Owners Worry Moldy Condos Are Unsellable

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By Susan Kelleher
Seattle Times staff reporter

Vijay Dusi is paying $2,450 a month to live in a condominium so riddled with toxic mold that his family has shuffled from room to room for three years to escape the health hazards that go with it.

His kids, ages 2 and 4, can't sleep or play in their room. His wife has tossed away toys, clothes, bedding, even beds while their homeowners association grapples with the question of who will pay for an estimated $4 million worth of repairs at the 82-unit complex.

The Riverwalk at Redmond condo association tried to get the developer, Roger Nix, to pay for repairs, but finally gave up when it couldn't find him. Nix dissolved his company last year, and an associate said he is living in Mexico.

The homeowners association filed suit in July against Nix's company in an effort to force the firm to pay for what it says is shoddy construction that has contributed to water damage in 15 units at the complex on Northeast Leary Way in Redmond. Three of the five buildings are affected.

Without a legal victory or settlement with the developer, the owners of each unit could be on the hook for as much as $50,000 to replace the buildings' exteriors.

Finding a way to pay for that when the condos are worth less than what the owners paid for them has been a source of angst for the association's board. At one point, the board considered a mass default where everyone would stop paying their mortgages and walk away.

So far, one condo has gone into foreclosure, and several others are listed for sale for less than the homeowners owe, said Dusi, who sits on the association's board.

"I feel cheated," he said. "People have been living here for some time, and put down a large amount of money. They can't just walk away."

Riverwalk's situation is dramatic. But it's far from unprecedented.

Attorneys specializing in construction lawsuits say condo owners across the state have been left holding the bag for millions of dollars in repairs to shoddy construction that should have been remedied by developers. And those developers often operate under corporate entities that evaporate once the project is finished.

By the time problems are discovered, the main assets — the condos themselves — have been sold and the profits divvied up.

Workmanship defects are often not covered by insurance, or the contractor may not be carrying a large enough policy. Contractor bonds posted with the state are usually small enough to cover only minor repairs, according to a spokeswoman for Washington's Labor and Industries.

Apartment conversion

That's the situation that Dusi and the Riverwalk board confronted after developer Nix converted an apartment complex into condominiums with an elegant Mediterranean-style facade. Some units, such as Dusi's, began showing signs of water problems almost immediately.

When they tried to find someone to take responsibility for the problems, they discovered a complicated web of owners and investors, and a main company that no longer existed.

The companies were all limited-liability companies, or LLCs. Members of such companies cannot be held personally liable for debts unless they sign a personal guarantee.

Nix, who has developed condo projects in Nevada and Washington, formed the Riverwalk at Redmond as the holding company and general contractor for the project, shortly before buying the apartment complex in 2006.

Another of his companies — Oceans West Conversions — coordinated subcontractors on the project, said Kim Steward, who served as project manager. Oceans West lists another company — Master Management — as its manager. That business, in turn, lists as its manager a local developer of two high-rise condo projects in downtown Seattle.

With LLCs, said Steward, "There's no human being to hang your hat on. Yeah, it's a guy, but it's LLCs because that's what he (Nix) did to protect himself. Everybody's litigious."

As required by state law, the Riverwalk company hired an engineering firm to design the building exterior, inspect the construction as it progressed and prepare inspection reports to file with the city of Redmond.

City inspectors did not monitor the construction, relying instead on a third-party inspector, said Jason Lynch, of Redmond's Department of Planning and Community development.

Lynch said the project complied with all the filing requirements, and that the city was not required to check the work.

"I've been here 11 years, and I've never seen anything like this before," he said, referring to the costly repairs needed on a project that appears to have been in compliance.

Documents and e-mails written by the inspector, however, indicate that the "final" inspection report was written before the construction was completed.

Reports prepared by Trinity/ERD of Seattle documented deficiencies that the developer would be responsible for correcting. But because the construction was still under way at the time the report was written, the inspector could not say whether that work was done, said Colin Murphy of Trinity/ERD.

Check with inspector

That's why homeowners should have hired an independent inspector to check out their units before buying, Murphy said.

