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Lead Lawsuits Push Firm to Bankruptcy

Tuesday, September 17, 2013

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Soaring legal expenses from more than 70 active lead-paint cases and previous judgments have driven a large affordable-housing management business in Maryland to file for bankruptcy.

City Homes Inc., and its subsidiaries, which own more than 320 units of affordable housing in Baltimore City, filed for Chapter 11 protection Sept. 10 in U.S. Bankruptcy Court for the District of Maryland in Baltimore.

City Homes
City Homes Inc.

City Homes is a nonprofit company created in 1986 to develop and manage affortable rental housing for low-income families in Baltimore. The company filed for Chapter 11 Bankruptcy protection on Sept. 11.

In filing Chapter 11 under the U.S. Bankruptcy Code, the nonprofit company is attempting to reorganize debts in order to maintain operation.

The court documents indicate the company has between $1 million and $10 million in debts.

Previous Lead Cases

Previous legal judgments in lead paint cases against City Homes include a  $2.5 million verdict in 2009 and a $5.1 million judgment that was later reduced to $1.25 million, according to reports.

In the 2009 case, the city sided with a mother who had been told that the City Homes’ rowhouse she rented for four years in the early 1990s had been “lead safe,” according to The Baltimore Sun.  

Her children, Dantae Wallace, then 20, and Searra Wallace, then 17, suffer from permanent behavioral and cognitive disabilities that stem in part from the lead-based paint exposure in the row house, the report said, citing medical experts.

Operating Losses

In the bankruptcy filing, City Homes’ president Barry Mankowitz, said the struggling property management company, which was founded in 1986, had “performed well” up until 2010.

Specifically, he said that in 2011 and 2012, the company had consolidated operating losses of $783,000 and $431,238, respectively.

Lead Suits 'Dramatically Escalated'

“In recent years, lead paint litigation suits brought by current and former tenants have dramatically escalated, and there are now more than 70 active cases against the companies, and many more are anticipated,” he wrote.

lead based paint
EPA

The company says it is now defending against more than 70 active lead-based paint cases and anticipates seeing many more.

Mankowitz also said his company had been unable to purchase additional rental properties.

“The growing volume of pending lead-related lawsuits also places a pall on [City Homes’] ability to obtain financing,” the president said.

In the filling, the president cited a court ruling by Maryland’s highest court as the reason it anticipated the additional  litigation.

Court Rule Increases Exposure

A Maryland Court of Appeals decision from October 2011 “greatly increased the likelihood” of additional lead lawsuits for the City Homes, he said.

In Jackson v. Dackman Company, the court struck down an “immunity provision” in Maryland’s lead law, "The 1994 Reduction of Lead Risk in Housing Act." The provision had limited landlords’ liability to $17,000 if they otherwise complied with the law, he noted.

In addition, City Homes has liability insurance covering incidents of alleged exposure up to August 1999. Since then, the company and all other rental property owners in Baltimore have been unsuccessful in obtaining liability insurance that covers full lead-related coverage, Mankowitz said.

The company filed a number of first-day motions concurrently with the Chapter 11 filing in order to continue the company’s business operations without interruption and to approve on an interim basis the use of cash collateral, among other goals.

About City Homes

City Homes calls itself a "model landlord" and a “recognized leader in Baltimore as a provider of decent, low-cost housing,” on its website.  

The company offers 1,2, 3, 4, and 5 bedroom apartments and single-family row homes throughout Baltimore.

Approximately 18 percent of City Homes’ residents receive Section 8 subsidies, according to Mankowitz.

   

Tagged categories: Building owners; Business matters; Health and safety; Lawsuits; Lead; Lead; Regulations

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