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`Rotting' Condos Pose Dilemma;
Owners Want To Recover Losses; Builders Want To Avoid High Insurance
Owners Want To Recover Losses; Builders Want To Avoid High Insurance.
By Candace Heckman
Intelligencer,
Seattle Post
April 1, 2003
The spacious new condominiums seemed like a good deal. Built on a Renton
hillside, overlooking a golf course, units in the Heritage at Fairwood complex
sold out quickly in the late 1990s for as little as $150,000.
But a couple of rainy winters later, dozens of families began questioning their
investment.
Walls were seeping. Mold started sprouting on ceilings. Fire- escape decks began
collapsing.
"Things were rotting throughout our building," said Bill Trimm, who moved his
family to Heritage for better schools and a fresh start.
"The builder didn't want to come fix things," he said. "It was frustrating.
There were clear, big problems with most of the units."
Trimm and his neighbors had to file a lawsuit before they could get the
developer to do anything. Nearly three years and two rounds of mediation later,
the condo owners settled last summer for repairs that are now about 80 percent
complete.
Their ordeal is almost over, but the Heritage families, along with condo owners
throughout the Puget Sound region, are now concerned that new buyers facing
similar problems will be denied their day in court.
A developer-backed bill making its way through the Legislature would restrict
consumers' rights to sue their builders and force condominium associations to
use arbitration instead. The measure (Senate Bill 5536), which passed the Senate
March 11, would also relax warranties on construction.
Some developers are threatening to stop building condos unless they are given
more legal protection from mounting lawsuits.
"We saw this problem coming three years ago," said Sam Anderson, executive
officer of the state Master Builders Association, which is pushing the
legislation. "It's a societal problem ... that has manifested itself in the
issue of insurance for builders."
There have been so many lawsuits since the late '90s that insurers have refused
to carry many builders. Those who do get policies now must pay such high
premiums that they can make money only if they build expensive flats in prime
locations, such as Belltown, Queen Anne and downtown Bellevue.
There are nearly 500,000 apartments and town houses in King, Pierce and
Snohomish counties, according to the latest census. Multifamily units make up
nearly half of King County's housing stock.
But in the past three years, the number of new condos being built in the region
has dropped almost 30 percent, according to New Home Trends, a Bothell-based
market research company. Multifamily housing made up more than half of new home
construction five years ago, but last year it was down to a third.
That's a major concern for state and county officials. With housing costs
continuing to outpace income in the Seattle area, condominium projects have
become the largest component of affordable housing plans.
"If we can't have condominiums, then we're not going to be able to have our
density or achieve our growth-management targets," said Elaine Kraft,
spokeswoman for the King County Executive's Office.
Although Kraft said the office is concerned about warranty- related issues, she
believes the bill is a good compromise for everyone involved.
The Executive's Office and a variety of affordable housing and environmental
groups agree on the issue. But other consumer advocates believe that their
strong support is misguided. Housing is not affordable if it leaks, they say.
"We are concerned about the bill's effects on consumers," wrote Senior Assistant
Attorney General Paul Silver, head of the consumer protection division, in a
letter to bill sponsors.
Contracts mandating arbitration "make it very difficult for a consumer to get
relief," Silver wrote. And a provision allowing for express warranties instead
of traditional implied warranties "is likely to be construed by consumers as
providing them with greater protection, when in fact they are getting less
protection," he added.
An implied warranty is the presumption that new construction will be built
properly, with new materials - meeting all building codes. An express warranty
is a written agreement stating specifically what items should be in good
condition.
Even the best builders recognize they occasionally make mistakes, Anderson said.
Most want to fix problems without having to go to court, he said.
Homeowners at Kirkland's 5-year-old Everest Estates say their builder was
uncooperative until they hired a lawyer.
After hiring an engineer, the condo owners discovered that the developer laid
the protective building paper in a way that channeled rain into the structure.
Water-diverting flashing wasn't placed above the windows, as required. The poor
construction caused outer insulation to fail and Dryvit, a synthetic stucco
material on the walls, crumbled. Seepage inside caused damage to furnishings,
for which owners could not sue the builder.
It took the homeowners three years to reach a mediated settlement last fall.
"It's not that we want to protect unscrupulous builders, we're just seeking a
balance," said Ron Fowler, of John L. Scott Real Estate in Redmond.
Many real estate agents have joined a newly formed statewide Condominium
Alliance that has been promoting the bill backed by the builders lobby.
Because of the region's high housing costs, condos have become the only choice
for many first-time home buyers, Fowler said. And with new construction slowing,
prices are bound to rise.
"Condominiums are very critical," said Carla Okigwe, of the Housing Development
Consortium of Seattle-King County. "If something is not done, the situation will
get worse."
The HDC, which represents non-profit housing builders, buyers and managers, has
yet to support the legislation, hoping that it will be amended to include better
warranty protection for consumers.
Anderson said that his group and the bill supporters agree that certain consumer
protections should be included in the final law, including language that would
provide minimum standards to include in an express warranty.
"We have to make it so builders can get insurance, but we can't allow the buyers
to bear that much liability," Okigwe said. "Our buyers are low-income, working
families who cannot assume that burden."
Although owners of Everest Estates' high-end townhouses may have been able to
squeak by, covering necessary repairs on their own, Trimm and his Renton
neighbors could not afford it, said David Merchant, a Seattle lawyer who
represented both condo associations.
Trimm said two of his neighbors were forced to walk away from their condos,
equity and all, because they did not have the money to weather the lawsuit and
could not sell the property in its condition.
"Just going through having your home and your life investigated is stressful,"
Trimm said. "Then you have to pay money upfront, not knowing if you're going to
win. It's not like the Lemon Law when you buy a bad car. When you get a bad
condo the builder has so many ways to wiggle out."
Washington's Condominium Act does not allow owners to recover costs for pain and
suffering, which makes the lawsuit process even tougher for families who have to
walk away from unsafe living conditions, Merchant said.
State Sen. Karen Keiser, D-Des Moines, voted against the senate bill because she
felt it gave a sharp advantage to developers.
"The claim is always made that either liability or legal rights must be
restricted in order to have affordable insurance premiums," Keiser said. "It's
become a common pattern, and I think the Insurance Commissioner should
investigate these claims and propose some real solutions so that companies can
get affordable insurance but customers are not harmed."
Anderson worries that the image of good builders will be tarnished by "schlocky
buildings" erected by "guys who can't get insurance."
There have been cases across the country and locally involving fly-by-night
developers who create shell companies to build a multifamily complex, then after
selling all of the units, dissolve the company and walk away.
"The illegitimate contractors will go naked because they don't give a damn, then
the homeowners are left with nothing," he said. "If that continues, we'll have a
much bigger problem." |
