Arbitrator to resolve dispute over repairs at condominium

The owners of the Towsongate condominium complex want their water leaks repaired.

And, they want developer Lawrence Rachuba or the companies he hired to build and design the condos to repair them.


The council of unit owners at Towsongate filed a $12 million suit in 1988 against Rachuba; the project's general contractor, Maryland Commercial Contracting Corp. and the architect, Cochran Stephenson & Donkervoet Inc.

Since then, the two sides have been disputing whether the matter should be heard by a jury or be subject to binding arbitration.


But the condo owners' legal action was put on hold when Rachuba filed for bankruptcy. In fact, Rachuba has been faced with a number of problems with his development activities. He no longer is running two of his most notable projects -- the Sheraton Towson hotel and Baltimore Travel Plaza.

Rachuba and his wife, Diane, on July 18 filed for protection from creditors under Chapter 11 of the Federal Bankruptcy Act. Rachuba Enterprises Inc. filed for Chapter 11 the same day. The Rachubas listed REI's assets at about $42 million and liabilities at $41.9 million.

Recently, after two years of legal battles, U.S. Bankruptcy Judge James F. Schneider ruled that Rachuba and the condo owners will have to arbitrate their differences.

That decision has disappointed attorneys for the condo owners.

"In arbitration, you tend to get compromises that you might not get with a jury," said David Freishtat, who is representing the condo owners. "I have little doubt there will be an award but the issue will be the amount of the award."

Freishtat estimates it will cost between $7.5 million and $8 million to correct the problems.

Paul Grimm, an attorney representing Rachuba, said whether defects exist at Towsongate will be left up to arbitration. "However, when the issues are complex, the only fair way of determining who is responsible is arbitration," he said.

Freishtat alleges that, from day one, more than half of the upscale, mid-rise condo units have had a multitude of problems.


The condos, located off Fairmount Avenue across from the Towsontown Center, were developed three years ago by Rachuba and consist of three buildings with 144 units. The condo units were priced from $95,000 to $123,000.

Condo owners have had to deal with severe water leaks when it rains, and a variety of serious design and construction defects and deficiencies, the suit says.

Freishtat said patchwork repairs have been made in an effort to correct the construction problems but inevitably they would reoccur.

According to the lawsuit filed in the Circuit Court for Baltimore County, "the defects and deficiencies result from improper and deficient design, construction, materials and workmanship, all of which fail to meet industry standards."

Specifically, the defects include water that builds up around the solaria frames and glass panels causing leaks into the units, water buildup around air conditioning and heating systems, substandard sewer lines, cracking bricks and mortar and leaks in the roof, the court documents state.

Freishtat said the owners are hoping to get the money with which to correct the construction problems from a number of insurance policies worth about $10 million. Otherwise, the owners will have to wait in line with the rest of the unsecured creditors for any monetary remedy.


Grimm said it is not clear if any of the problems are covered by the insurance policies held by Rachuba, the general contractor and several subcontractors. The policies include a performance bond, commercial general liability coverage and a builder's risk policy.

The order to arbitrate with the Towsongate condo owners is yet another development in the troubles plaguing Rachuba, whose development projects began to crumble when the real estate market fell into a slump.

DeChiaro Limited Partnership, a family trust Rachuba operated, is trying to distance itself from his financial troubles.

Last spring, Rachuba resigned as general partner of the trust, which was created to benefit Rachuba's wife, her sisters Carol rTC Scheffenacker and Roberta Hucek, and the grandchildren of Ralph and Dorothy DeChiaro.

Three months ago, DeChiaro began proceedings to force two Rachuba projects -- the Baltimore Travel Plaza Limited Partnership and the Virginia Travel Plaza Limited Partnership -- into bankruptcy.

Recently BHCS Corp., a new corporate general partnership headed by Scheffenacker and Hucek, was formed to replace Rachuba and operate the plazas until a buyer can be found.


Tom Rafferty, an attorney representing the new partnership, said contracts to sell the assets of the plazas are currently being negotiated.

Meanwhile, the Sheraton Towson hotel has been placed in receivership after a partnership led by Rachuba fell behind on the payments on a loan of more than $50 million.

Raymond C. Nichols, chief executive of Atlantic Auctions Inc. of Baltimore, has been appointed to oversee the hotel, which he said is operating normally.

Nichols also runs Banking Services Corp. and BSC Financial Group, which do asset management and liquidations.