Wednesday, August 12, 2009

Mercedes Homes Bankruptcy ESOP Update

Hundreds of past and present Mercedes Homes employees would lose potentially millions of dollars in stock-based retirement benefits if a federal judge approves the Melbourne company's plan to emerge from bankruptcy.

The same plan, meanwhile, would pay off a top creditor: the Buescher family, which founded and controls Mercedes, federal court records show. While employees would lose their stake in the company, the family stands to recoup its own investment under the bankruptcy plan.

Like the current and ex-employees, the Beuschers would give up shares that account for 44 percent of an employee stock fund. But they would receive total ownership of the reorganized Mercedes Homes in return.

"The Bueschers walk away with everything," said James Atkinson, a former computer-aided-design manager who worked for Mercedes for 10 years. Atkinson had accumulated about $225,000 in the employee-stock ownership plan, or ESOP, before he was laid off in 2006. "The little guys like myself walk away with nothing."

Although company officials described the stock as worthless, Mercedes Homes itself still appears to have value. Despite its struggles and the recession, Mercedes reported $407 million in home sales last year.

A Mercedes spokesman said the move is justified because family members invested millions of dollars of their own money, structured as loans from a second family company. Those loans kept the homebuilder afloat during the downturn.

"Without this substantial personal investment . . . Mercedes Homes likely would be liquidated under U.S. Bankruptcy Laws," Chief Executive Officer Keith Buescher wrote to the 220 or so remaining employees in a letter obtained by FLORIDA TODAY.

Employee-ownership plans serve double-duty as retirement savings as well as incentives for workers to boost profits and, consequently, the value of the company. Mercedes employees did not contribute portions of their pay to the plan, as they might with a 401(k). Instead, the company shared profits by purchasing stock on employees' behalf.

Donald Israel, an expert on employee stock funds, described the Mercedes plan as unfortunate, but stressed that when companies file for bankruptcy, their stock typically drops to zero and employee shareholders are last in line to recover anything. Israel is president of Benefit Concept Systems, a New York firm that sets up and manages ESOPs.

"What has happened is all the stock held by the family and ESOP has gone down the toilet," Israel said.

Employee wealth

Under the Mercedes reorganization plan filed in U.S. Bankruptcy Court in West Palm Beach in July, Mercedes would dissolve the stock ownership plan, worth $228 million as of Jan. 31, 2006, the most recent year a summary annual report could be obtained by FLORIDA TODAY.

The reorganized company would issue all of its new stock to Real Estate Investment Ventures (REIV), a separate family company. In turn, REIV would forgive some $68.5 million in loans to Mercedes, plus $2.1 million in interest.

Five children of company founder Howard Buescher manage REIV. They also serve as senior officers with Mercedes Homes, the nation's 27th-largest housing builder.

Several creditors -- including the U.S. Bankruptcy Trustee -- have already filed objections to the plan, which must be approved by select creditors through a vote Aug. 25.

"It must be restated that employees did not contribute cash into the ESOP," says a prepared statement from the company. "Rather, Mercedes Homes sold stock to the ESOP entirely for the benefit of employees."

The fund's administrator halted payouts from the ESOP in 2005, after real estate collapsed and Mercedes started laying off staff. The plan was terminated Jan. 31, and a trust now holds the Mercedes stock.

Bankruptcy plan

At the same time the company stopped contributing to the fund, the Buescher family created REIV to start investing in land.

The family's claim as creditors to Mercedes assets is second in line behind Bank of America. Mercedes Homes owed the bank $151.4 million when it filed for bankruptcy. Under the reorganization plan, Bank of America would refinance about 90 percent of that debt and continue to hold liens against Mercedes.

If the bankruptcy judge rejects the reorganization plan, the deal with the bank could collapse and Mercedes Homes could be forced to liquidate, said Bob Brewer, a spokesman for Mercedes.

"The real story here is that this Melbourne-based family business may very well become the first private builder to emerge through bankruptcy at this singular time in our lifetimes," Brewer said.

Barratt-American Homebuilder Bankruptcy

One of San Diego's biggest homebuilders is shutting down.

