HOA Nut House

Washington Business Journal - by Melissa Castro Staff Reporter

As the sun set over Potomac Yard on Nov. 7, owners at The Eclipse condominium community came home to an unpleasant surprise.

Nearly three-quarters of the units had a two-inch-thick stack of legal papers on their doorsteps, notifying the owners that every one of them was being pulled into a lawsuit between their developer and the construction company that built the 465-unit project just south of Reagan National Airport.

The owners’ predicament is just one more wave in the economic undertow that has swept up banks, developers, builders and homeowners alike. For the owners — some of whom took a risk in buying a unit in a troubled building in the first place — the lawsuit was yet another setback.

“Honest to God, I thought it was a joke,” said John Gould, a 40-year-old defense contractor. “But we think a lot of things in life are a joke that can still come back to bite us.”

The underlying dispute between Comstock Potomac Yard LC and Balfour Beatty Construction LLC is a messy one, involving years of delay and confusion.

Balfour was the general contractor on The Eclipse on Center Park, a $93 million project won by Balfour’s predecessor, Centex Construction Inc. The building was slated to deliver at the end of 2006, but design changes and problems with materials and permits delayed the project for nearly two years.

In the meantime, at least 123 Eclipse buyers backed out of their contracts in 2007, and Comstock is still trying to sell 105 remaining units, often at a discount. Already, two buyers have gone into foreclosure, according to land records.

In July, Comstock Potomac Yard failed to pay a $19,000 bill from Balfour Beatty.

When Balfour heard that Comstock’s parent company, Reston-based Comstock Homebuilding Cos. Inc., had defaulted on a number of loans across the country, it decided to play it safe. Balfour slapped $552,176 in mechanic’s liens on The Eclipse in July, despite the builder’s agreement — in writing — not to do so, according to court documents.

In September, the Comstock unit sued Balfour for breaching the agreement not to put a lien the property, for failing to fix defective work and for late delivery. The developer is seeking nearly $14 million in damages.

“Because of the failure of Balfour Beatty to stand behind their work, Comstock has been forced to commit significant resources to complete the project and has been working diligently to attend to customer service,” said Comstock Homebuilding’s chief executive officer, Christopher Clemente, in an e-mail.

Not so, says Balfour.

“This company stands behind its work and — until we exercised our contractual right to stop work because we weren’t being paid — we were correcting any punch list items that were our responsibility,” said David Hodnett, Balfour’s vice president and chief legal officer for the Washington division of the Dallas-based company.

Balfour claims its agreement not to put a lien the property came with strings attached: It would refrain from placing liens as long as Comstock put $1.3 million in escrow to cover its claims. With Comstock’s parent company losing nearly $100 million since the beginning of 2007, spare change may have been hard to come by.

Balfour filed its own claims against Comstock, seeking about $3.5 million for delays it blames on Comstock.

Balfour also sued The Eclipse’s 360 unit owners to enforce the mechanic’s lien. The move was proper under Virginia’s muscular mechanic’s lien law, which gives those liens priority over mortgage debt and allows contractors to force sales to collect payment. But it hardly sat well with The Eclipse’s owners.

“Why should we have to pay for something we had nothing to do with,” Gould said. “It’s like walking into the mall at Tysons and somebody saying you’re under arrest because you were here the day something was stolen.”

Comstock has retained counsel for the unit owners’ association but hasn’t yet turned over control of the association. As a result, owners are in a quandary. Do they accept the free lawyer and the potential conflict of interest that comes with it? Do they hire an attorney as a group? Or do they each hire their own lawyer, even though the advice may cost more than the mechanic’s lien liability?

A few owners have retained Rees Broome PC, a Tysons Corner real estate law firm that has represented condo associations in disputes with their developers.

With the economy sinking, the firm is in demand: “This is the third mechanic’s lien I’ve had against a community association since September,” said partner Todd Sinkins.

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