This was their dream...this is their reality

What lies beneath The Venetian, a multi-million dollar condo conversion,

has become a nightmare for some homeowners. How did this happen?

Article Courtesy of Jacksonville Times Union

By ALISON TRINIDAD 

Published Sunday, July 16, 2006

 

After spending months looking for a second home, Kathy Rogers and Pat Harris left St. Petersburg and bought a $342,000 condo and boat slip on the Ortega River in December 2004.

The home -- part of a 37-year-old apartment complex that was converted and sold for luxury condominium living from 2003 to 2005 -- faces a lagoon that runs into the river, where sunsets color the water shades of peach and coral.

At the time, their dream purchase seemed like a bargain. It wasn't long before it became a nightmare.

Rogers and Harris live in one of the 137 units at The Venetian, just off Timuquana Road at 5375 Ortega Farms Blvd. For nearly six months, homeowners at the multimillion-dollar conversion have come home to overflowing tubs and toilets, leaking roofs and falling patios -- a $5 million problem, they contend, because of shoddy construction work by Jacksonville-based Montecito Property Co.

The beautiful setting of The Venetian condominiums

and marina on the Ortega River in Jacksonville

 

Officials from Montecito, last year's No. 2 condo converter in the U.S based on acquisition volume, say they are not at fault for the problems. And, legally, they argue that they have no obligation to repair them. Yet in a lawsuit filed against the developer, roofers claim that the project's managers rushed work through and did not heed their recommendations. And area plumbers involved with the conversion, the first such project for Montecito, say that they warned the developer that problems would arise at the aging complex. They say the company just didn't listen.

  

By law, anyone selling a house must disclose any known defects of the house that are not easily seen by a prospective buyer, said Missy Turra, a partner at Holland & Knight who specializes in real estate law but is not involved in Montecito litigation.

But because condo converters are not required to inspect under the foundation of a piece of property before selling, it is difficult to pinpoint who is to blame.

All the same, several residents have had to tear out their floors, mop up feces and been left homeless.

The problems lurking inside the conversion property, like crumbling walls, rusted pipes and water bubbling from the sewer into the bathtubs, according to homeowners, who say the problems are causing big headaches -- and some have sued.

After a series of complaints -- unanswered for so long that individual homeowners have filed suit against Montecito -- the developer, this month, made an undisclosed offer to the homeowners association to settle the problem out of court.

Homeowners are hopeful that the settlement will keep them from paying thousands of dollars for repairs. But even if the settlement covers the cost to fix the condominium's problems, they say there is no way to compensate for the months of stress, heartache and inconvenience that they have endured.

"I paid what I consider top dollar based on the market [in 2004]," Rogers said. "What I got was a rehab project and both emotional and financial hardships."

Stench of sewage

Upon first glance, The Venetian looks like a resort community, with palm trees and a glistening marina. Rainbows of potted plants line some back porches while residents lounge near a bright blue swimming pool. But on closer inspection, it is evident that paint has chipped away from styrofoam wall decorations, sliding screen doors are off track and the irrigation system is malfunctioning. In some units, clogged-up sinks have fallen from counters and mold has multiplied on walls. Portions of the roof have fallen to the ground, a pergola above the clubhouse collapsed Memorial Day weekend and

Several residents of The Venetian walked around the property on June 7 pointing out problems. Here resident Pat Harris shows where caulking material was used to secure a post that held up a pergola over the clubhouse. The pergola collapsed Memorial Day weekend.

there is a 2-square-foot hole in the floor of the common laundry area covered by a wooden plank.

The stench of sewage is distinct upon entering the complex.

Sewage backups are common, evidenced by the line of plumbers and drain cleaners who have been called to the condominium complex before, during and after renovation.

Settlement announced

Early last month, nine homeowners showed the problems occurring in their homes and throughout the complex to the Times-Union. Since then, two have declined to be named because they say they fear retribution or denial of repair by Montecito. The homeowners association, which has dealt with the brunt of the problems and the cost to fix them, had been negotiating with Montecito to pay for the repairs for at least three months, to no avail. Its members say they have put off taking the case to court, worried that a lawsuit would further delay repairs, preclude sales of units or stop mortgages from being issued.