Barratt-American built the Nantucket development, in Leucadia, and thousand of other homes in San Diego. Last year, though, the housing meltdown forced Barratt to reorganize, under court protection. The bankruptcy court now says that Barratt has no future and must shut down.

Some of the Leucadia homes are still unfinished, while other lots are empty. Bank of America foreclosed on those properties and still owns them.

"No one ever speaks to us and tells us what's going on and what the plans are, nor has Bank of America, so, pretty much, you know, we spent a bundle of money, and we're, like, let out to dry, basically," said Deborah Molnar, a Barratt-American homeowner.

Barratt's president said he tried to work out a deal with the Bank of America to finish the homes, but, he said, the bank would not cooperate.

Bank of America issued a statement on Tuesday afternoon.

"Barratt filed Chapter 11 bankruptcy late last year," Bank of America said in the statement. "The bankruptcy court on Aug. 6 entered an order converting the case to Chapter 7 in part because of issues brought to the court’s attention by the Committee for Unsecured Lenders, including the fact that Barratt acted in bad faith, failed to disclose and obtain court approval for certain payments and has allowed the property it owns to deteriorate (see filings). Many of the referenced Nantucket lots are not property of the bank. As to those the bank does own, the bank has had to resolve certain mechanic's lien claims before it could proceed to sell those properties. The bank is now attempting to sell those properties in which it has an interest."

J.S. Kempf & Associates filesfor Chapter 7 bankruptcy

Matthews-based homebuilder J.S. Kempf & Associates filed for Chapter 7 bankruptcy this week, listing assets of less than $50,000 and more than $4.4 million in liabilities.

The company built homes in neighborhoods including The Palisades, a luxury home development near Lake Wylie, and The Club at Longview, off Rea Road in Union County just south of Mecklenburg.

A Chapter 7 bankruptcy filing indicates the company is planning to liquidate its assets, as opposed to shedding debts and reorganizing, as is done in Chapter 11 bankruptcy filings. More than 30 percent of bankruptcy filings in the Charlotte area this year have involved construction-related companies.
Kempf's secured creditors, according to court documents, include First Horizon Construction Lending, owed $334,000 and RBC Builder Finance, owed $365,000.
The largest creditors with unsecured claims include BB&T, owed $2.1 million; and Fifth Third Bank, owed $1.3 million.

In the Charlotte region, experts have said the housing market's collapse and the ripple effect that's had on related businesses has led to a record number of local contractors, developers, building suppliers and others seeking Chapter 11 bankruptcy protection. Staff researcher Maria David contributed.

Friday, June 5, 2009

Richmond Builder - Prospect Homes Files Bankruptcy

Prospect Homes of Richmond Inc., one of the area's largest builders, has filed for bankruptcy protection.

"This is a reflection of the market," said Roy M. Terry Jr. of DurretteBradshaw law firm in Richmond, which is representing the Henrico County-based home builder.
Sales of newly built homes are just beginning to inch up after hitting new lows in January, according to the National Association of Home Builders.

Prospect Homes, which has been in business for 26 years, was the sixth-largest builder in the Richmond area last year, according to the Home Building Association of Richmond. The company built 114 residential units and had nearly $36 million in sales in 2008.
The petition, filed Tuesday with the U.S. Bankruptcy Court in Richmond, lists assets of between $50 million and $100 million as well as debts of $50 million to $100 million. Specific details are not yet available.

The builder's largest creditor is SunTrust Bank, which is owed $6.1 million, including $3.8 million secured by real estate or equipment, according to the bankruptcy petition.
Nine of the 20 largest creditors are banks, including local community banks such as First Market Bank, Franklin Federal Bank, C&F Bank, Virginia Commonwealth Bank and Village Bank.
The banks are owed about $30.3 million, of which $21.6 million is secured by real estate.
David Reel, spokesman for the local building association, said the market for new homes isn't robust by any stretch.

"You hate to see any builder file for bankruptcy, but it's a double hit when it's a local builder."
Reel said the credit crunch is severe. Builders are having trouble getting loans, making it difficult to move on to the next project, he said.

"When the building industry across the board is frozen out of the credit market, that may be an underlying reason why the industry is hurting," Reel said.

