Milwaukee, WI
By A.B. Dada
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So I ran up to Milwaukee today to see something I didn’t believe when I heard it — that some new homes may not really be all that wonderful to live in. I wish I could take pictures or give an address, but the homeowner is hoping for a lawsuit of some kind to get a resolution.
A friend of a friend who bought a new house in late 2004 is having some problems — his house is falling apart, literally. When his new roof started leaking (this fall), he called in the manufacturer for a claim. The 20 year+ warranties on roofs are interesting because they leave exits for the manufacturer to walk away from the warranty. In his case, the manufacturer said the fault was with the installer, and that they should have bonding insurance to cover the problem.
Upon calling the installer (a subcontractor of the general contractor/builder), the homeowner discovered that the subcontractor was gone, bankrupt this fall when too many payments weren’t made by the general contractor. Since the builder had a 7 year warranty, the builder was called — and he was told that the builder is in the process of filing bankruptcy. Do a search on Midwest builders in bankruptcy and I’m sure you’ll find who it is.
The homeowner’s insurance company was the last resort — they came in and discovered that the roof gave up because of termite damage. The wood used to frame the house was treated lumber, specifically designed to repel termites and water damage and the rest. Unfortunately for this homeowner, the treated lumber wasn’t properly treated. From my Google searches o the subject, it looks like many homeowners might end up with the same problem.
When wood is treated, it is usually done in a process that includes a long-term drying time. The wood must be totally dry in order to be properly installed. Wood left outside at a lumber yard for months goes through its own drying process, beyond the mechanical drying that occurs after the lumber is cut and formed. This type of wood that has been “sitting around” for months is usually some of the best wood to use for building a home.
The Wisconsin area that this housing development was built in was in an area that was already booming before the housing bubble really took off — Milwaukee was actually seeing an influx of families from other Midwestern states. The taxes in Wisconsin are kinder than Illinois, so the growth was expected.
The problem that this home faced is that the wood used, while treated, was never given the time to properly air dry and become a safe product for a house. When builders get busy, they buy up lumber to secure the price. Lumber prices started to move up with the decreased supply and increased demand, so some large builders bought a LOT of lumber, especially in the 2004-2005 building seasons. The side effect of this increased buying means less wood was sitting on the lumber yards, getting the nice air-drying treatment. This means that some lumber was rushed to the jobsite, and may have gone in “wet” even though it seemed perfectly fine.
I’m not sure of the actual physics involved in the treatment of wood, but it seems that treated wood falls apart if it is installed wet and the moisture still left attracts the pests that love tasty wet wood. Overtime, it seems that the treated wood is tastier for the pests than untreated wood that is dried properly.
This homeowner is lucky, because the insurance company will likely pay him out for his roof. But his worries don’t end there — the wood used for his roof was also the wood used for his foundation support, his walls, and his flooring. When the insurance company adjuster came to look at the roof, he warned him to have the rest of his home checked. This weekend is when he checked it out, and when my friend called to tell me about the inspection. I didn’t believe him because I was “duped” as well by the industry that tells us that treated means treated.
Upon the secondary inspection, they did discover that the wood in the floors and the foundation support was lacking in performance. While the termites hadn’t attacked it (thankfully), there was some rot that appeared that looked to be 10 years worth of damage — in wood that was barely 2 years since installation. The guy had spent almost half a million on a home that might be worthless in under a decade, total.
I’ve been performing some google searches, hoping to find similar stories, but none are really surfacing. I’m sure there are stories out there, waiting for the lawsuits to be filed so they can be told. From the person I talked to today (in the insurance industry), he said this is fairly common during housing booms — and that the insurance company is left holding the bag because there is no one to sue to receive compensation for the errors in the building process.
Every day that I receive e-mails from friends with homes is another day that I’m glad that I’m trailer trash with cash. I honestly could walk away from my home and be out only a few months of pay — if that. My available cash is significant compared to the average 37-year mortgage holder (who refinances at least twice). I could probably retire 20 years sooner with smaller paychecks and more in the end.
I have many friends who bought new developments in my area in recent years, even up until this summer. Many of them were tight at 33% gross income to mortgage ratio, but they needed ARMs to get into the houses because of the increased speculative demand — even in the Midwest! Now those resetting ARMs are putting them in harm’s way: the housing prices are coming down, equity is near zero with all the HELOCs, and people are getting scared. I’d be there, too, if I still had my big old house with the 3 extra bedrooms and full finished basement.
At least Starbucks is still hiring in the Milwaukee region.
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