City Homes files for bankruptcy protection

Facing a flurry of lead paint lawsuits, a nonprofit company that provides affordable housing in Baltimore has filed for Chapter 11 bankruptcy protection.

City Homes Inc. and its subsidiaries, which operate more than 300 apartment units in what officials deem "troubled neighborhoods," face more than 70 lead paint lawsuits, according to the filing in U.S. District Court in Baltimore. In Chapter 11 bankruptcy filings, businesses attempt to reorganize their debts in an effort to continue operating.


"In recent years, lead paint litigation suits brought by current and former tenants have dramatically escalated, and there are now more than 70 active cases against the companies, and many more are anticipated," wrote company president Barry Mankowitz in the bankruptcy filing. "This has increased the companies' legal expenses and contributed to operating losses."

The company indicated in its filing that it has between $1 million and $10 million in debts.

Founded in the 1986, City Homes was in strong financial standing until recent years, Mankowitz wrote. After 2010, the company began experiencing operating loses. In 2011 and 2012, City Homes and its subsidiaries had consolidated operating losses of $783,000 and $431,238 respectively.

The lead paint litigation pinched the company's finances, but cash flow also was hurt by "increasing costs of operating the companies' aging rental units and slower rent increases in the mostly troubled neighborhoods in which the companies' units are located," the filing states.

In 2009, the company lost a multimillion-dollar lawsuit. A city jury awarded more than $2.5 million to a pair of siblings who were poisoned by lead-based paint while living in a West Baltimore rowhouse that their mother had been told was "lead safe." Dontae Wallace, then 20, and Searra Wallace, then 17, have permanent cognitive and behavioral disabilities that stem in part from being exposed to lead paint in the house their family rented from City Homes for four years in the early 1990s, medical experts said in court.

Company officials worried they would be sued even more frequently after a 2011 ruling by Maryland's highest court, Mankowitz wrote.

That year, the Court of Appeals struck down a key provision of state law that shielded owners of older rental housing from civil lawsuits — and potentially costly payments to victims — if they took precautions to protect children in their units from lead-paint poisoning. In a 7-0 ruling, the court declared that the 1994 lead-poisoning law violated the state's Constitution by denying a day in court to victims of the once-widespread problem.

In his filing, Mankowitz wrote that the "immunity provision" had limited landlords' liability to $17,000 if they complied with the 1994 Reduction of Lead Risk in Housing Act.

"This decision greatly increased the likelihood of additional lawsuits against the companies that allege exposure to lead substances, even though the companies continue to comply with the 1994 law," he wrote.

Mankowitz described the company as a "model landlord" that provides "modest" but "better maintained" apartment units than other affordable housing complexes in Baltimore. About 18 percent of City Homes' residents receive Section 8 subsidies, a government program that provides housing vouchers for the poor, he wrote.