Prospect Homes' bankruptcy could be an isolated situation or symptomatic of a bigger problem, he said. "Time will tell."
Terry, the builder's attorney, said the goal is for Prospect Homes to emerge from bankruptcy and build homes again.
He said he did not know how many people are employed at Prospect Homes. "It has been a changing number."

Prospect President Joseph R. Audi or other officials with the company were unavailable for comment.
The company has projects in various stages of completion, from property not yet divided into lots to houses that are nearly complete, Terry said.

Monday, June 1, 2009

J.O. Clark Building Group in Tennessee Files Bankruptcy

Clark's company has built more than 1,000 homes in the mid-state. But the I-Team found dozens of liens from subcontractors who said they weren't paid as Clark's empire grew. Liens were passed on to stunned homeowners.

"I was just in shock," said homeowner Lynn Thomas. "(I) kind of went into a panic."
A filing for Chapter 11 bankruptcy reads that J.O. Clark Building Group owes millions to creditors, ranging from several subcontractors to banks.

Chapter 11 means Clark wants to rearrange his debts in an attempt to stay in business.
"Ordinarily, a company that has an operating business wants to use Chapter 11 in order to be able to have some time to prepare a plan to pay back its creditors," said Marc McNamee, a bankruptcy attorney.

According to the bankruptcy filing, Clark owes the most to subcontractors, ranging from carpet companies to excavators.

Regions Bank is owed more than $50,000. Walter Plumbing is owed close to $100,000. But bankruptcy specialists said how much J.O. Clark owes and how much it has in assets must be examined, and that's where there may be a problem. The bankruptcy filing shows $10 million to $50 million is owed. The company has less than $50,000 in assets.

"It does not present a very good picture or prospect for repayment," said McNamee. "The critical point is whether the company can continue to operate."
Experts said Clarks will have to liquidate his assets and spread out what's left if he can't settle his debts.

Neither Clark nor his attorney returned calls for comment.
In an earlier investigation, Clark said, "We are struggling, as many building companies are today."

Colorado Builder - McStain Neighborhoods files McBankruptcy

McStain Enterprises Inc., one of Colorado’s first “green” homebuilders, voluntarily filed Chapter 11 bankruptcy reorganization on Friday, according to bankruptcy court records.

The Louisville-based company declared $10 million to $50 million in assets, and the same range in liabilities. McStain -- which does business as McStain Neighborhoods -- has told customers it plans to sell its finished homes and complete those that are under construction. The filing does not affect the Indian Peaks South neighborhood because of a separate ownership structure.

In February of this year, McStain told customers on its website that “we have been assured by our bankers and other professional associates that we are healthier than most of the private builders they deal with. … To paraphrase Mark Twain: ‘The rumors of our demise have been greatly exaggerated.’ Rumors that we filed for bankruptcy are simply not true.”

Other Colorado builders to declare Chapter 11 recently include Village Homes of Colorado in Greenwood Village, which had last year’s largest local bankruptcy reorganization with $138.4 million in debt, and Tousa Inc., the Florida-based parent of Colorado’s Engle Homes Inc.
John Laing Homes of Irvine, Calif., which was active in metro Denver, filed Chapter 11 early this year.

McStain’s largest unsecured creditors include Scheer’s Inc. of Illinois (which is owed $10.85 million), Key Bank ($3 million), CRE400 Centennial LLC-Crestone ($2 million) and William and Associates of Boulder ($1.54 million), according to the bankruptcy filing.

Other unsecured creditors include First National Bank, GE Capital, Namaste Solar Electric Inc., Guy’s Floor Service Inc. and the City and County of Denver (sales tax).

McStain has taken significant steps to cut costs and shore up its flagging business in the last year.
The builder’s former president and CEO, Eric Wittenberg, voluntarily left the company in late summer 2008 to save money, and was replaced by McStain co-founder Tom Hoyt. Hoyt took the titles president and board chairman.

McStain Enterprises also closed its physical headquarters operation in Louisville last November. At that time, McStain had 21 employees, down from 75 people early last fall and from a peak of 115 a few years ago. Remaining employees were to create a virtual office, using cell phones and computers.

