David Manley

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Broward County, Florida

Well, it's official. Documents filed in Broward County Court last June named the Seller, Selling Agent and both RE companies regarding the infamous Chinese Drywall.

Chinese drywall has made its way in to the headlines, predominately from attorneys jumping on the class action band wagon. Very little has been mentioned regarding official positions on the matter from the State of Florida or any federal agency other than the stuff is "bad."

Until recently, the allegations and filings had been confined to builders, contractors, material brokers and manufacturing facilities. Documents filed in Broward County, Florida name the other individuals and excluded those typically mentioned above, including the Home Inspector and Buyer Agent.

Having the docs in hand and speaking with one of the Defendants, whom which we will not name, is absolutely shocked that there is a case pending. The Defendant citing,"we had no idea that our home had this problem."

The residence in question, located in an upscale WCI community has been identified as having the sulfur contaminated product, but was sold well before the issue came to light.

To shine a bit of light on this situation, after numerous verbal complaints to WCI, the State of Florida Department of Health and a motion for the homeowners to be included in the respective bankruptcy hearings, WCI decided to set aside roughly $20 million in a trust specifically to deal with mitigating the drywall issue

The reality to this is that anyone at anytime can file a lawsuit. Whether the suit has merit is another question. The idea that RE agents, RE companies or Inspectors should have known about the problem before the actual builders knew is about erroneous as it gets. Considering the property went in to contract in March 2008 and closed in October 2008, this is roughly 5 months before WCI make a public announcement that some of their homes were built with the inferior product. In addition, even after WCI sent their own inspectors in to conduct an examination of properties in question, the results of those inspections were not forwarded to the property owners.

We all know that when buying a home, finding funding and binding a homeowner policy is a part of the transaction process. But what many RE agents don't know is that attempting to do so could blow your deal.

FHA conditions reports and insurance underwriting guidelines have changed dramatically since the storm seasons of 2004-2005. And conditions of property are of great concern to lenders and the insurance industry. Why? Defects and poor conditions = greater risk.

Mass devastation and record setting insurance claims due to subsequent damage from the previous storm seasons has forced HUD and insurance carriers writing policies in Florida to re-evaluate how they conduct their business. Compiled with the slowed economy and down investment market (where insurance companies make a significant portion of their revenue) has forced them to adjust their policy guidelines to minimize risk.

On the insurance side of things, insurance companies don't want to insure a dwelling that could potentially cause a claim and payout. The way this is managed is by evaluating risk. The means in which is done witha few simple inspections. (1) Adjusting or setting a premium via a Wind Mitigation Verification (not used for binding policy rather in part to set premium). This allows the carrier to assess whether the home has been retrofitted with hurricane protection devices, a newer code compliant roof, truss straps, etc. (2) Four Point Inspection. This identifies whether a home has any defect within its roof, electrical, plumbing or HVACsystems. And, can mandate the upgrade for these systems in order to bind the policy. (3) Roof Certifications. This inspection typically for wind only policies, but has become more apparent lately with the renewal of Citizens policies.

Now, how this can effect your deal....well. If you client is dealing with a smaller insurance agent in which only writes business with a few carriers, they are told that "clear" inspections are a must to bind the policy. Now if there are defects within these inspections (Four Point or Roof Cert) the agent cannot bind the policy therefore you cannot close the deal. Unless, you point your client in the direction of a carrier that doesn't require these inspections.

For instance, prior to the storms of 2004-2005, a Four Point Inspection was only mandated for propertiesthat were 50 years or older. Today, that is not the case for all carriers with the exception of Citizens. Most carriers require this inspection for any property 40 years or older and a select few require it at 30.

So what to do?

First, when your client has made their decision to sign contract, they need to immediately contact an insurance agent. They need to inform the agent of the location and age of the structure. At that point, the agent will be able to tell the client what inspections they will need in order to bind. Keeping in mind that underwriting guidelines change from carrier to carrier. Your client may also need to bind a policy for a condo, villa or townhouse.

How this can mess up the deal??? How about a short sale where the bank nor the owner is willing to remedy the defect prior to close. That creates a problem. It's a short sale for a reason, the owner no longer has the financial resources to repair or replace primary components of the structure. And it is definitely not in the clients best interest to invest in repairs prior to ownership...right. There goes your deal. The worst part is that typically, all parties concerned don't find out about this until the 11th hour.

Because our company provides these services for our clients, we ask at every booking the age of the dwelling. At that point, we can inform the agent and client as to additional inspections that they will need in order to bind policy. We hear it daily from RE agents."I've been in the business for 30 years and never heard of a Four Point being required." This comment is fewer and fewer lately because most of the inventory being sold in South Florida is older. Therefore is becoming more common knowledge.

