Builders' past raises questions


In the basement cafeteria of Anne Arundel Medical Center last week, Milton Schneiderman showed Annapolis residents colorful sketches of the upscale 130-home community he wants to bring to the heart of the state capital.

Called a "once-in-a-century opportunity" by city residents and officials, the Acton's Landing complex of condominium apartments, townhouses and single-family homes -- some to be priced at more than $500,000 -- would replace the hospital when it relocates this fall. It will be the first major residential development in the historic district in decades.

As residents questioned Schneiderman about a proposed park, environmental protections and parking, he reassured them: "There is no question in my mind that we are going to satisfy our most ardent opponents."

What was never discussed at that community meeting -- or at other public meetings in the 16 months since the hospital chose Virginia-based Madison Homes to redevelop the site -- is the background of the project's key players: Schneiderman and the company's president, Russell S. Rosenberger Jr. Over the past 10 years, their residential construction record has been marred by financial problems, multimillion-dollar lawsuits and disrupted lives.

According to public records, court documents and interviews:

Their former development company and Schneiderman himself were hit with a $6.7 million judgment in 1994 in a Maryland lawsuit after condominium owners at Bentley Place in Rockville complained of poor construction.

At their company's Cedar Lakes development in Fairfax County, Va., mold growing in the walls forced residents to abandon some units. A $1 million lawsuit first filed in 1997 by the condominium association is pending.

The company faced multimillion-dollar lawsuits brought in the early '90s by condominium owners alleging extensive construction flaws at Bridgeport in Laurel and The Vineyards in Silver Spring.

Schneiderman is ridding himself of $39 million in debt from previous business deals through a 1999 personal bankruptcy filing in Washington. Under the settlement, to be paid out this year, creditors will get less than a penny on the dollar.

Rosenberger surrendered his law license during a 1983 investigation by the Virginia State Bar. In an unrelated civil action, a judge said in 1985 that he committed fraud in an Alexandria, Va., condominium deal.

Rosenberger and Schneiderman say they have learned from their mistakes and call past problems "irrelevant" because a different corporate entity, the Milton Co., was involved.

"We know we don't want to repeat those mistakes," Rosenberger says.

"We are older; we are wiser," says Schneiderman. "Madison Homes has a very good reputation. It has a reputation of a quality builder, a builder that does what they say they are going to do and gets the work accomplished in good order."

The developers hold up two new Northern Virginia communities, Portner's Landing and McLean Village, as examples of the quality of Madison's work. Hospital and Annapolis officials toured those developments.

Schneiderman and Rosenberger blame the Milton Co.'s problems on the recession of the early 1990s and too little supervision of subcontractors. Madison Homes has more secure financial underpinnings, plans more thorough inspections and demands performance bonds from subcontractors to meet lender requirements, Schneiderman says.

Hospital officials who chose Madison Homes from among a dozen applicants say they were largely unaware of Rosenberger's and Schneiderman's past until questioned recently by The Sun.

"I'm concerned any time any company that the hospital is associated with is involved in any litigation," says Dennis Curl, the hospital's vice president for property development. "But the important point to us was that the project that they proposed was the best project for this community."

Curl, who says it was his responsibility to research Madison Homes, says the hospital knew nothing of the developers' previous company when they were chosen for the 4.5-acre Annapolis site. He has heard rumblings in recent months about a suit against their previous company, but he remains impressed by their Madison Homes projects.

"What we are comfortable with is that the lessons that were learned back then have been applied to making them a better quality developer and someone that is going to deliver what we want to see left behind," Curl says. "We will stand in support of Madison Homes."

Law license revoked

Schneiderman and Rosenberger met more than 20 years ago. Schneiderman founded the Milton Co. in 1976, and Rosenberger, a partner in a Virginia law firm, handled legal work for the Northern Virginia homebuilder.

They have been building together since 1983, the year Rosenberger surrendered his law license amid what he describes as "disputes with my old law firm."

The Virginia State Bar had accused him of dipping into his former firm's trust accounts to pay clients whose cases he allegedly mishandled. According to court documents he signed, Rosenberger acknowledged tapping the trust accounts, and he turned over $90,000, personal property and investments to the firm. The Supreme Court of Virginia revoked his law license Jan. 10, 1984.

By then, Rosenberger was embroiled in lawsuits resulting from earlier legal work for another developer. Condominium owners at the Sentinel at Landmark in Alexandria sued Rosenberger, the developer and real estate agents, claiming that buyers were shown one set of public offering statements and that Rosenberger filed another -- favoring the developer -- with state regulators. Among the issues: ownership of common space and the number of units to be owner-occupied.

After a lengthy civil trial, an Alexandria Circuit Court judge found May 10, 1985, that Rosenberger had committed fraud.

