New article from The Sacramento Bee:

In January 2006, first-time homebuyer Lavender Lee was overjoyed to buy a $155,000 condo in Folsom’s newly remodeled Waterford Place.

Then, within months, she discovered her neighbors talking about water and mold damage.

“I was devastated,” she said. “I couldn’t think of any way to get out of it.”

Wednesday, four years later, Lee found her exit. A Sacramento arbitrator freed her from her mortgage, part of a $5 million ruling against a Bay Area developer alleged to have sold water-damaged condos to Lee and 23 others in 2006.

Arbitrator Ernest A. Long ordered Redwood City-based Prometheus Real Estate Group to reimburse Lee, too, for $20,300 in mortgage payments already made. In all, Long ordered the developer to repay 24 buyers $1.7 million for mortgage payments made since 2006 and take over $3 million in payments they still owe on Waterford condos.

Folsom attorney John Miller, Jr., who represented buyers in the case, said many moved out within months of closing escrow and were afraid to rent their units because of potential liability over water and mold conditions. Several lost their condos to foreclosure. Values of all the units fell sharply, Miller said.

The binding arbitration process, agreed to by Miller and Prometheus as an alternative to court, provides a rare look at mold and water damage cases in which large legal settlements usually remain confidential. The order also highlights the troubled aftermath of a condo conversion craze that swept Sacramento just as the housing market began to collapse in 2006.

Waterford’s owners sold about 40 condos before suspending sales in May 2006. The clean, fresh-painted and well-landscaped community near Folsom Premium Outlets has since been almost entirely tenant-focused. Waterford renters aren’t affected by Long’s ruling, Miller said Wednesday.

“At least there is some remedy for the public,” said Betsy Sullivan, who with her husband, Michael, will get back $202,000 they paid for a Waterford condo in May 2006. The two helped lead organizing that started the case. “Just because they’re builders and developers doesn’t mean they can cheat people,” she said.

Long, in an 83-page document issued under auspices of Sacramento Superior Court, ruled that Prometheus “negligently failed to disclose and fraudulently concealed information” from buyers about water damage at the 324-unit condo conversion project.

Prometheus bought the former Lakeridge Apartments in early 2005 and did a $9 million upgrade before marketing condos. But Long ruled that previous water intrusion conditions were painted over. That prevented “reasonable visual inspection,” he stated, and kept buyers from knowing the true condition of their units.

Sacramento-based attorneys for Prometheus did not return two telephone calls Wednesday. Nor did company representatives in Redwood City. But Long’s ruling noted arguments by Prometheus that “it cannot be held liable for fraud because it did not know that the conditions affecting the Lakeridge Apartments were not cured by the ($9 million) renovation.”

Miller warned buyers that it might take time to receive the money. He said Prometheus has 10 days in which to challenge the arbitrator’s ruling or ask that it be overturned.

Condo buyer Gaspar Silanos said Wednesday that Waterford “was the third and last condo I’ll ever own. Now I’d like to buy a house without a homeowners association.”

Call The Bee’s Jim Wasserman, (916) 321-1102. Read his blog on real estate, Home Front, at www.sacbee.com/homefront

Read more: http://www.sacbee.com/2010/06/10/2811712/folsom-condo-buyers-win-ruling.html#ixzz0qUQbo1ma