Chinese Drywall Affecting 140 Homes, Builder SaysSep 28, 2009 | Parker Waichman LLP
KB Home says that about 140 homes it built have issues with Chinese drywall. The disclosure was made during a conference call conducted by KB Home last Friday to discuss earnings.
Chinese drywall poured into the U.S. between 1999 and 2007 because of the high demand created by the housing boom. Imports accelerated when the rebuilding that followed Hurricane Charley in Florida in 2004, and Hurricane Katrina along the Gulf Coast in 2005, created a drywall shortage. According to The Wall Street Journal, some 500 million pounds of Chinese drywall was imported to the U.S. during the housing boom. That means as many as 100,000 homes throughout the country could have been built with the material.
Gases emitted from Chinese drywall are being blamed for significant property damage, including damage to HVAC systems, smoke detectors, electrical wiring, metal plumbing components, and other household appliances. These gases also produce a sulfurous odor that permeates homes, and cause metals, including air conditioning coils and even jewelry, to corrode. People living with Chinese drywall have also suffered eye, respiratory and sinus problems that may be linked to the gases. So far, the Consumer Products Safety Commission has received 1,311 Chinese drywall complaints from homeowners in 26 states and the District of Columbia.
During Friday's conference call, KB Home executives said most of its homes reporting drywall problems were located in Florida, and were built between 2006 and 2007. The company said the allegedly defective drywall was installed in homes by subcontractors.
The homebuilder said it estimated that its Chinese drywall repair costs will total about $10 million. It has recorded a charge of $6 million in the third quarter to increase its warranty liability. KB Home said it intended to seek reimbursement from various sources for these costs, but has not yet recorded any amounts for potential recoveries because the matter is still in its early stages.
KB Home is just the latest builder to provide a tally of homes built with potentially defective Chinese drywall. Earlier this year, Miami-based Lennar Homes acknowledged that about 400 homes it built in Florida have issues that could be related to Chinese drywall. WCI Communities, which filed for Chapter 11 bankruptcy protection, has also said 200 of its homes were the subject of drywall complaints. The Florida builder's bankruptcy plan includes a Chinese Drywall Trust, which WCI will fund with $900,000. That money will help to offset the cost of litigation against insurers and other companies involved in the Chinese drywall disaster. The firm's reorganization plan was approved in August.