Chinese Drywall Answers

More details have emerged regarding the Chinese drywall settlement that was announced yesterday. The settlement, which involves Knauf Plasterboard Tianjin Co., sets up a pilot program in which Knauf and other named defendants will pay to remediate 300 homes in Florida, Mississippi, Alabama and Louisiana.

If the Chinese drywall remediation program is successful, it could pave the way for a global settlement of many of the Chinese drywall claims now pending in the massive litigation underway in New Orleans. Thousands of homes could ultimately be eligible for the program. …

A major Chinese drywall settlement was announced today in the New Orleans federal court where litigation involving the defective wallboard has been consolidated. Under the settlement, Knauf Plasterboard Tianjin Co., a major Chinese drywall manufacturer, as well as suppliers, builders and insurers, will foot the bill to fix hundreds of homes in four states.

The settlement agreement establishes a pilot remediation program, the purpose of which is to establish a model for resolution for Chinese drywall problems. It could be a first step toward a global settlement of the drywall issue. The remediation protocol for the program was developed by U.S. District Court Judge Eldon E. Fallon, who is presiding over the litigation in New Orleans. Part of the pilot program’s goal will be to determine just how much implementing the protocol would cost when applied to several hundred actual homes. …

The Internal Revenue Service (IRS) is trying to provide some relief to homeowners plagued by corrosive Chinese drywall.  Issued last week, Revenue Procedure 2010-36 enables affected taxpayers to treat damages from corrosive drywall installed in homes between 2001 and 2009 as a casualty loss and provides a ”safe harbor” formula for determining the amount of the loss.

Since late 2008, the US Consumer Products Safety Commission (CPSC) has received more than 3,500 reports from residents in 38 states, the District of Columbia, and Puerto Rico regarding defective Chinese drywall. 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.  <!–more–>

According to a statement from the IRS, Revenue Procedure 2010-36 provides the following relief:

<blockquote>•    Individuals who pay to repair damage to their personal residences or household appliances resulting from corrosive drywall may treat the amount paid as a casualty loss in the year of payment.
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<blockquote>•    Taxpayers who have already filed their income tax return for the year of payment generally have three years to file an amended return and claim the deduction.
</blockquote>

<blockquote>•    The amount of a loss that may be claimed depends on whether the taxpayer has a pending claim for reimbursement (or intends to pursue reimbursement) of the loss through property insurance, litigation or otherwise.
</blockquote>

<blockquote>•    In cases where a taxpayer does not have a pending claim for reimbursement, the taxpayer may claim as a loss all unreimbursed amounts paid during the taxable year to repair damage to the taxpayer’s personal residence and household appliances resulting from corrosive drywall.
</blockquote>

<blockquote>•    If a taxpayer does have a pending claim (or intends to pursue reimbursement), a taxpayer may claim a loss for 75 percent of the unreimbursed amount paid during the taxable year to repair damage to the taxpayer’s personal residence and household appliances that resulted from corrosive drywall.
</blockquote>

A taxpayer who has been fully reimbursed before filing a return for the year the loss was sustained may not claim a loss. A taxpayer who has a pending claim for reimbursement (or intends to pursue reimbursement) may have income or an additional deduction in subsequent taxable years depending on the actual amount of reimbursement received.

For purposes of this revenue procedure, the term “corrosive drywall” means drywall that is identified as problem drywall under the two step identification method published by the CPSC and the Department of Housing and Urban Development in their interim guidance dated January 28, 2010, the IRS said.

Following the deaths of ten children, the US Consumer Product Safety Commission (CPSC) is conducting tests at Fort Bragg, said WRAL. The agency is testing homes where infants have died to ascertain if defective drywall is the problem. CPSC is spearheading the nationwide probe into defective Chinese drywall cases.

In all, ten children have died at the military homes, one an eight-month-old baby and the other, two years old, said WRAL. The children all died since 2007 and two took place in the same home and during three months in 2009, added WRAL. …

At least 70 Habitat for Humanity homes in New Orleans are slated to be gutted because they were built with defective Chinese drywall.  According to a ProPublica report, Habitat is still running tests on more than 300 homes the group built in the wake of Hurricane Katrina, so the number of homes scheduled for remediation could climb.

Earlier this year, the Sarasota-Herald Tribune, in cooperation with ProPublica, reported that Habitat built more than 200 homes with Chinese drywall in the hurricane-ravaged city and then ignored homeowners’ complaints about it. Most of the Habitat houses raising concerns are located in the Musicians Village, a development built to help bring musicians back to the city after the hurricane.  Some homeowners complained of problems that have been linked to the tainted drywall, including failed appliances and electronics to corroded metals and jewelry, as well as respiratory and other health issues possibly linked to drywall fumes.<!–more–>

For its part, Habitat denied that Chinese drywall was causing problems in any of its New Orleans homes.  According to ProPublica, the nonprofit continued using Chinese drywall in its houses long after news of its defects had spread throughout the nation and long after most builders had stopped using it.

Habitat didn’t start testing 280 homes it believes it built with Chinese drywall until ProPublica and the Sarasota-Herald Tribune began covering homeowners’ complaints.

Now ProPublica is reporting that Habitat began notifying homeowners last month that it will gut the affected homes and move the residents into apartment complexes where they can live rent-free until the construction is finished. Habitat will also pay to store their possessions.

At least one homeowner, however, told ProPublica that he has lost faith in Habitat and doesn’t trust its offer to remediate his home. Instead, he wants Habitat to buy it back.  That individual has filed a lawsuit in Orleans Parish court, seeking to recover the $75,000 he paid for his home.

Habitat homeowners whose houses have been declared safe from drywall problems are also complaining about their treatment, ProPublica said.  Some of these homeowners say air-conditioning coils and electrical sockets that were clear when Habitat inspected them in July are now turning black.  So far, Habitat has not offered to re-inspect those homes.