Montecito denies stalling the agreement. Company president Campbell Fraser said Montecito was waiting for the homeowners association to determine the cost of repair, a figure that he said it received only two weeks ago.

"We have done everything in our power to move this forward," Fraser said. "It's not that we were dragging our feet. We have got to reach an overarching agreement. I hope you don't think that we've been insensitive to what they've been going through."

 Ruth Budjak shows mold and water damage in her unit at The Venetian on the Ortega River and some of the partial repairs made.

Fraser, Rogers and Cindi Boudreaux, the company's director of marketing, sat down with the Times-Union on July 6 to discuss the issues at The Venetian. They announced that morning, alongside the president and vice president of the homeowners association, that the two parties had reached an agreement.

 

Homeowners still have to vote on that settlement, so the three Montecito employees declined to provide the date Montecito first received complaint. Nevertheless, homeowners and contractors have filed at least seven individual lawsuits concerning The Venetian against Montecito, and others are pending. Montecito is hoping a settlement will resolve those individual issues.

 

'Sold us a bum rap'

Numerous homeowners say both Montecito and the property's manager have handled the situation poorly and accuse them of slow response times and lack of communication. They say construction defects listed by some homeowners on their final walk-throughs either were unsatisfactorily repaired or have yet to be done. In another lawsuit, investors say Montecito has failed to come through on a promise to build additional boat slips at the complex. And, less than a year after the homeowners association took control of the property, the $127,500 reserved to repair common area plumbing systems has nearly been depleted, homeowners say.

 When the floor in Ruth Budjak's unit in The Venetian was opened for a closer inspection of the pipes on Thursday, a newer PVC pipe was found connected to old cast iron pipes. The Venetian's developer Montecito and the homeowners association announced an agreement to settle over numerous owner complaints.

"What am I supposed to do?" said Tim Steele, a homeowner at The Venetian whose toilets have dumped sewage into the unit at least twice since Memorial Day weekend. "Montecito has basically sold us a bum rap. Why would you buy a piece of property if you can't use your toilet?"

A history of mishaps

Previously known as the Hidden Harbor Apartments, The Venetian's buildings suffered from plumbing problems as far back as 2003, according to property reviews posted by former tenants on Web sites that allow residents to rate and review their complexes. However, while anyone selling a house must disclose, by law, any known hidden defects of the house, sellers of commercial property do not. That means the apartments' previous owners were not required to disclose plumbing problems to Montecito even if they knew about them.

Neither Montecito's president, who was hired to supervise the company's daily operations in January, not its legal counsel or marketing director could personally verify the conditions of the buildings when they were purchased or during their renovation. All started working for the company after construction of The Venetian had begun. Chip Conk, founder and CEO of Montecito, did not return a call to his office or cell phone seeking comment.

According to city files, however, The Venetian has had a history of mishaps, beginning with unpermitted construction. In June 2004, city inspectors found that the private-party inspector hired to conduct the building inspections on the project was rubber-stamping work that did not meet building code. Montecito officials who met with the Times-Union said they were not aware that happened. City building inspection records show that the city stopped work on the project until the appropriate permits were issued. That month, general contractors on the project changed hands, bumping up the estimated construction cost from $892,500 to $2.46 million.

In the end, the work passed muster and city inspectors signed off on the project.

Tenants and, later, homeowners filed a litany of complaints with the city against the developer, from loud all-hour construction work to the plumbing failures. In a few instances, the developer was fined. And, in others, code violations were not found. Two complaints also were filed against the condominium with the state Department of Business and Professional Regulation, claiming that there was a failure to disclose water and plumbing problems. Those complaints did not fall under state jurisdiction and were diverted back to the city, DBPR spokesman Thomas Butler said.

In March, Montecito filed a lawsuit against two Texas roofers it said it hired to replace the roofs at The Venetian. In its complaint, Montecito claims the roofs are defective and are suing to have them fixed. In June, the roofers hit the developer with a counter-suit, alleging that Montecito ignored their recommendations and moved equipment (including air-conditioning units) after the roof was installed -- alterations, they say, that caused the defects and voided any warranties.

