‘Rotting from the inside:’ Fast-growing Philly developer accused of defective building

Megan Murray felt happy when she bought her condo in Kensington. She loved the walkable, up-and-coming neighborhood and was proud she could afford a $320,000 new construction home with high-end finishes.

She wasn’t too worried, at first, that the neighbor in the condo next door said there had been flooding in her building before she moved in. Or that puddles somehow kept appearing in her basement-level living room and bedrooms when it rained. She figured that her warranty from Streamline, the company that had sold her the condo, would cover any repairs.

Streamline, which bills itself as the biggest home builder in Philadelphia, tried a few different fixes, but the water kept reappearing whenever it rained, Murray said. Workers sent by the company sealed a window with epoxy, fixed the exterior flashing, and cut grooves into the window well, she said.

“They came out seven different times, tried multiple things, never got it right, never fixed it,” said Murray, who closed on the condo in 2017.

Things went from bad to much worse in August 2018. A rainstorm hit, and dirty black water bubbled up out of her shower and toilet, covering her floors a few inches deep. The sewer water stained the walls, damaged the floor, and ruined furniture worth thousands of dollars.

She discovered that Streamline had declined to spend about $300 to put in a backflow preventer, a device that keeps sewer water from backing up into home plumbing. Installing one now would cost thousands of dollars.

In addition, workers who removed a section of stained drywall exposed a 6-foot-long crack across the foundation. Finally, she understood the cause of her mysterious puddles. “Every time it rained, water was pouring out,” Murray said. “The cement was actually crumbling, so you could fit your whole hand in there in some of the places.”

But by the time she discovered the crack, her one-year warranty had expired. Streamline refused to fix the foundation. The sewer backups too were not the company’s issue, they said.  City regulations had not required installation of a backflow preventer, company officials told Murray. The brand-new Streamline condo had turned into a source of misery.

“Everything they do is to cut corners,” she said. “They were out to make money just as fast as they could, as quick as they could, and didn’t care about what would happen.”

Murray’s woes echo the experiences of more than 20 Streamline buyers around Philadelphia who have defects in their homes, most of them related to water infiltration. In interviews and lawsuits, the residents describe water-stained ceilings, moldy walls, bursting pipes, leaky roofs and windows, inadequate stucco, and various other construction flaws that plague homes marketed to them as low-maintenance new construction.

Philadelphia’s Department of Licenses and Inspections has received complaints from Streamline homeowners and is investigating several Streamline projects for possible code violations, a spokeswoman said. The state Attorney General’s Office has also received a complaint about the company, a spokesman said. Details of the complaints were not available.

Homeowners allege in lawsuits, online forums and in conversation that Streamline doesn’t reliably or sufficiently respond to warranty claims. The company refuses to address hidden defects that only become evident after warranties expire, even those caused by shoddy construction, homeowners say.

The company’s sale agreements also often include arbitration clauses that make it difficult for buyers to recover repair costs and damages through the courts.

“You had families, successful doctors, people just starting out, teachers, people that are just excited about the layout of the house and the granite countertops. The last thing they’re thinking about: Is there water inside the walls?” said Jennifer Horn, a construction attorney who represents several Streamline buyers. “The Streamline houses are young houses that are literally rotting from the inside out.”

A history of complaints

Philadelphians may know Streamline from extensive media coverage of the 2018 stabbing death of co-founder Sean Schellenger in Rittenhouse Square. The company itself was in the news last year for destabilizing the historic Edward Corner building on Delaware Avenue, which led Licenses & Inspections Commissioner David Perri to sue Streamline and call its renovation efforts “incompetent.” Neighbors have also criticized the company for a planned development that will displace a Vietnamese shopping mall in South Philadelphia and for proposing a large apartment building next to Edward Corner that some say would be too imposing for the neighborhood.

Streamline acknowledged receiving a list of questions from PlanPhilly but declined to comment.

Schellenger and his business partner Mike Stillwell founded the company in 2008. Schellenger served as the CEO and Streamline’s public face, while Stillwell became COO, overseeing construction and other divisions. The young company earned notice from Philadelphia Business Journal in 2013 as the fastest-growing privately owned firm in the city.  By 2017, Streamline was marketing itself as a booming business building more than 250 homes a year. Today, it describes itself as the largest residential developer within Philadelphia, with plans to expand nationally.