Tom and Caroline Hoyt, with their friend David Stainton, started McStain in 1966, when they bought a small Boulder custom builder called Horizon Building Co. Over the years, the partners built the company from a simple custom builder to a designer and developer of master-planned communities such as Indian Peaks in Lafayette and MeadowView in Longmont. They also moved into sustainable, energy-efficient housing.
McStain has worked on several urban infill projects, as well, including ones in Denver’s Lowry and Stapleton neighborhoods and Belmar in Lakewood.

Ginn Company Sued by Homebuyers - Employees Posing as Competing Buyers!?

A group of buyers in communities built by The Ginn Co. — including grandiose Tesoro in Port St. Lucie — are claiming the developer and its affiliates fraudulently inflated real estate prices.
A class-action lawsuit filed late last month in U.S. District Court in Jacksonville targets Celebration-based Ginn, its sister companies, financing partner Lubert-Adler and banks that worked with Ginn, including SunTrust, Fifth Third Bancorp and Wachovia Bank.

The suit alleges Ginn led a scheme to bloat prices at every step of the process — from lavish sales launches to manipulated appraisals. Among the claims: Ginn staffers posed as competing buyers to pressure people to sign a sale contract.

The misdeeds happened in more than a dozen Ginn developments, starting as early as the late 1990s, according to the suit.

Some properties are now worth as little as 10 percent of their appraised value, “a phenomenon that absolutely cannot be explained by mere market downturn,” the suit states.
Buyers from as far as England and as near as Boca Raton are parties. They are seeking class certification.

“We will vigorously defend against this litigation and any other false allegation brought against our company,” Ginn spokesman Ryan Julison said.

Wednesday, April 22, 2009

Homebuilder Bankruptcy - T.H. Properties Suspends Operations

Developer and homebuilder T.H. Properties has temporarily suspended its operations and is exploring options to restructure its business operations, according to its Web site and a message left at its corporate offices.

The move went into effect Tuesday. The Harleysville, Pa., company said the “recession and the collapse of the housing market have had a negative impact on the company’s operations” and that it is trying to restructure the company and its “obligations” so it can proceed with constructing and developing residential properties throughout the region.

The company was formed in 1992 and called THP for The Hendricks Properties. The company was formed by a partnership between brothers Tim and Todd Hendricks, whose father was a custom builder. The company developed residential communities mostly in Montgomery County but also had projects in New Jersey and the Lehigh Valley and focused for the most part on the first-time homebuyer.

Another regional builder to be hit by the recession and bust of the housing bubble is the Elliott Building Group of Langhorne, Pa. In June 2007, Elliott filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of New Jersey, saying it needs a “breathing spell from aggressive creditor action.” It was later liquidated and its communities still under development were auctioned off.

The bankruptcy filing by Elliott was the first of what is expected to be an eventual surge in bankruptcies by regional builders, who rapidly grew during the heady days of the real estate boom but got caught with the credit crisis and recession where home sales dramatically fell.

Wednesday, April 1, 2009

Tousa (Newmark Homes), Bankrupt Homebuilder, Lays Off 60 Employees in Austin

Homebuilder TOUSA Inc. is laying off 63 employees in Austin and 219 statewide as the bankrupt company stops building new homes and continues to downsize.

Hollywood, Fla.-based TOUSA, which operates in Austin under the Newmark Homes brand, said in a letter to the Texas Workforce Commission that it will "wind down its current business operations" in coming months.
The letter said the first layoffs will happen in May, with the rest staggered through the remainder of the year.
TOUSA (TOUSQ) has been in bankruptcy since January 2008. The company said in a recent statement that it would stop building new homes and focus on selling its remaining inventory of speculative homes and its land holdings.

Customers with homes under construction “can be assured that their homes will be completed,” the company said in a news release.

“While the market environment has impaired our ability to maintain our historical operating platform, we will continue to build out homes and sell our existing inventory during this process," CEO John Boken said in the release. The process, he said, would continue for “a few years.”

The homebuilder was delisted from the New York Stock Exchange on May 13, 2008.
In a public filing March 19, the company said it would attempt to get its hands on as much money as it could through the bulk sale of land and homes.
“The housing market has continued to deteriorate significantly since June, and we have not yet completed the analysis and processes required for the preparation of our quarterly report … for the period ended Sept. 30, 2008,” the filing said.