"Obviously I would disagree with that," Rosenberger says of the finding, adding that he will not prepare the legal documents for Acton's Landing.

The court ordered Rosenberger, Sentinel's developer, his former law firm and another lawyer to buy back the condominiums and assume the plaintiffs' mortgages, at a price of more than $1 million. Schneiderman, Rosenberger's new boss, stepped in as a repurchaser, taking title to some units.

'We are in deep trouble'

By the late 1980s, the Milton Co. had grown into one of the Washington area's most prolific homebuilders. It turned out about 800 homes a year worth about $125 million. Rosenberger had become its president; Schneiderman its chairman.

About that time, the Milton Co. began several Maryland condominium projects whose construction defects would hound the developers for years and contribute to the company's demise.

At Bridgeport in Laurel, Bentley Place in Rockville and The Vineyards in Silver Spring, residents describe attractive condos beset by poor construction and chronic water leaks through roofs, chimneys and doors.

"I went to my homeowners and said, 'We are in deep trouble,'" recalls Andrew Miller, property manager for Bridgeport, which was completed in mid-1990.

One night in January 1991, fire sprinkler pipes froze and burst, Miller says, costing the Bridgeport condominium association more than a half-million dollars. Homeowners also found that balconies were improperly built, that some siding fell off and that the land was poorly graded, according to Miller and a 1991 lawsuit.

The 243 condominium owners sought $4.4 million in their suit against the Milton Co., alleging that the development was "inherently dangerous, unsafe, hazardous and unfit for its intended use as a residential condominium."

Three years later, they settled for $125,000 from the company and its subcontractors. The city of Laurel also gave Bridgeport homeowners about $150,000 from the developer's municipal bonds, Miller says. Although the money did not begin to cover the costs of repairs, residents had decided that they could not afford a lengthy court battle, he says.

At The Vineyards, the condominium association claimed similar defects. The Milton Co. left roads unfinished and grounds littered from construction, says Deborah Stevenson, a nurse who was then president of The Vineyards' association. It sued for $2 million in August 1992. The next summer, it settled for less than $100,000.

"Most of the homeowners are very bitter," says Stevenson, who hasn't used the master bathroom shower in the 12 years she has lived there because similar tile enclosures in the complex have leaked.

Steps from her four-poster bed, a windowsill behind a lace curtain is rotting away.

"We would have liked to go after Milton better, but we couldn't do it," she says. "So we just lick our wounds and move on."

Costly, incomplete repairs

At Bentley Place, where condominium units cost nearly twice what they did at the other two developments, owners sued in October 1991 for $2.75 million.

"Our goal is 'zero-defects,'" a company ad for the new community read. But residents say things soon went wrong.

"I knew I was in trouble when I moved in and the door lock didn't work," says Bruce Hoffmeister, a lawyer who was president of the Bentley Place condominium association at the time.

One night in January 1994, he awoke to the sound of water. "I remember thinking, 'Please, let it be rain.' But I knew it wasn't," he says.

A sprinkler pipe had burst, flooding his guest bedroom with what he estimates was 1,000 gallons of water, sending him to a motel for three months while his carpet and walls were replaced by the association. Similar incidents throughout the community in the early 1990s cost homeowners thousands of dollars in repairs, says Hoffmeister, who sold his unit at a loss last month.

Jane Hynok, who still lives at Bentley Place, remembers the day 10 years ago when she put her black Labrador in the shower. When the dog got in, one wall of the shower collapsed, she says. She still battles a leak over the sliding glass doors in the living room, a common complaint.

Architect Robert Davidson of Davidson & Associates Construction Analysts, did a survey of Bentley Place in 1993 for residents. He says that problems there were more extensive than at any other project he has seen in 21 years of business.

"The [original] work was done by unqualified people who did not know or perhaps did not care about the workmanship of their trades," he says. "They were going against building codes left and right. The project also seemed to lack proper supervision."

Rosenberger says lawsuits against developers are common.

"During any project there are going to be concerns or complaints -- that's the nature of homebuilding," he says.

The Milton Co. could not reach an acceptable settlement with the Bentley Place condominium association, he said. Instead, the case went to trial.

In 1994, a Montgomery County Circuit Court jury awarded Bentley Place owners $6.7 million. It found Schneiderman personally responsible for about $1.1 million for promises in sales brochures and the company accountable for the rest.

Upheld on appeal in 1999, the verdict empowered condominium associations statewide, bolstering their right to bring claims based on warranties and defects in individual units. For the first time, a jury awarded condominium owners compensation under the state's Consumer Protection Act, allowing an award for attorneys' fees and litigation costs as well as for damages.

"It is one of the landmark cases against a developer," says Barry L. Steelman of Baltimore, the homeowners' lawyer. "I consider the Bentley Place case to be a major step in protecting not only homeowner rights but consumer rights in Maryland."

