Lenders Help Florida Homeowners Affected by Chinese Drywall

Florida homeowners saddled with homes built with defective drywall from China received mortgage abatements from lenders wary of adding the defective and potentially dangerous homes to their inventories. Florida lawyer Mike Ryan represents 160 home owners who live in eight south Florida residential communities developed by WCI Communities. He said he negotiated 90-day abatements — or mortgage payment suspensions — with his clients’ lenders. Most of his clients have moved out of their homes and could not afford their mortgages now that they are forced to pay for temporary housing. Ryan said he already has obtained mortgage abatements from a variety of lenders, including Wells Fargo, Bank of America, Countrywide, Wachovia, HSBC, Citi Mortgage and SunTrust for his clients. That was in April, and Ryan said many banks are extending the abatements to six months. According to multiple published reports, the defective Chinese-made drywall emits sulfur gas when exposed to moisture and allegedly corrodes copper wiring, causing electrical problems and may be linked to a various health problems experienced by homeowners and their families. The imported drywall made its way into American homes during the building boom in the early-to-mid 2000s and when demand for materials went up after Hurricane Katrina. Ryan said lenders understood it was in their best interest to give his clients some leeway on their mortgages while the problem was resolved, instead of foreclosing on the homes. “The last thing these mortgage lenders would want is to have these homes put into foreclosure and eventually added into their inventory because then they would truly have a toxic asset,” Ryan said. He added lenders are also faced with the possibility that additional homes already in their real-estate-owned inventories could have been built with Chinese drywall. Ryan’s next task is recovering damages from WCI, which entered into bankruptcy protection nearly a year ago. Under a restructuring proposal WCI submitted in bankruptcy court, WCI plans to exit Chapter 11 protection by Q309, with various debtors holding equity stakes in the reorganized builder. Ryan said that plan includes a trust for his clients that would help pay for the damages, as well as provide a 3% equity stake. In addition, the homeowners would have the ability to file claims against WCI in court. In a January Securities and Exchange Commission filing, WCI admitted it used the Chinese drywall in some homes built and sold before it filed for bankruptcy protection in August 2008. In the filing, WCI said it was investigating the claims and established an $11m reserve to fund air conditioner coil replacements, “which may or may not be related to the Chinese drywall.” Ryan said it will be difficult for his clients to see any of that money because their homes’ warranties have all expired. “These homeowners are in a terrible situation. We need to consider every possible avenue for recovery and every potential solution to this catastrophe,” Ryan said in a release. Ryan is a partner at the Ft. Lauderdale, Fla.-based Krupnick Campbell Malone Buser Slama Hancock Liberman and McKee law firm. Write to Austin Kilgore.