For the three-month and six-month periods ended June 30, 2008, TOUSA reported a loss from continuing operations, net of taxes, of $379.1 million and $661.8 million, respectively, compared with $122.1 million and $184.3 million, respectively, for the same periods in 2007.
The company said it was continuing to implement “strategies to aid our liquidity and our ability to continue as a going concern.”

However, the company noted in its public filing that it might not be successful.

Thodes Companies Files Chapter 11 Bankruptcy in Las Vegas

Developer James Rhodes on Tuesday night filed a petition for bankruptcy on behalf of many of his key businesses, including Rhodes Design and Development Corp., listing $100 million to $500 million in assets and liabilities in the same range.

The developer filed for bankruptcy under Chapter 11, which allows the companies to continue operating while their finances are restructured. Rhodes has been one of Las Vegas' most successful and controversial developers and homebuilders. He developed Rhodes Ranch in southwest Las Vegas and Tuscany Village in Henderson. He provoked the ire of environmentalists with his development of the Red Rock Country Club community.

Rhodes drew news coverage again when Erin Kenny, the former Clark County commissioner, disclosed that Rhodes paid her $200,000 a year for consulting as part of an agreement in which she pleaded guilty to federal corruption charges. Kenny was sentenced to 30 months in prison in connection with a bribery case involving former strip club owner Michael Galardi.
The Arizona Corporation Commission questioned Rhodes about his business relationship with Kenny when he sought to establish a water utility for a master-planned community proposed in Golden Valley between Kingman and Bullhead City.

The Arizona panel also grilled Rhodes over $148,000 in fines he paid after admitting he illegally funneled campaign contributions in 2002 through employees and employees' spouses to Sen. Harry Reid, and then County Commissioner Dario Herrera. Herrera also was convicted in connection with the bribery case.

The Rhodes Companies filed the bankruptcy petition but an attachment notes that 31 affiliated companies also are seeking protection under Chapter 11 bankruptcy.

They include Rhodes Ranch General Partnership, Rhodes Ranch Golf and Country Club, Tuscany Golf Country Club, Tuscany Acquisitions and three similarly named companies, Rhodes Realty, Rhodes Homes Arizona, Rhodes Arizona Properties, Tribes Holdings, Six Feathers Holdings and Bravo.

Rhodes filed a statement explaining that he believed "it is in the best interests of the company, its creditors" and others to file for Chapter 11.

The Sunstate Companies of Las Vegas is the largest unsecured creditor and is owed $201,000, followed by G.C. Wallace of Las Vegas, which is owed about the same amount. The developer estimated that between 5,000 and 10,000 creditors will have claims in the bankruptcy case.
He hired the law firm of Pachulski Stang Ziehl & Jones, which has offices in Los Angeles and other cities, but the petition was filed by Larson & Stephens of Las Vegas.

Comstock Homebuilding may seek bankruptcy protection

Says may be forced to seek bankruptcy protection
* Comstock Homebuilding Cos inc accounting firm expressed going concern opinion
* Comstock Homebuilding Cos inc Says chosen not to make interest payment on some debt
* Comstock Homebuilding Cos inc Says working on plans to shore up balance sheet
* Comstock Homebuilding Cos inc Says attempting further restructuring of company's debt

Real estate company Comstock Homebuilding Cos Inc (CHCI.O) warned that it may have to seek bankruptcy protection if its efforts to generate free cash flow and restructure debt with its lenders proved unsuccessful.

Comstock also said its accounting firm PricewaterhouseCoopers believes declining market conditions create substantial doubt that the company would continue operating throughout 2009 as a going concern.

Comstock said sales during the first quarter remained weak as general economic conditions in its three primary markets continued to generate low levels of consumer demand for new home sales.

The company has also chosen to default on the March 31, 2009, interest payment of about $218,000 due on its senior unsecured debt to JP Morgan Ventures, due to limited liquidity.

