Clients Face Issue of Chinese Drywall

Chinese drywall continues to be a hot topic throughout the Southeast and across the nation. Lawmakers are working hard to investigate the problem and address concerns surrounding this ever-evolving issue.

The first piece of federal legislation related to defective Chinese drywall was passed by Congress in May. The provision, authored by Reps. Robert Wexler, D-Fla., and Mario Diaz-Balart, R-Fla., was successfully offered as an amendment to the Mortgage Reform and Anti-Predatory Lending Act. The drywall-related amendment calls for an immediate investigation to be conducted on the effect of defective Chinese drywall on foreclosures.

The legislation requests that the U.S. Department of Housing and Urban Development, along with the Treasury Department, to study the problem and report their findings and recommendations within 120 days.

Specifically, the investigation is to focus on how many home foreclosures involve houses built or remodeled using Chinese drywall imported from 2004 to 2007. Federal agencies must also determine whether property insurance was available to homes discovered to have such defective drywall present. The act, which aims to tighten regulations on mortgage lenders and originators, passed the U.S. House of Representatives by 300 to 114.

According to published reports, while the first Chinese drywall complaints came from homeowners in Florida, it has become clear that the problem is a national one. Reports of defective Chinese drywall have now been recorded in Virginia, North Carolina, Louisiana, Alabama and Mississippi. It seems the warm, humid climate in the south encourages the drywall to emit sulfur fumes. Some experts fear that in cooler, dryer areas of the country, it could be years before Chinese drywall problems finally surface.

The problem of drywall came up about a year ago for Mortgage Contracting Services, with headquarters in Tampa, Fla. Since then, the company has been helping more lenders and servicers mitigate the problem locally and nationally.

As far as being able to service properties and maintain them, MCS has the ability to remediate drywall or do drywall inspections, said Elspeth Spransy, assistant vice president of vendor management.

“The problem can affect any property built after 2001. This could be a national issue, especially after the major hurricanes in 2004. We had three subsequent hurricanes in a row. Building materials were in short supply and the U.S. needed to get supplies elsewhere.

“A lot of the drywall that we’re dealing with or can deal with is from China and also from Germany,” Ms. Spransy said. “Of course the coastal areas are heavily affected, but this can come up anywhere.” It’s an evolving focus, she says, and many asset managers are simply preparing for it now. MCS is able to perform a specific testing protocol where the vendor checks to see if the toxic drywall exists. They are able to give asset managers some different options to consider remediation or not. That’s the big step where the process becomes more involved.

“Immediately, we want to remove the drywall completely. But after that we question the residual affects of what was in the house. We look to see what other objects inside the house were affected, especially metals or anything inside the walls. We have a process where we are able to try and neutralize the residual affects within the building design.”

While lenders might not be able to technically tie certain health affects directly to the drywall, there are known associations such as a lot of respiratory issues, which is the largest concern right now, she says.

In property preservation the goal is to combat any type of preservation issue the industry faces. The topic of Chinese drywall is a big one, adds Ms. Spransy. “For many companies the process and the issue are so new. We are open and ready and willing to help our clients resolve any issues.”