Jay Jason, an on-site sales agent at The Venetian in 2004, caught wind of new homeowners' complaints -- from toilet problems to irrigation issues -- even before he left the project. Jason, who still sells real estate in the area, said all but five of the units at the condominium were sold before his contract with Montecito ended in 2005. He said he was not asked to renew that contract.

"I haven't a good thing to say about Montecito," Jason said. "Nobody made it through that whole site. They fired everybody, including me. ... No one knew what was really going on."

Clean bill of health

Montecito bought the roughly four-acre parcel in November 2003 for $11.1 million, according to public records.

Whether Montecito could have foreseen the extent of the roofing or plumbing problems is debatable. Condo converters are required, by law, to disclose the condition of the building and estimate the cost to replace certain components, like plumbing, roofing and electrical systems. The report, prepared by professional architects and engineers, also calculates how much life is left in each individual system.

Asset Advisory Services, Inc., an Atlanta-based real estate consultant with nine offices across the country, gave The Venetian a clean bill of health in January 2004. It put the plumbing system's remaining life at 16 years and assumed that the new roofs would be installed in sound condition. According to its report filed with the state, Asset Advisory did not inspect behind the walls or beneath the foundation of the building, nor was it required to. And it reported that the plumbing system was "in functionally sound condition."

"We had to rely on that," said Bill Rogers, Montecito's general counsel.

"As did the buyers," Fraser added.

But Mark Gallagher, owner of All Hours Plumbing of Amelia Inc. in Fernandina Beach, said that any plumber worth his salt would have seen the potential for problems after looking at the corroded pipes running above the slab. Gallagher, who established his business in March 2004, worked on site as a subcontractor during The Venetian's renovation, begun in late 2003. The faulty pipes were exposed, and replaced, during construction, Gallagher said. He said the poor condition of the pipes above the building slab were indicative of the pipes below, but the developer did not authorize the plumbers to inspect beneath the slab at the time.

Because he was a subcontractor on the project, Gallagher said he did not bring his concerns to the developer at the time.

Rogers and Fraser at Montecito said they did not know Gallagher had worked on the project, although All Hours Plumbing of Amelia has pulled at least three city permits to replace pipes at The Venetian since then.

"In my professional opinion, looking at the pipes in the wall ... it all needed to be replaced at that time," Gallagher said.

Speed, location, pricing

Montecito bills itself as "the official home of the American dream," experiencing a meteoric rise from novice condominium investors in 2003 to become the second-largest condo converter in the U.S. in 2004 and 2005, as calculated by real estate industry guide Real Capital Analytics. It has projects in Arizona, California, Florida, Georgia and the Carolinas.

But Fraser, Montecito's president, makes clear that the condo converter is not a construction company.

"We are an investment company," Fraser said.

According to a statement by Bruce Taylor, a partner at Montecito, the company's business model is based on speed, location and pricing below the market average. The company focuses on entering cities where people would want to live but cannot afford to do so. Montecito buys the property, adds luxury amenities like resort-like landscaping and sells them as quickly as possible.

Some optimism

Homeowners at The Venetian, many of whom are investors, are expected to vote on the settlement negotiated between the homeowner association and Montecito staff. Many are optimistic that, once the problems are fixed, the property will recoup its value.

"It's a pretty nice condo," said Mandarin resident James Anderson, who bought a unit at The Venetian in April 2005 for $159,900. A first-time investor, Anderson planned to either rent or sell the unit -- right now, he can't do either: As Anderson was showing the property to a potential buyer earlier this year, the bathtub filled with sewage.

"If we could get the sewers repaired, it'll be a neat place," Anderson said. "It's one thing to have a luxury condo, but if you can't flush your commode, you can't live there."

Fraser said Montecito's principals are eager to fix the problems at The Venetian. He said that of all the times problems have surfaced at any of the company's projects, Montecito's principals have taken the high road.

"Every single time, they've pulled out the checkbook," Fraser said. "I don't regard this project [The Venetian] as a failure. It would only be a failure if we didn't step up to the mark and fix it.

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