In interviews before his death, Schellenger touted Streamline as more than just another local home builder. He said the company was more efficient because it handled the whole development process, from buying and demolishing a property to constructing new houses and marketing them. Streamline also sometimes serves as a general contractor, building condos and single-family homes for other property owners.

The company calls itself “tech-enabled,” because prospective buyers can view floor plans and interior finish options using virtual-reality goggles. It claims to work in the public interest, with the goal of turning blighted land into “equal opportunity housing that will revitalize our urban communities, eradicate crime, and improve economic circumstances.” To give back to impoverished neighborhoods Streamline targeted for redevelopment, Schellenger started a charity called Helping Hands that holds Easter Egg hunts and gives out Thanksgiving turkeys in Point Breeze and Kensington.

But as it ramped up its housing production, the firm also began accumulating complaints about its construction practices, both from neighbors of its projects and buyers of its homes.

In 2014, Streamline workers at a project on North 19th Street allegedly damaged a neighboring property, resulting in a $30,000 arbitration decision for a neighbor, according to court records. A resident of Bouvier Street sued for $50,000 over damage from Streamline construction next door, and a homeowner on North 20th Street sued for $10,000. Both eventually settled their cases.

Josh and Melissa Stolle bought their Streamline house on North Leithgow Street in Kensington in 2015. They planned to raise their two young children there. The Stolles thought purchasing new construction meant fewer worries about upkeep, but they soon began noticing roof leaks, which Streamline unsuccessfully tried to fix, the couple said.

Black and green mold appeared on the bathroom and closet ceilings, in the master bedroom and a child’s bedroom, in a hallway, and on the roof, according to their subsequent lawsuit. Clothing was destroyed, insects infested the house, and the hardwood floors swelled with moisture and exploded, the Stolles said, according to court filings.

When mold grows to cover an area larger than one square foot, it releases proteins into the air that can create allergies when inhaled, said physician Marilyn Howarth, an occupational medicine expert at the University of Pennsylvania’s Center of Excellence in Environmental Toxicology. It can be addressed only by drying out affected areas and cleaning or removing moldy materials, which can be “extremely costly,” Howarth said.

“It is a problem that is quite prevalent in Philadelphia’s poor neighborhoods, but it can happen anywhere and does happen in office settings as well as affluent neighborhoods if people don’t recognize the need to immediately dry poor substrates like carpets or walls,” Howarth said.

An inspector hired by the Stolles found that their home was “rife with construction defects and code violations that were causing structural damage and massive infiltration,” their lawsuit says. The building envelope was totally inadequate, with flashings that sent water into the walls instead of away from it, stucco thinner than required by building codes, and a lack of openings to let moisture out at the bottom of stucco walls, the inspection found. Water was running down inside the walls, rotting out the wood and insulation.

Streamline had taken out the permits to build the house and marketed it to the Stolles. But in court filings, the company has denied responsibility and tried to shift liability for the construction flaws to a roofer and two other companies. Under Pennsylvania law, developers and general contractors may require subcontractors to assume responsibility for any damage to a project, even if it’s not their fault. State legislators have proposed a ban on such requirements.

The Stolles learned that the same defects affected a neighbor, who is also suing, and several other Streamline homes. The volume of complaints indicates that Streamline was knowingly building defective homes, the couple argue; they allege the developer acted “in a concertedly deceptive fashion” over time, engaging in “significant, but non-apparent, fraudulent cost-cutting measures.”

Builders who construct multiple homes with the same defects face risk of prosecution.  The Pennsylvania Office of Attorney General in 2016 sued Plymouth Meeting-based David Cutler Group, which calls itself the largest privately owned residential builder in the Delaware Valley. Prosecutors from the office’s Bureau of Consumer Protection contended that the company did not comply with building codes and accepted industry practices on installation of stucco, weather barriers, and flashings, resulting in water infiltration and significant damage. The builder, renamed Hudson Palmer Homes, declared bankruptcy in 2018.

