Chinese Drywall

This article by Bob Massey of www.TheAgentMagnet.com.

Chinese drywall is the latest homeowner nightmare in communities that experienced rapid construction following the hurricane seasons of 2004 and 2005.  The Consumer Product Safety Commission has estimated that almost 7 million sheets of drywall was imported from China to the United States during 2006 and during that year and 2007 thousands of new homes in at least 27 states and the District of Columbia were built using this product.

States that seem to be most affected by this problem are Florida, Louisiana and Virginia, but any community that saw heavy development in 2006 and 2007 could be impacted.  New homes completed during 2006 and 2007 are, of course, also prime targets for being under water with the mortgage, and Investors working these newer construction areas will very likely run in to homes where Chinese drywall could be an issue.

Thus far, the CPSC has received 1501 complaints of fast-corroding metal and electrical components, as well as some human health concerns, from what is suspected to be radioactive phosphogypsum in some imported drywall.  This wallboard may also emit sulphur.

The CPSC to date has made field trips to China, visited mines and factories where this product is made and taken samples both in China and from complaining homeowners in several states.  The Florida Department of Health and the EPA National Air and Radiation Environmental Laboratory have tested the drywall samples for the radioactive material, and fortunately, no radiation at levels capable of harming humans has been found. The CPSC continues to investigate health concerns, but, to date, no direct link to the Chinese drywall has been found for the reported instances of dry and itchy eyes, asthma and other respiratory symptoms.

Structurally, the concerns that are being investigated, according to the CSPC report include:

• “Electrical components including residential wiring, receptacles, switches, circuit breakers, panel boards, ground fault circuit interrupters (GFCIs), and arc fault circuit interrupters (AFCIs).Possible concerns with electrical components include:
  • Deterioration of connections such as where a wire is connected to a receptacle or where a circuit breaker is installed in a panel board. A degraded connection could develop hot spots resulting in overheating and possibly fire.
  • Erosion of copper conductors over time, reducing conductor cross-sectional area and compromising its physical integrity. If the corrosion is progressively eating away at a wire, the wire would eventually lose its capacity to carry current and start to overheat or become physically weak and break.
  • Damage to circuit traces or electronic components on printed circuit boards causing failure of protective devices like GFCIs, arc-fault circuit interrupters, and smoke alarms, which can present shock and fire hazards from the loss of protection provided by these devices.
• Gas service components including flexible connectors and copper piping. The concern is that potential gas leakage due to corrosive pitting of piping could present a fire or explosion hazard.
• Fire safety components including smoke alarms and fire sprinklers. For smoke alarms, potential concerns include damage to electronic circuitry and degradation of the sensor. Either condition could result in an inoperable smoke alarm. For fire sprinklers that use metallic fusible elements, potential concerns are that corrosion may adversely affect activation temperatures. Failures of these devices can put consumers at risk.”

Check out the CSPC Drywall Information Center for examples of what to look for to determine whether the home you are considering for purchase has Chinese drywall.  There is no definitive test as of yet to determine the presence of harmful elements in drywall.  You can look for evidence of corrosion around receptacles and other metal items, failure of copper piping in air conditioning units, and possibly a smell similar to rotten eggs coming from the drywall.  “Made in China” will appear on the back, unexposed side of the drywall.

Perhaps simplest would be to locate the builder and ask for a listing of materials used.  In some communities local real estate agents, building departments and builder associations may have lists of builders who have used Chinese drywall.  In some cases these builders may have set aside funds to fix the problems of affected homes.

Certainly, many Investors will want to avoid knowingly putting a home with a Chinese drywall problem under contract.  It may be difficult to sell this structure, particularly if you are looking for a retail buyer.

On the other hand, some more experienced Investors may view this problem as an opportunity.  After all, it is one more reason why the lender is going to want to offer a steep discount to get rid of this property, and many rehabbers will be eager to snap up homes with this type of problem to fix up and advertise as a completely remodeled home for resale or rental.

Each person’s disaster is another person’s opportunity.

The jury still seems to be out on how serious this problem actually is, and the courts will probably be judging class action suits against distributors and builders using Chinese drywall for years to come.

If you are experienced enough to know what you are dealing with and have solid repair cost estimates, the Chinese drywall problem may turn into a silver lining instead of a headache.

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