeals to the Virginia Supreme Court.

Under applicable state and federal law, decisions by the Virginia Supreme Court may be appealable to the United States Supreme Court. However, the United States Supreme Court may decline to consider an appeal from a claim decision made by the Commission and then decided on appeal by the Virginia Supreme Court.

Builder Repair Costs

In certain instances, a Member Builder who repairs or pays for the repair of covered defects to a home may wish to seek reimbursement from the Companies. The builder may "stand in the shoes" of the Home Owner, to an extent, with respect to that portion of the claim that would be payable in the receivership. The Member Builder's claim for repair costs will be evaluated to determine whether such costs are: (1) covered under the HOWIC Warranty; (2) incurred after receivership by the builder in consideration of the builder's receipt of a legally enforceable assignment or release of the Home Owner's rights to receive payment for those costs of repair; and (3) not covered by other insurance protecting the builder or its subcontractors.

The Member Builder's claim against the Companies must be offset or reduced by the amounts, if any, that the builder owes the Companies. For example, a builder may owe the Companies for another matter or may be responsible for a portion of the repair costs under the loss participation feature of its builder agreement. If all requirements for reimbursement were satisfied, and no offsets, deductions or counterclaims existed against the Member Builder, the Member Builder's claim would be approved as a direct claim.

To determine whether repair costs incurred by a Member Builder are covered under the HOWIC Warranty, the Member Builder must detach, complete, and sign before a notary the Repair Cost Questionnaire for Builders which is attached to this Report as Exhibit C. The Repair Cost 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 to be considered a claim of the receivership estate. The Member Builder's cost of evaluating the claim will not be reimbursed by the Companies. Further, the Member Builder will not be reimbursed by the Companies for any portion of the repair costs that represents any form of "profit" or "fee" to the Member Builder or that properly constitutes an "overhead" or "administrative" expense of the Member Builder. The Repair Cost Questionnaire should not be submitted by a Member Builder if the claim at issue was previously considered by the Companies.

Builder Adjudication of Claims

Certain Member Builders have agreed with the Deputy Receiver to attempt to resolve all Home Owner claims for Major Structural Defect coverage arising from homes they have constructed. Under these arrangements, Member Builders contact Home Owners directly to arrange for the disposition of their claims. The Companies have agreed to suspend any action on the Home Owner's claim while it is under investigation by the Member Builder. If the Member Builder fails to reach agreement with the Home Owner within a reasonable time, the Home Owner may elect to pursue his or her claim directly against the Companies. Inasmuch as the Companies are only making partial payments on direct claims at this time, Home Owners may prefer to settle their claims directly with their builders, as this approach may result in full payment of the claim by their builders. As noted in the "Builder Repair Costs" section of this Part 3, Member Builders who pay for, or perform repairs in settlement of, covered claims, as determined by the Deputy Receiver, are entitled under these arrangements to present claims against the Companies, subject to the rules and procedures that are in effect for the adjudication of claims.

Member Builders who have requested that the Deputy Receiver advise Home Owners that they have agreed to adjudicate their own claims include Milburn Homes and The Ryland Group. Owners of homes constructed by Milburn Homes in Austin, Texas, should contact it with any claims or questions at the telephone number or address shown on Schedule 1 attached to this Report. Owners of homes constructed by The Ryland Group should contact it with any claims or questions at the telephone numbers or addresses shown on Schedule 2 attached to this Report. Other builders who are adjudicating their own claims have requested that we not provide contact information for them in this Report. Home Owners who wish to obtain further information regarding builders who are adjudicating their own claims should contact their builder.

Conclusion

We are keenly aware of the tremendous disruption that the Companies' receivership has caused Home Owners, Member Builders, and creditors. Diligent efforts have been made to resolve the many problems arising from the Companies' failure. Significant progress is being made in restructuring their operations and improving their financial condition. In the months ahead, the Deputy Receiver will continue striving to maximize the benefits paid to all claimants. For more information about any matter discussed in this Report, please write to the Companies at P.O. Box 901021, Fort Worth, Texas 76101-2021. For urgent matters only, you may call toll free at 1-800-834-0577.

REPORT TO HOME OWNERS - Page 9 

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