suing, shaming + publicizing your problems / a fraught cost-benefit analysis

rocks + hard places
If I hadn’t gotten distracted on Tuesday by other recent news and expanded a draft post into the politics, wisdom or inanity of airing dirty linen about your coop or condo, I would have focused on the interesting choice made by one Brooklyn condo’s decision to very publicly fight with their developer, then made some general points using that condo’s choice as the factual context. But that June 1 post had three examples to work with about New York real estate, not just the one I started with.

Here’s what I said on June 1, in summarizing the condo’s choice:

once you’ve already sued, it shouldn’t get worse

This condo board already sued the developer, in the course of which making very specific allegations about horrific conditions in the building. That was the Rubicon Moment, the point at which the condo board decided it was better to sue and to generate publicity that every potential buyer would see, than to negotiate less publicly.

For more details, read

the November 2007 complaint

filed in Kings County Supreme Court, but here is the summary allegation:

The next 69 paragraphs in the complaint detail these allegations, including that

and

pardon me for yelling, but
I HAVE NO SPECIFIC INFORMATION ABOUT THIS bold CONDO AND AM ONLY USING THIS bold CONDO AS A FACT-SCENARIO FOR A MORE GENERAL DISCUSSION. Got that? Now … where was I …?

It is difficult for me to imagine a scenario in which a potential legal claim against a developer by a new-ish condominium would not be automatically disclosable to all bidders. So once you get to the point of a board discussing structural problems and/or problems with the developer ("no less than 40 units have leaks…"), chances are very good (a) the discussions will appear in board minutes, and/or (b) the issues will be red-flagged in some other way for any buyer attorney doing due diligence. Not to mention, the issues may also be fodder for discussion among Real Estate Spectators on sites like Curbed, Brownstoner or StreetEasy.

the difference between protecting unit owners and protecting unit value
It would be unusual if some unit owners in that building were not more concerned with their resale value than with the prospect of holding the developer responsible by repairs by launching a potentially expensive litigation. (With 168 units, there are always some unit owners interested in selling soon; others may simply have a short-term orientation.) Indeed, even in this kind of situation (with "dire" building conditions), there must have been a growing awareness of (a) the scope of the problems and (b) the possibility of effective legal redress, even among the owners most interested in long-term value.

I am not going to SHOUT again about not having information about this specific building, but this scenario is ripe for unit owners shouting at each other, as awareness about the extent of the problems increase and natural differences of opinion are expressed about remedies.

good claims vs. recovering money
There is a sense in which it simply does not matter if (a) you have terrific legal claims and (b) compelling proof to support your claims, because sometimes The Bad Guys don’t have any money and there are no deep pockets to be found. This is another point about which — in any particular situation, as with this condo — reasonable people can disagree about the efficacy of investing in a lawsuit. This analysis can be difficult even for a professionally managed for-profit business with easy access to trusted professional advice; in the case of a condo board of new unit owners who hardly know each other, and who all have day jobs, this analysis is exponentially more difficult.

paging Mel Brooks
In broad terms, the scenario of new unit owners collectively bitching and moaning about things the developer didn’t do, or did poorly, is pretty common. So at some level, at least some of the unit owners are likely to look at a growing list of problems as a typical situation that is likely to be resolved through typical condo-developer give-and-take. Realistically, it is the unit owners with specific very local problems (such as water damage) that are likely to have higher levels of anxiety, and to get higher earlier.

Put yourself in their shoes…. All but the most curmudgeonly are very excited to be in a "brand new" condo in a new neighborhood. When you start to hear your new neighbors complain about structural problems, some people likely thought we’ve got some real whiners here, others probably were grateful (I am glad I don’t have problems in my unit), some started to worry immediately about their investment (if I sell now maybe I can get someone else to take on this risk), while some unit owners were actual Chicken Littles (something did land ‘on my head’) while other Chicken Littles were merely hysterical.

All of this is percolating with a condo board composed (probably) of some representatives of the developer and unit owners who were largely unknown to their neighbors but who volunteered. Even among the unit owner members of the condo board, it can be difficult to build mutual confidence under stress. And this is a lot of stress.

back to the beginning
The step that made the splash in the news last week was the condo board going public with a website designed to shame the developer into being more accommodating, a website marketed in English, Russian and Hebrew to literally bring shame down on the schmuck’s head. As I have said, that step should have zero additional impact on resale value, given that all the laundry has been aired publicly for years.

Indeed, in comments on Brownstowner.com, the (official?) strategy is outlined:

[Developer] may not be active in the US at the moment, but he still has strong business interests in Israel, where he and his companies are raising money and building residential units. We are working with partners in Israel (in Hebrew and Russian) to make sure our message reaches all possible constituents.

In other words, the theory is that the PR  and resale damage has already been inflicted, and the condo board appears to be confident that they have a good story to tell about the "massive remediation project, overseen by Rand Engineering".

So the (new) website brings attention to their (old) problems, while also giving them a chance to (try to) bring some moral suasion down on The Bad Guy’s head and to change the narrative to possibly attract new buyers (who would improve market values).

The narrative at the time of the lawsuit was a tough one: abused condo owners battle developer because of shoddy construction. The condo owners were losers in that narrative. The new narrative: intrepid condo owners near completion of a massive remediation project, while continuing to call down wrath on the head of their [insert Bad Word here] developer.

The real story here might be that the condo owners are now playing offense, whether or not the (meritorious) lawsuit stands little prospect of generating real money. If the condo board can sell prospective buyers on that narrative, they will have accomplished a lot. Not to mention, there is some psychic benefit in being able to shame your adversary in three languages.

Fun stuff!

© Sandy Mattingly 2010