But what is taking its toll is the agent that had no idea of these requirements and is one week out from closing and the client can't close the deal because of insurance guidelines. Where this hurts is not only the simple fact that you've wasted 2 or 3 months with this deal, but your client just lost their deposit money. Since most contracts are "As Is" with right to inspect, you are past the pull-out date and are left scrambling to salvage without penalty. It's not the seller's fault your client couldn't get a policy and your client accepted the deal knowing the property was as is.

Then there's FHA guidelines. Well, talk about inconsistency in the market. These guidelines have changed a few times and for the most part there is no consistency within the FHA Appraiser market. For instance, if the home has roofing defects, no carpet in the master bedroom and the pool in green with turtles living in it (actual deal from last week). There is a good possibility that the appraiser is going to make mention of this in the FHA conditions report (I should hope so considering that what the report is for). Now considering this is a short sale and the seller doesn't have the funds for switch plate covers, what do you think are the chances of this deal going through? Better yet, if you know that this is an FHA loan, why are you placing such a home under contract in the first place?

The end result, for some transactions, is that I get a phone call 3 days later with an irate RE agent telling me how the Four Point messed up the deal. This is the part that really makes my skin crawl. The conditions of the property are what they are. Intentionally reporting anything less that what they are is fraud. Not only that but not reporting primary defects leaves respectable inspectors such as myself in a position of potential litigation.

Most of the time, I write articles to inform our industry of relevant news and perspectives from the other side. And sometimes I write articles to encite feedback. This is an article in which I would like to hear from the RE agents perspective. So, any comments, questions or feedback is greatly appreciated.

Not too long ago, I blogged about the infamous "Chinese Drywall" and boy did my phone start ringing. Now, I initially started researching and sending out information in efforts of keeping my clients informed and "in the loop" regarding the topic.

What really got me concerned about the subject was that a majority of RE agents and brokers didn't want to discuss it. In fact, when I reached out for brokers in which I have had a long, quality relationship with....it was like I wanted to talk to them about some sort of CIA secret or something. Conversations actually got to the point of a select few telling me that they didn't want to open a can of worms.

This was absolutely astonishing to me, considering that I assumed that I was not the only one that tunes in to CNN in the evening. The idea that little ol' me could pop the lid off of a national concern and "set the market on fire" was erroneous at best.

Well, I didn't take no for an answer and went ahead and produced a 16 page Power Point on the subject, emailed it over for their review and to date have lectured to over 1200 RE agents within Broward County. In fact, since the eye opening information contained in my presentation, caused brokers to re-evaluate and ammend their Seller's Disclosure and Listing Agreements.

My company does offer Contaminated Drywall Inspections, but that was not the motivating factor in formulating the presentation. The simple fact was that no one was sitting down and weeding out the speculative comments, alleged "facts" vs. what is actually known about the problem and how to deal with it.

If you read the Sun Sentinal or The Post, you'll get about 70% relavent information and 30% alledged lawyer talk. But the reality to the problem is that minimal has been accomplished to address this issue.

The State of Florida, for the most part, has sat on their hands and the Federal Agencies have done less. This drywall has been the hot topic since last December and there has been no definitive statements made on either level. Between you and me, that is just ridiculous.

Why?...you ask. I am not exactly sure why Congress rejected $2 million for inspections and testing but could it be that a third manufacturer alleged in the class action law suit is actually owned by the Chinese government. And if the Federal Consumer Protection Agency were to declare a recall, would be obligated to seize the assets of the Chinese government pending the outcome of the pending lawsuits.

Instead, the State of Florida went on countless TV and radio shows stating that there is no confirmed data available and they are "seriously looking in to the matter." They also went on to say that there is no way to inspect or test for the product. Well that just isn't true. But on the other hand, if they were to endorse a method of testing or establish protocol, then if the manner proved to be ineffective, they could be liable. Liability in an already litigious situation is not good. By the end of the day, all the state had to offer homeowners is that you're on your own.

So what this has created is a shark feed among the civil lawyers in multiple states. Within our state, there have been countless "neighborhood meetings" hosted by multi-partner law firms, banging on the podium telling homeowners how they have been taken advantage of by money hungry, cost cutting builders that have built the family home with toxic products in efforts of shoring up their bottom lines in a declining market. Sounds plausible...but not the truth, by a long shot.

So, lets get back to the facts.

First, the US has been importing drywall from China for years. In fact, Knauf which is named in multiple lawsuits as the manufacturer of the "Chinese Drywall," is the largest manufacturer of drywall and insulation in the world. But the sulfur contaminated product is the first of it's kind. The gypsum that had been used was not properly scrubbed to remove the sulfur. The proper manufacturing techniques were not observed. Whether the gypsum was mined or a bi-prduct of fly ash is not the relevant concern because our reliable domestic manufacturers use the same methods. This was not some kind of conspiracy to intentionally contaminate our homes.

