Hampton Roads homeowners stuck in drywall limbo

Two years have passed since Colleen Nguyen and her family left their spacious waterfront home in Virginia Beach's Little Neck neighborhood.

It is one of hundreds in the region built with tainted Chinese-made drywall, which federal product safety regulators say emits sulfur gasses that corrode metal in homes. Homeowners say the fumes cause illness and make their homes unlivable.

These days, the home's only inhabitants are the small spiders that spin cobwebs along barren kitchen and living room walls.

Nguyen is one of more than 170 Hampton Roads homeowners whose lives have been in limbo since the discovery of the problem drywall in the early months of 2009. The legal battle over who will pay to fix the properties is in its 26th month, with seemingly no resolution in sight. Many have abandoned their properties or lost them through foreclosure or bankruptcy. Others have sold their homes for sometimes less than half of what they paid.

When supplies of U.S.-made drywall became scarce in 2005 during the building boom, a Norfolk construction supplier imported more than 150,000 sheets of Chinese-made drywall. That was enough to build more than 300 homes.

One of the region's largest builders - The Dragas Cos. - paid to fix 73 condos it built with the problem wallboard. But other local builders who constructed homes with the product have been unwilling or unable to fix them.

It's been more than a year since a federal judge in New Orleans awarded $2.6 million to five Virginia homeowners in a lawsuit against Taishan Gypsum Co. Ltd., the company that manufactured the drywall that was imported into Hampton Roads.

It was a short-lived victory. Taishan, which originally didn't respond to the lawsuit, filed an appeal two months later. Now, the foreign company is challenging whether U.S. courts even have jurisdiction over it.

Meanwhile, local lawsuits against the drywall importer, developers and builders also have hit snags.

Trials initially slated to begin last January have been on hold as attorneys attempt to bring Taishan into the local cases and as judges weigh whether insurance coverage exists for the drywall claims.

Insurance companies sued the developers and builders, claiming the drywall damage fell outside the scope of their commercial liability policies.

That's important because few builders and developers have enough cash to fix the homes without insurance.

The insurance companies also asked the judge to relieve them of their duty under the policies to defend builders and developers in the cases.

Commercial insurance policies held by many builders and developers often include language that bars coverage for damages created by pollution. The insurance companies have argued that the fumes emitted by the tainted wallboard are pollution and aren't covered. Homeowner policies also have similar language.

Two recent decisions on insurance coverage by a federal judge in Norfolk made the outlook for local lawsuits even murkier.

In May, U.S. District Judge Mark S. Davis ruled that in one instance, the commercial insurance policy issued by Builders Mutual Insurance Co. used language that was too ambiguous to determine precisely what type of pollution the policy excluded. That meant its pollution exclusion couldn't be used to bar drywall claims.

In a separate ruling issued the same day, Davis ruled that a policy written by Nationwide Mutual Insurance Co. did bar coverage for drywall.

"That Judge Davis declined to find our way on the pollution exclusion doesn't end any of these claims," said Richard Serpe, the Norfolk attorney who represents most of the local homeowners.

"But it went from a process where we had hoped for a clear consensus that, yes, there's coverage, to a situation much more complicated," he said. "We end up with a series of pigeonholes for some cases that will be covered and others that will not."

Homeowners plan to appeal the decision in the Nationwide Mutual case, Serpe said.

Local lawsuits also have been held up because of efforts to add Taishan as a defendant in all of the 165 pending cases.

"If we're found at fault because the product is defective, our position is that the manufacturer is responsible," said Kenneth Hardt, the attorney for Venture Supply Inc. and Porter-Blaine Corp., the now-defunct Norfolk firms that imported and installed some of the drywall in homes in the region.

Serving the Chinese manufacturer in the local lawsuits requires translating the documents into Mandarin and traveling to China to deliver them, an expensive process that can take months.

The lawsuits in Hampton Roads also hinge on whether the New Orleans judge decides U.S. courts have jurisdiction over Taishan.

"Part of the key here is pulling the Chinese money into a national settlement program," Serpe said.

Serpe said he wants the lawsuits against Taishan to eventually result in a settlement to help make local homeowners whole.

A similar program is taking shape for hundreds of homeowners outside Hampton Roads whose properties were built with drywall made by Knauf Plasterboard Tianjin Co. Ltd., a Chinese subsidiary of a German building materials company.

"This process has been murder to these victims," Serpe said. "It's gone on far too long already."

For months, Nguyen, 42, held out hope that she could keep her home until attorneys for homeowners, builders, suppliers and manufacturers reached a resolution. She continued to pay her mortgage, depleting her savings. Her family eventually bought a second home and persuaded the lender to offer a forbearance on mortgage payments for her home built with the drywall.

The stay-at-home mother has turned the situation into something of a crusade. During the past two years, Nguyen has held a rally on the steps of congressional office buildings in Washington and petitioned elected officials to put pressure on the Chinese government, which apparently owns the company that made the drywall used in local homes. She has lost count of the number of times she's met with local members of Congress and the state legislature.

While some elected officials have helped homeowners work with their mortgage companies to put off home payments, Nguyen said the overall response from the government has been inadequate.

"We feel like we're at everybody's mercy," she said. "We thought that the government should step in and help. I feel like they've turned their backs on us."

By last fall, she said, she realized that it would be years - not months - before she might see any money to fix the home. She put the property on the market for $650,000 - a little more than half of what it cost her.

Last week, Nguyen received an offer on her home for $400,000 - about $150,000 less than she owes on her mortgage. She plans to send the offer to the bank to approve the short sale.

"We've tried everything," she said. "I just want to move on. I'm never going to live in that house again."

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com