September 13, 2001

195 7th Street Owners Association
c/o Ms. Sheila Gokey
155 E. Campbell Ave. #104
Campbell, CA 95008

     Disclosure re: 195 Seventh Street Owners' Association v. William L. Ferdon, III, et al.,                            Case Number 976352, San Francisco Superior Court

Dear Owners:

We have been asked by your Board of Directors to provide you with updated information regarding the above lawsuit which is pending in the San Francisco Superior Court. The lawsuit initially involved financial improprieties involving the operation of the owners' association while the developer controlled the management of the association. Later, construction defect issues were discovered and added to the lawsuit. The original financial claims have been settled and the lawsuit now involves only construction defect issues. Persons wishing information about the lawsuit are encouraged to examine the Court's file including all of the complaints, cross-complaints, reports to the court and other documents on file in the Office of the Clerk of the Superior Court located at 400 McAllister Street, San Francisco, CA 94102,

Generally the claims in the lawsuit include, but are not limited to claims involving windows, doors, framing, siding, deck and roofing issues. There are expert reports and other confidential information pertaining to the claims being made in the lawsuit. Owners (or their representatives or other person(s) designated by them) who wish to obtain further information about the claims may review but not copy available reports by making arrangements with this office to do so, and by signing a confidentiality agreement relating to the use and disclosure of such information prior to the review.

The outcome of litigation is always uncertain. The objective of the lawsuit is to obtain funds to reimburse the association for the cost of repairs which have already been made, and to pay for additional repairs which may be required. Whether additional repairs will be required and the cost of such repairs is presently under investigation. It is our understanding that roofing repairs have already been made by the Association to correct the defects regarding the roof and deck. If the lawsuit is successful the Association would expect to recover money to reimburse it for the repairs which have already been made, and to make additional repairs which may be necessary or desirable.

Although in our experience lawsuits such as this are usually successful, should it not be successful, the association would not receive the reimbursement for the expenditures it has already made to make repairs and would not receive funds to make additional repairs.

The case has been scheduled for an all-day settlement conference before Honorable Ellen James, a retired Judge, on October 24, 2001. Judge James has an excellent track record in settling cases like this out of court, although, of course, there are no guarantees. We will let the Homeowners know the results of the settlement conference.

The case is currently set for trial on March 4, 2002. The parties have met and conferred in an effort to agree upon a scope of work and repair cost. To date, there are significant disagreements between the association's consultants and the defense consultants. The Association's consultants believe it would be appropriate to remove and replace all of the exterior siding, to install appropriate flashing, and to remove and replace plywood that is under the siding, on account of water intrusion and resulting property damage caused by improper installation of flashing and other building components.

The defense consultants agree that some siding and plywood will have to be removed and replaced, but they believe it is necessary to do this work only in isolated areas. To date, plaintiff's bids total somewhat in excess of One Million Dollars ($1,000,000) and defense bids total approximately Five Hundred Thousand Dollars ($500,000.) Defendants have argued that some of plaintiff's claims are not legally compensable and that some of the work requested by plaintiff could be done in a less expensive manner than that requested by plaintiff, or that a less expensive contractor than the one selected by plaintiff could perform the work in an acceptable manner.

In addition, although the defendants have significant insurance coverage, we understand that some of the insurance companies have asserted that some or all of plaintiff's claims are excluded from coverage because of specified language in the defendants' insurance policies.

We are continuing to prepare the case for trial, and to engage in settlement discussions with defendants. My further reports will follow.

Very truly yours


Ann Rankin