Thursday, January 29, 2009

Mercedes Homes Files Chapter 11 Bankruptcy

Homebuilder Mercedes Homes Inc. said Monday it has filed Chapter 11 petitions in U.S. Bankruptcy Court in West Palm Beach, Fla.

The Melbourne, Fla. company said it has suffered from prolonged weakness in the housing sector of its operating markets. Mercedes has also suffered liquidity strains due to the federal takeover of one of the main lenders in its lending syndicate.

Mercedes Homes is developing 15 communities in Jacksonville and St. Augustine.
The company said it hopes to operate normally as it reorganizes. In a statement, the company said it "expects to move quickly through the reorganization process and to emerge from its reorganization proceedings better capitalized and financially stronger."

Mercedes Homes is a 25-year-old company employs about 400 people who sell, and construct, homes in more than 80 communities in Florida, Texas, North Carolina and South Carolina.

Thursday, January 15, 2009

Even in Bankruptcy, Builder Tries to Browbeat Foes - Barrat Americans

An exceptionally loud opponent of government regulation in the construction of housing in good times has found a new target to bark at in the market crash: banks.
Mick Pattinson, president of Barratt American, has rallied builders for years around common causes -- lowering government fees for constructing homes and fighting back against development opponents.

Now, despite filing for bankruptcy protection late last month, Pattinson hasn't lowered the volume. He gathered a gang of builders, subcontractors and laid-off employees who toted signs and chanted "Banks behaving badly!" outside three banks in downtown San Diego on Wednesday morning.

The Carlsbad-based homebuilder filed for Chapter 11 bankruptcy protection late last month after Bank of America foreclosed on more than 10 of the company's ongoing projects in San Diego and Riverside counties. Pattinson says he was he was blindsided by Bank of America's decision in August 2007 to freeze funding for Barratt's ongoing construction. In the ensuing financial trouble, the builder stalled some housing projects, laid off more than 100 workers, left subcontractors in the lurch and slid toward insolvency.In a newspaper column, from top posts in the local and state Building Industry Association, and through lawsuits against various cities for what he called excessive fees, Pattinson has developed a reputation for giving opponents a piece of his mind about what he considers impediments to homebuilding in the state over the years."I am not one who is at all embarrassed of what I do for a living," he said.

Pattinson's current case: banks created this housing downturn in the first place with reckless mortgage lending and thus shouldn't be allowed to cut builders off from the funding they were promised. He's assembled more than 160 builders nationwide to push for government intervention and regulation for banks. He's made his company's plight public, establishing solidarity with his builder friends and giving his laid-off employees a visible reason for their unemployment.

The company's responsibility for its troubles takes a lesser place in Pattinson's "What went wrong?" litany. But as the builder makes its predicament public, the story of what happened to Barratt American -- whether caused by Pattinson's favored targets or by the company's own decisions -- is a story of the pain in the local homebuilding industry, a sector already counting down the days to 2010, hoping for better times.The bankruptcy of one of the region's largest local homebuilders leaves in its wake a slew of subcontractors and unemployed workers, some of whom are now slipping out of business.

The debts top $20 million for just the top 20 in a long list of hundreds of creditors in the company's bankruptcy filing. The downfall of Barratt American, then, is also the story of sacrifice and distress from the smallest subcontractor to one of the largest local housing companies."Everybody had their snout in the trough," Pattinson said. "When markets rise, we rise with them, and when markets fall, we fall with them. It's a risk business."

Now that the government has started spending hundreds of millions of dollars to help banks -- who also made risks during the housing boom -- Pattinson argues that bailout should be applied with a mandate that homebuilders like him be enabled to keep their businesses afloat. Government should make the banks lend again, he said.For about two decades, Pattinson ran the local Barratt operations as a subsidiary of Barratt Group, based in Great Britain. In 2004, Pattinson and his fellow managers banded together to buy the U.S. operations of the company for $165 million, a deal that Bank of America partly financed and encouraged Pattinson to do, he said.That year was about the peak for local homebuilding activity, followed by a peak for prices in 2005 and a still-bustling, but cooling, 2006.

The company built projects in San Diego County and expanded operations to the Inland Empire. Pattinson used his pulpit in his biweekly "The Equalizer" column in the North County Times to preach the perils of government fees attached to housing, even snagging top prizes in local journalism contests. He named a state politician the "hero" of homebuyers for his efforts to restrict cities from spending fees collected from new homes on fixing infrastructure issues not caused by that development.

