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Louisiana property owners and the REALTORS® who represent them have become increasingly concerned about the use of defective drywall products manufactured in China. Here are two recent articles from NAR with helpful information about this topic. If you have questions or comments about this article, please email scott@larealtors.org.
March “Did You Know?”
By Katherine Raynolds
Drywall Raises Stink
Chinese-manufactured drywall has caused problems in approximately 25 states nationwide. The drywall could potentially cause an electrical fire in homes and is alleged to cause certain respiratory health problems. However, the Florida Department of Health and other private laboratories have yet to conclude that the Chinese drywall is the source of such health problems.
Lawsuits have been filed against manufacturers, distributors, and suppliers of Chinese drywall. It is possible that unhappy buyers of homes containing the drywall may add home sellers to that list of defendants. All of this has real estate agents and brokers wondering: How does one know whether a home was made with Chinese drywall, and how can real estate practitioners assist clients in avoiding future litigation regarding Chinese drywall?
How does one know whether a home contains Chinese drywall?
Consulting with a professional home inspector is the best way to determine whether or not a home contains Chinese drywall. However, if a homeowner wants to do a self-inspection prior to hiring an expert, there are several things that may indicate the presence of Chinese drywall. First, it has been widely reported that Chinese drywall emits a sulfuric acid odor. If your home smells like rotten eggs, then Chinese drywall may be the cause. Chinese drywall is also known to corrode internal wiring and air conditioning coils. Oftentimes, the air conditioning unit turns black from this corrosion. Another indication of Chinese drywall may be found on the source itself. If you have access to the drywall, such as in an attic, look on it to see whether it states, "Made in China", or if it contains the logo of a Chinese drywall manufacturer such as Knauf Plasterboard Tianjin or Taishan Gypsum.
How can real estate practitioners assist clients in avoiding future litigation?
The answer to this question is pretty clear: if you know it, disclose it. If an agent or broker knows that the house was constructed with Chinese drywall, then it needs to be disclosed. Not all drywall manufactured in China may emit a pungent odor or cause damage to the internal wiring or air conditioning coils. But, if the house a broker has listed has these symptoms, then they should be disclosed.
Several brokers in Florida have created a drywall disclosure statement to be included with the standard residential disclosure from the Florida Association of REALTORS®. One broker has added a disclosure to its sales contract that states, "seller represents that seller has no knowledge of the presence of Chinese drywall at the property." This disclosure statement also disclaims any responsibility of the broker for determining whether the home contains the Chinese drywall. Such disclosures, when used appropriately, are a good way for real estate practitioners to help their clients avoid future litigation regarding the drywall.
Large Verdict in Drywall Case
By Finley Maxson
A Louisiana federal court has considered whether homeowners could collect damages caused by so-called “Chinese drywall”.
During the housing building boom from 2004-06, builders encountered a shortage of domestic drywall and so began importing drywall products. A number of Chinese manufacturers sold drywall products (“Drywall”) to U.S. builders. Most of the Drywall was used to build homes in the southern part of the country and Gulf coast region that were damaged by hurricanes.
Homeowners with the Drywall installed in their homes began experiencing a number of problems. First, the Drywall released a noxious gas that allegedly caused physical injuries to the homeowners and made their homes uninhabitable. Second, the drywall caused corrosion and blackening in metal wiring (particularly wire made out of copper), and this caused damage to appliance and electrical devices. The corrosion also affected pipes made out of copper, which caused damage to other parts of the home and also to the owners’ possessions.
Homeowners filed lawsuits against the manufacturers of Drywall, homebuilders, real estate licensees, developers, inspectors, exporters, and anyone else involved in the transaction. Pursuant to a federal statute, the cases were designated as multidistrict litigation because of the commonality of facts between the cases. The multidistrict panel transferred all of the federal cases to a federal court in Louisiana.
A class of representative homeowners brought a class action against five manufacturers of the Drywall. Since the defendants were in China, only one of the manufacturers was actually served with the complaint and this defendant never appeared in court to defend itself. The homeowners conducted discovery on the Drywall issue, and then moved for judgment. The court entered judgment against the manufacturer and then considered the damages that the homeowners could receive.
The United States District for the Eastern District of Louisiana found that the Drywall had caused extensive damage in the homes of the class members and ordered the drywall removed, all damage fixed, the homes certified for habitation, and also awarded damages for other harms caused by the Drywall. The court first reviewed the opinions offered by various experts on the harms caused by the Drywall.
The court found that the evidence supported the conclusion that the Drywall had caused extensive damage within the homes, making the homes uninhabitable as well as damaging electrical systems. The damage to the electrical systems in turn caused extensive damages to appliances within the home, such as the HVAC system and the hot water heater, as well as posing a fire risk. Thus, the court ruled that the Drywall had caused extensive damage to the homes.
Next, the court considered the best methods for correcting the problems caused by the Drywall. The court reviewed the recommendations of the Consumer Products Safety Commission as well as from others and concluded that the best method for remediating homes with Drywall problems is to remove all drywall from the home (even if it was not manufactured in China), all electrical wire, the entire HVAC system, and many other items such as appliances, carpets, cabinets, and flooring which are damaged. The court found that many builders recommend the removal of all drywall from the home because it is more cost effective to do it this way rather than trying to determine what is Chinese-manufactured drywall and what is not. Similarly, the entire electrical system needs to be removed because one weak area in an electrical system can cause failures. Most HVAC systems also contain copper, and so those need to be replaced as well.
The court then applied these rulings to the individual class members before the court, and these determinations would be used to award damages to similarly situated plaintiffs. The court found that the average cost to repair the homes would be about $86/square foot. The homes must also be inspected and certified by an independent company as habitable following the remediation of the homes. The homeowners could also collect additional damages if they submit evidence identifying physical harms caused by the Drywall, damage to personal property, and any other non-property damages identified by the homeowners. The court awarded the damages to the homeowners and ordered the remediation of their homes. The total damages awarded by the court came to $2,609,129.
In re Chinese Mfr’d Drywall Prod. Liab. Litig., No. 09-6687, MDL No. 2047, 2010 WL 1445684 (E.D. La. Apr. 8, 2010). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].
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Red Stick Report is intended to keep Association members abreast of legal developments affecting real estate brokerage and sales, and to supplement educational programs. Questions about this or future newsletters should be addressed to Louisiana REALTORS. Information included in the Red Stick Report should not be construed as specific legal advice, and Louisiana REALTORS strongly encourages its members to consult with their own legal counsel.
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