“If you have knowledge of a repeated defect in the construction of your homes, that’s negligence,” said Rob Lunny, a home inspector and water intrusion expert based in Bucks County. “It’s part of what got David Cutler. You can’t tell them you didn’t know you were putting only two layers of stucco on. You were supposed to put three, you put on two, on thousands and thousands of homes, because you wanted to beat the time and everything else.”

Worthless warranties

Homeowners who encounter construction flaws can have a hard time getting help, whether from Streamline, local government, or the courts.

The company has an online system to report warranty issues, and Streamline staffers will often arrange for repairs, but sometimes they refuse or tell homeowners to fix the problem on their own, owners say. Mark Swisher, a former Streamline construction manager, said he still gets calls from homeowners who are within the warranty period but struggle to get the company to respond.

“I tell them exactly what to say, and Streamline’s like, ‘No, we won’t do it.’ They constantly fight them on it,” he said. The developer is understaffed, Swisher said, and “doesn’t have the guys that have the necessary background to be doing the actual work.”

Swisher worked on Streamline projects in South Philadelphia from March 2017 to December 2018. He said the company dismissed him after he argued with a supervisor over the management of subcontractors and the phasing of construction projects.

While one-year warranties are common in new construction, attorney Jennifer Horn argues that they are worthless when construction defects occur and can even be used by builders to try to avoid responsibility for breaking the law.

“When I say to you, ‘I’m going to build you a great home,’ and you give me $800,000, you’re trusting that it’s going to be done correctly with quality construction,” Horn said. “What we’re dealing with is not a breach of warranty issue. It instead really is a violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.”

Even if warranty limitations can be disregarded or overcome, suing a builder can be a lengthy, expensive, and uncertain process, due to attorney’s fees, arbitration clauses, and arguments over who bears responsibility, among other challenges. Murray said she called a dozen lawyers, every one of whom said she had no chance of prevailing in a lawsuit against Streamline.

Murray’s neighbor Ashley Scott, who lives in an adjoining condo, said she has an attorney and plenty of evidence but hasn’t yet moved forward with a lawsuit. Since she bought her condo in 2017, she’s fixed an improperly sealed pipe inside a wall, pushed Streamline to upgrade an unreliable sump pump system, and, like Murray, coped with sewer water covering her floors during heavy storms.

“Every time I see rain in the forecast, I’m afraid to go to the bathroom at night because I’m worried there’s going to be backflow,” Scott said. “After seeing water come up through your shower and your toilet, you can’t get that out of your head.”

After a big sewer backup, Murray pleaded and argued with Streamline staffers, posted angry screeds against the company on Facebook, and attended meetings of local zoning committees, looking for someone who could help her get the builder to act. She said she emailed City Council and never heard back. Councilmember Maria Quinones-Sanchez, whose district includes Murray’s home, declined to comment, as did Council President Darrell Clarke.

Swisher did not work on Murray’s house, but he said Streamline’s standard building practices make basement leaks like hers more likely. The company does not always properly waterproof the outside of new foundations, and when the concrete naturally settles, moisture can widen tiny cracks and lead to persistent leaks, he said.

“You have to put on tar, and then you’ve got to put a waterproof membrane on the foundation. That’s how it should be done. They’re not doing that, to save money. But it’s not the right way to do it,” Swisher said. “All you need is a hairline fracture in concrete for water to start penetrating through. It’s definitely an issue that they have.”

Murray finally happened to meet Annie Moss, president of the Olde Kensington Neighborhood Association, and told her about the flooding. Developers often need the support of neighborhood groups to get zoning variances. After Moss called Streamline about Murray’s problem, the company began the first of several unsuccessful attempts to patch the crack, Murray said.

Last March, about a year and a half after she first saw water on her floors, workers hired by Streamline finally cut out and repoured part of her foundation, she said. The leaks stopped.

As for the sewer backup problem, she resolved that through a taxpayer-supported program. In December, the Philadelphia Water Department put in a backflow preventer through its Basement Protection Program, sparing Murray and her condo association that expense.