He lambasted Solana Beach for fighting the "mansionization" of that coastal city. He wrote a column entitled "How city policies ruin the housing market" and called the government-mandated affordable housing program an "Eastern Bloc practice."But soon it was clear Pattinson had a larger challenge to face -- the crash of the local housing market. The last two years provided a sharp drop in sales and prices as mortgage options dried up and home-buying fever cooled. The third quarter of 2008 was the worst quarter in 30 years for the region's new homebuilders, according to MarketPointe Realty Advisors.

Pattinson blames the crash in the market to the opaque systems banks were using to fuel the housing frenzy. The banks didn't explain how they were operating, he said. He claims the real estate industry couldn't anticipate how bad the downturn would be.But especially near the end of the boom, Pattinson and the region's homebuilders had clues the system was on shaky ground.

Barratt American had a mortgage lending arm that turned away some would-be buyers who couldn't qualify for the loans. Pattinson's sales team began seeing those same customers who'd been turned down coming back to purchase a house. They'd gone to a mortgage broker with less stringent requirements, and they were back. The company couldn't discriminate against those buyers, Pattinson said.But could the builder have used that trend to foresee tough times ahead?"We knew it was going to end," he said, quickly revising his own words. "I say 'we knew'-- that's an overstatement."
Pattinson describes a builders' gathering in the beginning of 2007 where he made a presentation about the softening market. But the market had already been coming down for more than a year."Turning around a homebuilding company is like turning around an oil tanker at sea, you can't do it on a sixpence," he said. "And yes there were some windfall profits. I don't dispute that but everybody was taking a piece of the action."Including the banks, he said. When it became apparent last March that Bank of America wasn't going to unfreeze the loans, the company stopped paying its interest on the loan.

The bank started foreclosure proceedings on 11 Barratt projects, including City Square townhouses in Escondido, Aragon condos in La Mesa, the Nantucket subdivision in Leucadia and Magnolia Estates in Carlsbad.Right up until last summer, when the bank began foreclosing, Barratt was working on its under-construction projects. That meant there were scores of subcontractors still framing, designing, grading, installing pools and pouring cement as the builder went through its financial fights with the bank.John DeMaria owns DeMaria LandTech Inc., and is listed as a creditor in Barratt's Chapter 11 filing. He's owed more than $450,000.

His company worked on pools and common areas in the Magnolia Estates project. When the builder kept sending requests for more work, DeMaria kept hiring workers to do it. Eventually, he wound up with a backlog of invoices that Barratt American was unable to pay."I took a home equity line on my personal house to pay their bills and now I have to sell my house," he said. "It's horrible."

DeMaria cashed out his retirement to cover his own backlog of payroll taxes and deferred expenses. He's selling his two acres in Leucadia to rent for a while. But he doesn't blame Barratt."It's not really their fault; I don't have any ill will toward them," he said. "I'm about the most resilient person you could ever have. There's sacrifices you have to make if you want to do well."Pattinson said the human impact of this situation is distressing. And his own laying off of more than 100 employees, the vast majority of his personnel, impels him to keep fighting the banks. He does assign a smaller portion of blame to his company's own decisions."What mistakes did we make? You could argue we made the mistake of buying the company a year before the market peaked, or that we didn't move fast enough to liquidate debt after we bought the company," he said. "But we were not in bad shape. What's happened to us is a reflection about the panic in the lending industry."Analysts don't see much unique about Barratt's operations during the boom, or its plight, other than Pattinson's willingness to bare his wounds."I think they had a great reputation -- they got into the urban market, did some innovative stuff, they were pretty much a normal, middle of the road San Diego County local builder," said Peter Dennehy, vice president of Sullivan Group Real Estate Advisors.

"They were doing the things that everybody was doing."Gary London, local real estate analyst, said most local homebuilders are in the same boat as Barratt."Should they have been more effective managers of their own portfolio? Of course they should have, but you know they're not without company," London said. "I think all of us in the industry had some of the same burdens, made of the same misjudgments. And the lenders aided and abetted that. There's plenty of blame to go around."

