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July 29, 2010 |
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| February 01, 2010 |
By: John Pacenti |
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omes built with Chinese drywall may be the ultimate toxic asset.
Owners could find themselves with a worthless house, making monthly mortgage payments, paying thousands of dollars in property taxes and finding somewhere else to live at least temporarily.
As of right now, they are beholden to federal and state litigation where developers, suppliers, insurance companies and the Chinese manufacturers are playing a game of chicken.
Attorneys for the owners say the federal government should force banks that received bailout money to cut these homeowners a break on their mortgages until their houses can be repaired.
“Any bank who took a nickel from the federal government needs to stand up and protect these victims,” said David Durkee, a name partner for Roberts & Durkee in Coral Gables.
Luis Gonzalez, a Durkee client, is one of those looking for federal relief.
The Miami Gardens police officer purchased a 3,100-square-foot, four-bedroom home built in 2006 at Caribe Homes’ Oasis at Windward Isles in Homestead. His family immediately noticed the telltale smell of rotten eggs — sulphur gas allegedly emitted from drywall made in China.
The Gonzalez family at first thought the smell was a result of the house being boarded up for two years while the structure was in foreclosure. But their attorneys allege they soon learned the truth when an estimated 200,000 homeowners discovered their wallboard was not made with pure gypsum.
Gonzalez has little hope in a judicial solution through the multitude of lawsuits against manufacturers, builders and suppliers. He has reached out to his bank to no avail.
Chinese drywall “has taken me to the brink of financial ruin,” he said. “Nobody cares. Nobody wants to help out. They give you the runaround.”
Gonzalez said his main concern is the health of his 3-year-old son.
Durkee is on the steering committee for drywall cases in Miami-Dade Circuit Court, where the panel hopes to bring its first case to trial by summer.
All federal cases have been consolidated in multi-district litigation before U.S. District Judge Eldon E. Fallon in New Orleans. He plans to hold a bench trial this month to determine the proper way to fix the homes, said Ervin Gonzalez, a partner with Colson Hicks Eidson in Coral Gables who has brought a number of Chinese drywall lawsuits. He also is on the plaintiff steering committee coordinating pretrial issues.
He agrees there needs to be a legislative fix for homeowners.
Some say the problem is akin to a natural disaster. Estimates are damages including corrosion could run close to $25 billion.
“The U.S. government should stand up. These homeowners are in desperate need,” Ervin Gonzalez said. “They can’t stand around waiting. They have to have a solution either legislatively, judicially, internationally, diplomatically, whatever it takes.”
Durkee said the right thing to do is for Congress to pass a law requiring lenders to suspend mortgage payments until homes with Chinese drywall can be repaired. He said that would be a win-win situation for the banks because they wouldn’t be stuck with uninhabitable homes that can’t be sold.
Luis Gonzalez said it is getting to the point that it might be better for him financially to walk away from his Homestead home. The U.S. Army veteran figures his lender doesn’t care because his loan was guaranteed through the Veterans Administration.
“I don’t think it matters to them,” Gonzalez said. “It’s kind of sad.”
He called the VA and was told not to make payments anymore, but that would hurt his credit rating and jeopardize his chance of buying another home.
“They put you in these predicaments,” Gonzalez said.
Alex Sanchez, president of the Florida Bankers Association, did not return a call for comment by deadline.
U.S. Sen. Bill Nelson, D-Fla., joined a number of his colleagues last year in a joint letter to Treasury Secretary Timothy Geithner requesting mortgage assistance for homeowners with Chinese drywall problems.
Durkee said he has sent letters on behalf of clients to numerous lenders asking for relief.
“I have not been called by one bank, not one. They haven’t even responded to these letters,” he said. “These banks received a benefit from the government, and now it’s time for them to step up and help these taxpayers.”
Homeowners with Chinese drywall have received some relief on their 2009 property taxes, but Durkee unfortunately doesn’t foresee most of the homes being repaired any time soon.
Chinese drywall was imported for homes built in 2006 and 2007 following back-to-back intense hurricane seasons.
Some Chinese manufacturers may argue U.S. federal courts have no jurisdiction, while developers, manufacturers, suppliers and insurance companies in state courts point fingers at each other, Durkee said.
Many lawsuits have been filed against Knauf Tianjin Plasterboard, which appears ready to litigate the issue in U.S. courts.
Many contracts between developers and insurance companies include a “pollution exclusion,” a provision that emerged in the 1970s when communities were built on polluted land, Durkee said. Exclusions have been broadened by insurers who claim they are off the hook for Chinese drywall problems even though developers had no idea their product was defective.
“At the end of the day, the exclusions eat the policy,” he said. “There are more things excluded than they are covered. “
Owners have found no luck trying to get insurers to pay on the homeowner policies.
“We don’t believe the coverage is there. It’s a builder’s defect. It’s not a peril,” said Sam Miller, executive vice president for industry’s Florida Insurance Council in Tallahassee.
One of the nation’s largest home-builders has decided to go ahead and fix homes.
Miami-based Lennar has relocated homeowners with Chinese drywall while their homes undergo repairs. Lennar officials wouldn’t comment on why it decided to fix the problems rather than litigate, but it has filed lawsuits against some of its suppliers and installers.
Luis Gonzalez isn’t so lucky. His home needs more than $150,000 in damages, and he wants lawmakers to step up.
“Other than that, they are going to tie it up in court forever,” he said.
John Pacenti can be reached at jpacenti@alm.com or at (305) 347-6638.
David Durkee photo by A.M. Holt
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