"A lot of buyers are relying on the fact that some real-estate agent says, 'The building's fine.' In a condo, we don't have lending institutions that require that kind of inspection. ... How was it that people were able to buy these things and how was it that banks were lending money on them without the checks and balances in place?" he said.

Steward, who owns a condo at Riverwalk, said the developer wasn't responsible for the original construction of the buildings — only the mostly cosmetic changes made to Riverwalk after he bought it.

The Riverwalk conversion, she said, amounted to "putting lipstick on an elephant."

"You're making it look cute," she said of the conversion, which included replacing windows and applying a new coat of stucco over the existing stucco exterior.

No one knows exactly what's causing the water problems. So it's not clear what would have to be fixed or repaired, she said.

Nix's company was not required to have a builder's risk policy because the project was not new construction, and none of the lenders the firm dealt with required it, she said.

Disclosures about the work were included in the "public offering statement," a legal document typically provided to buyers when they sign paperwork to finalize their purchase.

The statement prepared by Nix's firm said the developer wasn't responsible for defects related to the original construction of the apartments, only for work they did to convert it to condos.

The buyers also were provided with reports by Trinity/ERD, which noted that the original facade was still in place, along with some features that could prove troublesome unless maintained and monitored.

Steward said the homeowners are trying to demonize Nix in an effort to be made whole in a declining real-estate market.

"He's a really nice guy," she said. "It's easy to vilify the developers. ... Roger is not a bad egg. He really did try to help."

She said Nix moved to Mexico last year, choosing to walk away from everything because he had become tired of the business. He dissolved the Riverwalk corporation in May 2009, making it difficult for anyone to pursue legal claims against it.

Efforts to reach Nix for comment were unsuccessful.

Trapped in condo

Meanwhile, Dusi and his family are all but trapped in a condominium that he says is making them sick.

Dusi, 35, bought the unit for $298,000 in May 2007.

Problems with moisture began almost immediately. Within six months, the family abandoned the two upstairs bedrooms to sleep downstairs in the living room for seven months, Dusi said.

Contractors ripped out and replaced the drywall, he said, but the water intrusion continued. At one point, it got so bad that Dusi and his wife kept a bucket in the master bedroom to collect what they say was three to four buckets a day of water that leaked from the ceiling.

The developer declined to pay for the bedroom repair, Dusi said. His homeowner's insurance paid to house the family in a hotel for a week but said it wouldn't cover a mold claim because the condition existed at the time they bought the unit. So the homeowners association paid for it.

But no sooner had that problem been solved than mold invaded a wall in the adjacent bedroom where his two children sleep — or used to.

His daughter, Sanjana, 4, developed a spotty rash on her legs, and both children required frequent visits to the hospital for respiratory infections and allergies. The Dusi household was tense as the children pushed back against their mother's orders to stay out of their room.

"He wants to go near the window and that whole wall is with mold," Supraja Dusi said, holding her 2-year-old son, Shravant. "They don't understand why I'm telling them, 'Don't go in the room.' She's 4 years old and asking me always: 'Why can't I go in the room?' "

Now, the family all sleep in the parents' room, where a mound of clothes was waiting to be washed — twice — during a recent visit.

With the kids getting sick so frequently, Supraja Dusi doesn't want to take any chances.

"I'm concerned about my kids' health," she said. "They're healthy one week a month. From three years, we are dealing with this."

Vijay Dusi, who works as a software developer at Microsoft, said he cannot afford to move his family to another place and must continue to pay the mortgage and the homeowners-association dues lest he jeopardize the permanent-residency permit he applied for in 2005.

"Even if I can afford to move, I cannot get rid of this home unless I foreclosed."

He's joined the homeowners-association board to get some control over the situation, and has been frustrated over the lack of options, and the false sense of security he had that the city's inspection process would ensure the building would be safe.

In January, the company that inspected the property during the conversion commissioned a mold study of the Dusis' unit. The inspectors found four types of mold, including two associated with human respiratory illness and allergies.

In an e-mail summarizing the problem, homeowners' association President Jason Ing wrote: "We know the law is on our side, but it seems like it has no teeth in this case as feel like we're chasing ghosts."

Owners Worry Moldy Condos Are Unsellable — And Unlivable