In Bentley's wake, land-use lawyers changed the way they advised their clients. Among other things, they recommended being more responsive to customer complaints, says Roger D. Winston, a partner in Linowes & Blocher, the law firm that weighed in on the case on behalf of an industry association.

Bentley Place owners got nearly $4 million of the judgment, including about $1.3 million from subcontractors pursued by the Milton Co.

To date, they have spent about $3 million for repairs, still incomplete after a decade.

'The man with no title'

Schneiderman blames a souring economy for many of his company's problems. Amid a recession, banks called in loans and refused to extend more. Many properties were worth less than the loans financing them. As a high-volume builder -- often without partners -- the Milton Co. was hit hard, he says.

"It really ran out of money," he explains, noting that every segment of the industry was squeezed. He also blames a lack of supervision and the workmanship of subcontractors, whom the Milton Co. sued in the condominium cases.

Once the Washington area's eighth-largest homebuilder, the Milton Co. was effectively out of business by mid-1992. But Schneiderman and Rosenberger were not.

The two had already founded Madison Homes and Madison Residential Development Co. They salvaged a few Milton projects, mostly with what Schneiderman says was his wife's money.

But the Virginia State Board of Contractors didn't buy the separation of Milton and Madison, and refused to license the new company with Schneiderman at its helm. "They wanted to ensure that it was not just the Milton Co. in another form," Rosenberger says.

Schneiderman vanished from Madison's executive roster in 1993, becoming, in his words, "the man with no title." Rosenberger became the sole director, allowing Madison to win its Virginia license. But Schneiderman remains a key player, supervising projects, designing new ones, and meeting with local officials and lenders. In the Annapolis development, for example, he says he is project director.

Schneiderman's wife, Karen, a lawyer, owns 50 percent of Madison. His son, Doug, is vice president. Rosenberger owns 10 percent, and his wife, Ellen, owns 40 percent.

Among the projects that straddled Milton and Madison was the 48-unit Cedar Lakes complex in Fairfax County, Va. As Rosenberger and Schneiderman battled lawsuits against the Milton Co. in Maryland, across the Potomac they marketed Cedar Lakes under the Madison Homes name.

But the water problems followed them, and soon the new condos sprouted mold.

Mold within the walls

Shirley O'Dell called it the "Great Sleeping Sickness."

Shortly after moving into a new two-bedroom Cedar Lakes unit in January 1993, she and her husband, Robert, complained of exhaustion, nausea, numbness, breathing problems, skin rashes, vision problems, memory loss and flu-like ailments, according to news reports at the time.

Other condominium owners also reported illnesses. Among them were tenants living in three units bought by the Fairfax County housing department to shelter needy families. Environmental tests commissioned by the O'Dells and Fairfax County found Stachybotrys atra, sometimes called the "deadly black mold," among other molds growing within the walls of the building and the O'Dells' unit.

Dr. Ruth Etzel, a mold expert and public health professor at George Washington University, says some studies have linked Stachybotrys atra to acute lung bleeding and sudden death in infants. Doctors also have reported a host of symptoms, including neurological and immune system damage in some adults, she says. The federal Centers for Disease Control and Prevention has not determined whether that mold is more dangerous than any other.

The housing department quickly evacuated the families living in its units, says Mary Ellen Bayer, a former nurse who was then a development officer with the agency.

"The situation was catastrophic," Bayer recalls. Mold in the O'Dells' unit was so severe that she could smell it and see it growing on the walls, she says. A year after moving in, the O'Dells abandoned their condominium.

Rosenberger says there is no evidence that the mold sickened anyone.

But in February 1995, he signed an agreement with the condominium association to fix construction problems and abate the mold. A year later, the O'Dells sued; the association followed with a $1 million suit in May 1997 to enforce Rosenberger's earlier agreement.

Two years after the O'Dells filed their lawsuit, they reached a settlement. The case was sealed with an agreement that the parties not discuss it. Shirley and Robert O'Dell, now 56 and 62, respectively, declined to comment for this article.

Rosenberger says they reached a settlement "in the thousands" and took back the O'Dells' unit.

Less than three months later, the couple filed for bankruptcy. According to their April 24, 1998, petition in U.S. Bankruptcy Court in Alexandria, they had paid their attorney $135,000 and received $13,900 in settlement proceeds.

With assets of about $32,000, the couple claimed about $234,000 in liabilities, including $19,000 in medical bills, $50,000 in outstanding legal bills and almost $100,000 in credit card debts incurred during the lawsuit.

The housing department had moved tenants back into its three units by September. The O'Dells' former residence remains vacant, but Rosenberger says he hopes to rent it soon.

