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WCI Communities Reserved $11 Million for Chinese Drywall Problems

Mar 2, 2009 | Parker Waichman LLP

Florida builder WCI Communities has apparently set aside funds to address problems with defective Chinese drywall in some of its homes.  According to Naplesnews.com, in a filing with the Securities and Exchange Commission (SEC), the company said it had placed $11 million in reserve for homes with one or more air conditioning coil replacements.  It is believed that sulfur gases emitted from the drywall are causing metals in some homes – including air conditioning coils – to corrode.

As we’ve been reporting for the past several months, owners of newer homes in South Florida have been complaining of drywall that smells like rotten eggs. In many cases, residents have had to leave their home because the smell was so bad.  In addition to the putrid smell, many South Florida homeowners have reported problems with air conditioning and other systems that are likely related to the defective Chinese drywall.  Some spent hundreds - even thousands of dollars - to have air conditioning, pipes and wiring repaired.

So far, the Florida Health Department has received at least 100 complaints of drywall problems from Florida homeowners.  As we reported last month, a consumer advocacy group also said it had received complaints of similar drywall problems in other states.  Recently, the U.S.  Consumer Products Safety Commission (CPSC) had started a probe of Chinese drywall.

WCI Communities is among the Florida builders that have acknowledged receiving drywall complaints.  The company filed for Chapter 11 bankruptcy on August 4.  Unfortunately, WCI made the announcement three days after the Feb. 2 deadline for creditors to file claims had passed.  

According to Naplesnews.com, WCI is claiming that drywall complaints arose before its bankruptcy, making them pre-petition claims. Such claims are usually settled for just pennies on the dollar.  However, Naplesnews.com is reporting that WCI has asked for the court’s permission to settle the claims outside the bankruptcy proceeding.  This could result in larger settlements.

In its SEC filing of January 28, WCI said it had set aside the $11 million reserve fund.  The filing also said WCI was “currently addressing a handful of active claims that it believes are covered by the company’s homeowner warranty.”

“Based on information currently available to the company, we do not believe these claims will have a material adverse effect on our financial condition or resulting operations,” the SEC document said.

A WCI spokesperson would not tell Naplesnews.com how many drywall claims the company is handling.


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