Portland condo buyers win $2.3 million salve

Oregonian
Portland, Oregon
Tuesday, August 19, 2008
BY JEFF MANNING

Owners of Northwest Portland's Hilltop Condominiums at Uptown have won $2.3 million in their long legal battle against prominent local developer Marty Kehoe.

Multnomah County Circuit Judge Judith Matarazzo found Friday that Kehoe's company, Uptown Heights Condominiums LLC, was negligent and that it breached its contract to repair some of the decks at the 108-unit complex.

Matarazzo also ruled that Kehoe's company breached its fiduciary duty of loyalty to the buyers of the units. The judge determined that neither Kehoe nor any of his companies committed fraud, as had been alleged by the plaintiffs. The plaintiffs were seeking as much as $7 million.

The $2.3 million will not cover full repair costs at the buildings, which suffer from a variety of moisture-related problems, an attorney for the condo owners said. "The homeowners are left holding the bag here," said Dean Aldrich, the Portland lawyer who represented them. "It will probably take $2.5 million to repair the decks alone and more than $5 million to do the whole thing."

Kehoe said the ruling was a huge victory for him and an enormous loss for the homeowners. "The result of the lawsuit must be devastating for homeowners up there," Kehoe said. "They were able to prove just a fraction of the repairs they alleged were needed to the court."

The Hilltop condo suit, filed in July 2006, is one of hundreds of complaints filed by homeowners in and around Portland in recent years. Shoddy construction, sensitive new building materials and tighter energy efficiency requirements created a generation of buildings vulnerable to moisture damage.

In response to the growing problem, the Oregon Legislature in 2006 passed legislation aimed at protecting homeowners and toughening education requirements for builders.

Kehoe is among the builders and developers who argue that the construction defect phenomenon is a myth created by plaintiffs' lawyers like Aldrich.

Kehoe bought the 108-unit complex in 2004 for $15.3 million and immediately converted the units from apartments to condominiums.

Originally built as apartments in 1990 on a steep hillside above Northwest 23rd Avenue, many of the units boast striking Mount Hood views. Kehoe sold them for prices ranging from $162,900 to $315,000.

Before Kehoe converted the units, the apartments underwent a series of repairs to address various water intrusion issues. Some of the repairs were big, including replacing much of the exterior siding.

The homeowners alleged that a Kehoe disclosure statement provided to prospective buyers stated that the siding and structural plywood, lumber and framing were in good shape and would last for "life," according to the complaint.

But the new owners quickly complained about leaky windows, poorly draining decks and other issues. In May 2006, they hired a consultant to evaluate the building. The consultant reported that "the entire exterior building envelope . . . was in the process of complete failure and had caused extensive property damage," according to the complaint.

Kehoe insists he never misled anyone. He does admit that his companies promised to repair some decks at the building and never followed through.

A disclaimer issued by Kehoe's company to Hilltop homebuyers loomed large in the case. It warned homeowners of some prior issues at the building, and it released all contractors who ever worked on the building from legal liability.

"The disclaimer got everyone else out of the case," Aldrich said. By the end, the sole defendant was Uptown Heights Condominiums, the limited liability company formed by Kehoe to buy and convert the Hilltop condos.

Even though they got less than they hoped for, Aldrich said his clients were happy to win the judgment. "The (condo) owners view this as some relief and some degree of vindication," he said.

Kehoe's insurance company, Farmers, is on the hook to provide the $2.3 million, Kehoe said. He said he doesn't know whether the insurer will appeal the ruling.