Rosenberger and Schneiderman say that Madison has eliminated the mold and that only balcony repairs remain. But the Cedar Lakes condominium association's $1 million lawsuit is pending.

Cedar Lakes was the last condominium development Schneiderman and Rosenberger built until Portner's Landing, an Alexandria project that sold out last year. They have not built any condominium units since. In between, they turned to developing suburban townhouses and single-family homes.

'A beauty contest'

Anne Arundel Medical Center announced in 1997 that it was vacating the downtown site it occupied for almost a century in favor of a new campus near Annapolis Mall.

In February 1999, hospital officials solicited proposals for redeveloping its property.

A dozen developers vied for the site in what Schneiderman described as "a beauty contest," and by June, the hospital had narrowed the field to four. Three months later, the board chose Madison Homes over the Holladay Group of Washington; Struever Bros., Eccles and Rouse; and a limited partnership between former Baltimore mayoral candidate David F. Tufaro and Toll Bros. Inc. Terms of Madison's sales agreement are confidential.

Acton's Landing, a $50 million to $60 million development, is set to include 59 condos, 39 units for people at least 62 years old, 18 townhouses and 14 single-family homes. Rosenberger expects that the condos will start in the $300,000s, townhouses in the $400,000s and single-family homes in the $500,000s.

Annapolis officials expect that Acton's Landing will add an estimated $400,000 a year to city tax rolls and boost the sagging downtown population. The first major residential development downtown in decades, the project has drawn about 200 potential buyers.

But even as Madison prepared its plan for the site, the ghost of the Milton Co. haunted Schneiderman. He owed nearly $40 million in Milton Co. debts that he had personally guaranteed.

"My intention was to pay it," Schneiderman says, adding that he had made some payments over the years.

A month after Chase Manhattan Bank won a judgment against him for nearly $10 million, Schneiderman filed for bankruptcy in Washington. In his March 1999 petition, Schneiderman listed debts owed to 16 creditors.

Though he has the responsibility of an executive at Madison, his annual salary plummeted from $206,088 in 1994 to less than $10,000 in 1996 -- and has remained at that level.

He and his wife live in a house worth about $700,000 in Northwest Washington's Foxhall neighborhood. Among assets listed in the bankruptcy was a painting by Auguste Rodin that Schneiderman valued at nearly $90,000.

The Madison companies, the Foxhall Crescent home, the $2.8 million proceeds from the sale of the couple's former residence in Washington and their $1 million Rehoboth beach house are in Karen Schneiderman's name. Milton Schneiderman had less than $500 in the bank, according to his 1999 petition.

Chase Manhattan Bank, Schneiderman's largest creditor, tried to recover some of its loss through Madison Residential. Alleging that Schneiderman's low salary was a ploy to evade creditors, the bank tried to garnishee Madison's treasury.

Schneiderman told the court that his low wage was a bid to save his wife money because she was funding the company. The judge rejected the bank's move last fall.

Chase Manhattan and other creditors will share a settlement of about $152,000 to be distributed this year.

Two investor-partners

Schneiderman calls his personal guarantee of the Milton Co. debts a mistake, one of several he and Rosenberger made and say they have learned from.

"Madison Homes is not the Milton Co.," Schneiderman says. "We don't think that what happened at the Milton Co. should besmirch the reputation of Madison Homes."

In its nine years, Madison Homes has built 400 to 500 homes in about 20 developments in Northern Virginia and Montgomery County. To ensure quality work, Rosenberger says, the company includes inspections by consultants during construction.

They also have changed the way they finance projects. Schneiderman says the company will be more secure in the event of another economic downturn.

On the Annapolis project, they have two investor-partners. Madison Homes is the managing partner of Annapolis MPK Ventures LLC, the corporation that will own and develop the property. The investors are David Pensky, a founder of the Britches clothing group and part-time city resident, and Robert Keats of Potomac, a former developer and financier.

Keats has been pleased with his other Madison Homes investments and "is incredibly careful of who he picks as a partner," says his attorney, Marc Wertheimer.

Pensky, a longtime friend of Schneiderman's who has invested in several Madison projects over the past eight years, says he did not know about the Milton Co.'s legal problems.

"All of my dealings with them have been straightforward and more than satisfactory," he says of Rosenberger and Schneiderman. "I think they will do a great job developing this property."

Demolition of the hospital is expected to begin this fall. Construction of the project should take two years, Rosenberger says.

Hearings before the city planning commission could begin as soon as next month.

"I think that we have demonstrated our ability to do a project of this type, and I know we can do a project of this type," Rosenberger says. "We intend to do it in Annapolis."

Sun staff writer Sarah Koenig contributed to this article.

The spelling of C. William Struever has been corrected for the archive database. See microfilm for original story.
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