Second, the amount of product imported from China was because of a simple thing called "supply and demand." We witnessed a combination of accelerated growth in construction combined with a series of natural disasters that exceeded companies like US Gypsum's ability to keep the supply chain full. So, with procurement agents for brokers, construction companies, non-profits (New Orleans) and others, turned to importing more construction materials. Solely on the immediate damand.

Testing methods have been established contrary to the state's statements on the radio talk shows. In fact, physical sample testing only takes 5-10 days. This is controlled environment testing that produces accurate results in efforts of identifying the presence of the eroding gases.

Folks, this is not rocket science. It's very basic. Sulfur, when exposed to certain amounts of heat and humidity omit gases that are naturally corrosive to common metals. These metals are found in the electrical system, HVAC system, appliances, electronics.....etc. The gases cause the erosion and eventual failure of these components.

Once the product has been identified to have used in the construction of the dwelling, the ONLY method of mitigation or the only way to fix this problem is to remove all of the drywall.....PERIOD. There is NO way to "seal" it up, cover it up, run air scrubbers...etc. If anyone is telling you otherwise, they're trying to make a buck or just ignorant. And, once the product has been removed, there is no residual effect. Meaning if you remove the cause of the gas....the gas will naturally go away.

We are still in the process of identifying how many builders used the product within the new construction market. But what is just as important is how many homes was the product used in that were partial replacement purposes. Remember the photos of homes with a water line 3 feet off of the slab from flood waters? Well, sub-contractors and homeowners used some of this product too.

Yes, excess materials that were not bought by the large construction companies were sold to idependent builder supply houses that are open to the public. In fact, last month in Dade County, there were supply houses still stacking this stuff on their sales floor and a discounted price. Unbelievable.....right. Meanwhile, the state can only make recommendations to retailers not to sell the product instead of demanding that the product be taken out of the market. Why?...because an official recall has not been issued.

Getting back to my original purpose for writing about this topic, it is to keep our industry informed about these issues and how it impacts our market. I understand that transactions today are harder, even without the stench of rotten eggs and deteriorating electrical systems. And, if you're not reading articles like this and keeping in touch with issues that adversely effect our market, then you are working behind the 8 ball. If you haven't incorporated contaminated drywall in to your Listing Agreements and Seller's Disclosure then you are setting yourself up for litigation.

Keep informed.....keep ahead of the game.....keep pushing forward!

Best regards,

David B. Manley

President

Gold Coast Inspections

The IHPAC announced the formation of an investigative task force intended to act in tandem with the State Of Florida Attorney General to investigate complaints made by homeowners of companies selling window films that are being falsely advertised as hurricane rated or impact products.

There has been a blitz of complaints at a municipal, county and state level alleging that companies are advertising after market window films as the alternative to installing hurricane protection devices or shutters. Not only making face to face presentations with slick brochures but actually telling homeowners that once this product is installed, there is no longer a need for hurricane panels or shutters.

Phyllis K., a Broward resident is just one of many that has been misled and swindled by a local contractor that sold her a bill of goods. "Not only did he say I would get a discount on my insurance, but said his product was so good, the U.S. Embassy installed it," Mrs. K said while we were on site last month conducting a Wind Mitigation Inspection. "Compared to over $30,000 quote to install hurricane impact windows, less than $5,000 sounded great."

Mrs. K is just one of many within her older and established sub-division where most are retired and due to current economic times just don't have the type of money it takes to retro-fit their homes.

"Without a doubt, these homeowners are being taken advantage of and in some cased they are being lied to," David Manley, President of Gold Coast Inspections, "these products do not carry an impact rating and will not receive any discounts from insurance carriers writing windstorm policies in Florida."

The influx of these types of complaints has Florida's Attorney General's office answering quite a lot of angry phone calls lately.

Although some of these window films are beneficial during velocity winds, none carry an impact rating. "What homeowners don't understand is building code," continues Mr. Manley "nor should homeowner have to, it's the state's job to make sure that honest people are kept honest."

The application of these products doesn't require a permit because it doesn't require the removal of the window or glass door component. These films are basically a peel and stick product that is applied over the existing glazing (glass). The concept of or the hurricane rating is given to the entire opening, including the frame and hardware. Specifically how it performs within the impact testing procedures. During these tests, the entire opening must remain in tact, not breaching, in order to be awarded an impact rating.

While it is unlikely that Mrs. K will ever get a refund from the company in which she state misled her, she has taken a very strong stance against this contractor by filing a complaint with the state's Attorney General's Office, Broward County, the Better Business Bureau and has had initial discussions with a private attorney.