Murray and Scott are among several homeowners who describe themselves as scarred and disillusioned by the experience of buying a Streamline condo and dealing with the company.

Another is first-time homebuyer Kinsey Gates, who fell in love with Streamline’s floor plan for the Northern Liberties condo she closed on in 2016. But the place was plagued with leaks: Rain gutters inside the walls clogged and burst, and a poorly installed sewer ejection system broke and dripped sewage through the ceiling light openings, Gates said. Streamline fixed one gutter but then refused to pay for repairs to another.

“The issue you reached out about recently, out of warranty, is separate from the original issue. It is a completely separate pipe/area of the house,” Alexandra DeLawrence, a warranty service coordinator for Streamline, wrote in an email. “We will not be addressing this, due to your expired warranty.”

Gates and her husband also had worrying natural-gas leaks and ended up spending $2,000 to redo incorrectly installed piping. She feels fortunate not to have had the roof leaks and mold other Streamline buyers are dealing with, but she’s taken to warning others who may be enticed by advertisements for the company’s latest developments.

“A lot of my friends, they’re buying houses,” she said. “I can tell you immediately based on a picture of a place if it’s a Streamline house because they use the same exact finishes that they used three years ago. I say, ‘Do not buy that house. I promise you it’s not worth it.’”

A massive, growing problem

The homeowners identified by PlanPhilly represent a small sample of the many families across southeastern Pennsylvania who struggle with an epidemic of water infiltration in new homes. Streamline isn’t the only builder confronting lawsuits.

“Currently, we have actions against Toll Brothers, Pulte, David Cutler Group, NVR, and of course Streamline, as well as others,” Horn said.

More than 650 homeowners in the Philadelphia region who bought new homes in the last two decades have suffered serious water damage that required tens or hundreds of thousands of dollars in repairs, according to a 2018 Inquirer investigation. Those homes were built by 27 different companies, Streamline among them.

A renewed enthusiasm for urban living and Philadelphia’s 10-year tax abatement on new construction have contributed to a building boom in the city, especially since the end of the recession. But many builders are unaware of state and local building codes, which describe how elements such as cladding, house wrap, and stucco must be installed or applied to keep water out of a new house, Horn said.

When she deposes builders for lawsuits, she often finds they don’t know the rules, don’t have architectural or engineering oversight on job sites, and don’t properly monitor the subcontractors who do much of the actual construction, she said.

“We have this incredible market where there’s an amazing demand for homes because people, rightfully so, want to live in Center City. So we have builders who are looking to maximize their profits, and at the time they’re building, they’re giving little or no attention to the building code, and they’re constructing homes that fail to meet even the minimum standards set forth by the building code,” Horn said.

Lunny, the home inspector, said the extent of shoddy home construction in central Philadelphia is “unbelievable” and it seems to be getting worse rather than better.

At the root of it are builders and subcontractors who rush jobs and cut corners to save money, along with building codes that specify only general, minimal requirements and an overwhelmed Department of Licenses and Inspections, he said.

“L&I must, must, have better inspections down there,” Lunny said. “I get it, things are happening fast. The city is looking for tax money, the builders are looking to make money, millennials and consumers have money to spend. But you’ve got to slow things down. This is too important.”

L&I Commissioner Perri is aware of the problem and said he is developing legislation that would require inspection of building envelopes by specially trained third-party inspectors during construction of single-family homes. L&I expects the bill will be introduced in City Council’s spring session.

As difficult as it can be to sue a builder, the potential for lawsuits can make companies take more care in waterproofing their projects. But Horn said people buying new construction need to make sure their sales agreements don’t include arbitration clauses that weaken their access to legal recourse.

She advises prospective buyers to have an attorney vet their sales agreements for arbitration provisions or other limitations, which is much less expensive than having to pay for a private arbitrator later. Arbitration decisions also often go against homeowners and can be difficult to appeal. If a builder insists on including an arbitration clause, that may indicate the company is unwilling to stand behind the quality of its work, Horn said.

“If a builder’s saying, I want you to be committed to an expensive, secret procedure that is highly favorable to the builder and not to the homeowner, that sends a major, major signal to a family,” she said.