The Makiki condominiums were marketed as "luxuriously affordable," but buyers claim they were sold illegally renovated units by a local real estate developer and broker now in financial and disciplinary trouble.
Adam Lee, formerly with Abe Lee Realty LLC, converted a six-story apartment building named 1402 Piikoi St. into a 20-unit condo several years ago with interior renovations that led buyers to snap up units for about $310,000.
Yet after the condos were sold, the city Department of Planning and Permitting surprised the new owners with violation notices for unpermitted renovation work in their two-bedroom units.
Several 1402 Piikoi buyers are suing Lee over the issue, alleging that the developer didn’t obtain required building permits for renovations he made and that he used unlicensed contractors for what has become problematic electrical and plumbing work.
"We’re living in a nightmare," said Craig Makiya, a first-time homeowner who bought his unit in 2009.
Lee, who developed the project through 1402 Piikoi Street LLC, said he is constrained from discussing many details because of the litigation, but said he obtained an after-the-fact permit for the renovation work in 2010 as a step toward correcting the situation.
However, to rectify the violation, electrical and plumbing work needs to be inspected and deemed up to code by the city. That hasn’t happened except for one unit, the city said.
Meanwhile, daily $1,000 fines against Lee have accrued to $1.7 million, and problems linger for 1402 Piikoi owners.
The situation shines a light on an area of real estate transactions — the propriety of home renovation or improvement work — that can become pitfalls for buyers and sellers.
"I see it a lot," Keone Ball, principal broker of Maui real estate firm Carol Ball & Associates, said about home improvements that weren’t permitted or run afoul of building codes.
In most instances, sellers disclose such issues, which Ball said can be relatively minor to correct, like a fence put up without a permit. But that doesn’t always happen, such as in one case where Ball said a buyer sued a seller after having to cut off part of their home because it encroached into a county setback.
By outward appearances, 1402 Piikoi appeared to be an attractive and successful project.
Lee bought the now 46-year-old building in 2007 for $4.2 million and installed granite countertops, new appliances, cabinets, tile and Pergo wood flooring, light fixtures and split air conditioning.
"This home has been renovated from front to back and top to bottom in a very modern design and with a long list of amenities," read an open-house promotion.
Though the economy was weakening, all but one of the units were sold in 2008 and 2009. The remaining unit sold in 2010. Sales totaled about $6.2 million, according to property records.
Yet troubling signs began appearing soon after some buyers moved in, according to Makiya, the initial president of the condo board. Makiya said he received complaints from other unit owners about electrical outlets not working and people being shocked by the stove.
"It was a mess," he said.
After looking into the issue, owners discovered that no building permits had been obtained for electrical and plumbing work. The city began issuing violation notices, and at one point put a lien on the building that prevented owners from borrowing against their units to have the work redone at a cost Makiya estimated at $25,000 to $35,000 per unit.
The lien was lifted, but some owners can’t afford to make repairs, Makiya said.
Five 1402 Piikoi buyers sued Lee in 2010 in Circuit Court alleging that the developer misrepresented the renovated units.
Lee is contesting the case. Then in August, Lee sought protection from creditors by filing for bankruptcy.
Makiya and the other plaintiffs argue in U.S. Bankruptcy Court that their claims for monetary damages can’t be shielded by bankruptcy because Lee deceived them about their purchases.
Under bankruptcy law, debts incurred through false pretenses, false representation or fraud cannot be discharged.
A bankruptcy judge has not ruled yet on that issue, but recently allowed the lawsuit to proceed.
On another front in the bankruptcy case, a court-appointed trustee has contended that Lee illegally moved to shield assets from creditors.
Dane Field, the trustee, filed a legal challenge in the case alleging that Lee switched his sole ownership of two homes on Wilhelmina Rise to joint ownership with his wife in October 2010, six months after the five 1402 Piikoi owners filed their lawsuit.
The two homes are valued by the city for property tax purposes at $1.6 million.
Real estate owned jointly by two people cannot be claimed by creditors under bankruptcy rules if the debt applies to only one of the property owners.
Field contends that Lee was insolvent at the time of the property ownership transfers and that Lee made the transfers to hinder, delay or defraud creditors. Field is seeking to have the transfers rescinded.
Lee has denied Field’s complaint. "I was solvent and disagree with the trustee’s position," Lee said in an email to the Star-Advertiser.
Another challenge to Lee’s bankruptcy was made in November by a sixth 1402 Piikoi buyer who claims he paid Lee $310,000 for a unit that Lee later lost to a lender in foreclosure.
Boon Han Sia, a real estate investor, said in his complaint that he agreed to buy two 1402 Piikoi units in early 2009 and that Lee made a unique proposal for one unit where Lee would retain the unit for two years, after which Lee would pay Sia $58,600 and convey the condo deed.
Lee said Sia authorized him to take out a loan secured by Sia’s unit under the arrangement.
"Under the terms of our business agreement, Mr. Sia granted permission (for me) to get a mortgage on the property and acknowledged the risk involved," Lee said.
Sia’s complaint said Lee negotiated a year extension at the end of the two-year period and, in consideration, paid Sia $20,000 and added an extra $14,250 due at the end of the extension in March 2012.
Sia never recovered the unit because a lender foreclosed after Lee defaulted on his loan secured by the unit, the complaint said.
A California company bought the unit at foreclosure auction in November for $249,000.
All 1402 Piikoi owners, through their condo association board, have retained an attorney to potentially get involved in Lee’s bankruptcy case but have yet to do so.
Makiya, who is no longer on the board, questions whether any 1402 Piikoi owners will obtain financial relief from Lee even if they prevail in state court, because of Lee’s debts.
Lee’s bankruptcy filing listed $1.7 million in assets and $4 million in debts that mostly involve real estate loans.
Creditors with claims secured by property including the Wilhelmina Rise homes and a Lee property in Waianae have a priority to be paid, as does the state Tax Department, which claims Lee owes $22,000 in taxes from 2007, 2008 and 2009.
Lee listed monthly income of $4,600 from real estate in his bankruptcy filing.
Earlier this month the state Real Estate Commission announced that Lee’s real estate license was revoked as part of settling a disciplinary petition filed by the state Department of Commerce and Consumer Affairs in 2011 based on complaints by 1402 Piikoi owners.
The commission said Lee waived his right to a hearing and agreed to the settlement while denying he violated any licensing law or rule, including making misrepresentations concerning real estate transactions and aiding and abetting an unlicensed person to directly or indirectly perform activities requiring a license.
The commission also fined Lee $10,000.
Abe Lee Realty and its former principal broker Abe Lee, who is Adam Lee’s father, were fined $10,000 and $5,000 respectively. Abe Lee Realty was the brokerage firm under which Adam Lee sold the 1402 Piikoi units, the commission said. Abe Lee and his company weren’t involved in owning, marketing or renovating 1402 Piikoi. Abe Lee Realty is no longer in business.
