THE DISTRICT LINEApril 14, 2006
The District’s real-estate “lemon law” has no teeth.
By Ryan Grim
(Illustration by Max Kornell)
In most states, someone who buys a crappy, unreliable car has certain legal remedies thanks to so-called “lemon laws.” The District, though, does one better. Here, if you’re sold a lemon condo, the city has your back.
That’s the plan, anyway.
In April, Nicole DeGraffenreed moved into her new condo, a one-bedroom unit in the Chelsea, located not far from RFK Stadium in Lincoln Park, only to realize she’d spent $220,000 on a pig in lipstick. An inspection turned up a need for more than $200,000 in structural work on the 15-unit building.
Lucky for DeGraffenreed, District law requires developers to deposit a “warranty bond”—set at 10 percent of the cost of the work that went into the condo conversion—that condo owners can draw on to make repairs. The law, passed in 1990, is meant to give homeowners some protection against “Sherwin Williams renovations”—a few cans of paint, some stainless steel appliances—that mask underlying defects.
The defects in DeGraffenreed’s oinker, though, were barely masked. The building was not wired for phone service. Rather than trash pickup, bags of garbage were being stashed in the basement. The developers hadn’t paid for the gas, electric, or water for months as they were required to; the utility companies threatened to shut off the flow if the bills weren’t paid. In April, a contractor came by and removed the bars from the Chelsea’s windows, saying he hadn’t been paid for his work. DeGraffenreed and the other new owners, who are suing the developers, hired an inspection company, which quickly determined that the building needed massive electrical, fire safety, and plumbing work and had basic structural issues such as a rotting frame, mold, and damaged concrete.
So DeGraffenreed, who is president of the building’s condominium association, went to the Department of Consumer and Regulatory Affairs (DCRA) to draw on the warranty bond. But it wasn’t there. Instead, she found a letter on Bank of America stationery stating that the bank would give the developers a Letter of Credit for the amount of the bond “subject to formal application and our Norman [sic] credit and documentation requirements, which we currently believe can be fulfilled.”
That and $2.50 will get you a half-smoke and a Pepsi. Anybody can walk into a bank and get a letter saying that the bank will make a loan to him if he qualifies for a loan. The law, however, requires the actual bond.
Nevertheless, DCRA Housing Regulations Officer Linda Harried approved the condo registration in January 2005. She added that failure to post the bond before the first condo sale would “result in the automatic revocation of this registration.”
But the DCRA has no mechanism to make sure developers actually get the bond and file it with the agency. The bond, if it’s delivered at all, goes to a separate file from the rest of the conversion application, and the two are not cross-checked unless a new owner comes looking for the bond. By then it might be too late—many properties are developed by corporations that cease to exist once the last unit is sold.
When DeGraffenreed realized there was no bond to draw on, she went to Bank of America to find out how much progress the developers, Greenbelt attorney Herbert Callihan and John Casey of Rockville, Md., had made in obtaining the bond. The Bank of America letter was signed by “Walter P. Stolze Branch Manager,” so she and Jon Tycko, an attorney hired by the condo owners, tried to find him. They failed.
“It’s possible there is no Walter P. Stolze in the entire country,” says Tycko, who searched several national and local databases. A database search by Washington City Paper turned up three long-dead Walter Stolzes.
Tycko says a Bank of America investigator told him that no Walter P. Stolze has ever worked for Bank of America, the letterhead was not authentic, and the letter itself was most likely a forgery. (The investigator has since left the company; his replacement was traveling and could not be reached.)
A lawyer for the developers, Brian Murphy, told Tycko that he couldn’t vouch for the authenticity of the letter, saying the person who had obtained it had since disappeared. Murphy, like Callihan, did not return calls for comment. Casey could not be located.
Last July, Tycko alerted the DCRA of the forgery and of the lack of a warranty bond, but the agency did not revoke the developers’ registration. Over the next eight months, he sent multiple letters to the DCRA, each with increasing urgency. The tone of his final letter, sent on March 15, is incredulous: “How can DCRA allow a developer that forges bank documents, and then submits those forged documents to DCRA as if they were genuine, to continue selling condominium units in the District?”
A week later, the DCRA issued a cease-and-desist order preventing the developers from selling the remaining three condos in the building.
The DCRA, after a review of its condo files, was unable to say how many developers have neglected to come through with the required bond. As a result of the situation at the Chelsea, says spokesperson Linda Argo, the agency will be implementing a new procedure to monitor developers, no longer taking them at their word with regard to warranty bonds.
The problem, she says, is that the DCRA doesn’t know when a developer makes the first sale. “We’re putting some other checks and balances in the process and changing standard operating procedure so that we have better information about the actual sale of the condominiums,” she says. “Sometimes it can take 20 years” from the time of the conversion to the first sale.
Ward 1 Councilmember Jim Graham, chair of the committee that oversees the DCRA, says he plans on tightening the law. Argo says the agency will also ask F.S. Taylor & Associates, a firm that is scheduled to audit other condo-related DCRA operations, to determine how many condo converters have been delinquent or have never deposited their bonds, a crime that could be punishable by up to a $50,000 fine and six months in prison. However, Argo says, if F.S. Taylor declines to add warranty-bond verifications to its already accepted contract, the agency has no plans to pursue the matter further. CP
Have a tip concerning the DCRA? Call (202) 332-2100, x 468, 24 hours a day, or e-mail email@example.com.
Copyright © 2006 Washington Free Weekly Inc.