Thursday, December 4, 2008

Kimball Hill Bankruptcy - What Happens to Kimball Hill Homeowners?

What happens when a builder goes bankrupt?

Several north Texas communities are learning the answer the hard way.
Many are unfinished and are now out of luck. Kimball Hill Homes announced Tuesday that it is shutting down all operations across the country in the next 15 months.
This affects five different developments in Tarrant, Dallas and Collin Counties.
Homeowners here are now very worried that this is going to be a huge financial loss for them too.

Jason Roberts bought his south Arlington home two years ago. It was a long-term investment for his family. But he didn't think he would outlast his homebuilder Kimball Hills.
"It is a bit disappointing to see that at such an early stage in our community development they're pulling out. And they're leaving us sort of high and dry," he said.

A statement released by Kimball Hill's Chief Executive Officer Ken Love says: "We deeply regret the necessity of today's decision, but given the current housing and financial market conditions, we are simply unable to conduct normal operations while the company continues its sale efforts."
The company says homes already under construction will be finished, but they are not building any new homes. They are looking to sell the unfinished lots.

"At this point, we don't know where it's gonna go. So you don't know if right across the street in the new phase if they decide to sell if off to somebody else, are they going to put condominiums in or apartments? At this point we don't know where it's going to go," said Roberts.
This also means homeowners association dues may dramatically increase.

"The community as a whole may suffer. Because we don't have the cash flow coming in to help us with the greenbelts, and the attractiveness and appeal of the area," said Roberts.
Just how much more, remains to be seen.

Warranties on home bought after April 23rd will be honored.

But for home purchased before this date will not have a Kimball Hill warranty.
There are five Kimball Hill properties in Tarrant, Collin and North Texas affected.

Wednesday, December 3, 2008

Kimball Hill Banruptcy - Homebuilder is Winding Down Operations

Kimball Hill Homes, an institution in the Northwest suburbs for 55 years, will be going out of business, the company announced Tuesday. Chapter 11 bankruptcy did not help the Chichago homebuilder and they are done.

"Over the next 15 moths, we will be phasing down operations, said Ken Love, chief executive officer, in a telephone interview.

Within six months, the company will finish the approximately 500 homes it has under construction and under contract, including about 110 in the Chicago area, he said. The 120 deposits that buyers have placed on homes that have not yet been started will be returned. That includes about 40 in the Chicago area.

No homes will be started, but approximately 260 inventory and model homes will be available for purchase.

Of 400 Kimball Hill employees, 100 are in the Chicago area, Love said. Some were notified of their termination Tuesday, others will stay with the company for all or part of the wind-down period.

"We deeply regret the necessity of today's decision, but given the current housing and financial market conditions, we are simply unable to conduct normal operations while the company continues its sale efforts," Love said in a statement.
Beginning the wind-down process now ensures the smoothest transition possible for employees, home buyers, creditors and the communities where the company builds, he said.
If the company is not sold within 60 days, the opportunity for a sale will diminish, according to Love. A single buyer is preferred.

The homebuilder filed for Chapter 11 bankruptcy protection in April due to lower demand for homes during one of the worst housing markets in decades.

A year ago, the company listed assets of $795.5 million and a debt of $631.9 million, but that was the amount paid for the assets, and their current market value is not really known, Love said.
The company also said has requested a hearing on Jan. 12 to approve the disclosure statement accompanying its Chapter 11 plan.

Besides proceeds from home sales, the company has access to more than $35 million from loans obtained during the bankruptcy process.

This will ensure that employees, subcontractors and tradespeople will be paid for their work, he said. The people who will lose money include lenders and shareholders, he said.
Kimball Hill Homes is believed to have built more than 10,000 homes in the Chicago area. Most recent building has been in Bartlett, Elgin, Naperville, McHenry, Montgomery, Shorewood and Yorkville.

A predecessor to this company was started by a lawyer named Kimball Hill, who is considered founder of Rolling Meadows because his company built almost 4,000 homes there in three years beginning in 1953. His son, David Hill, who died July 26, took over leadership of the company in 1969 and later expanded into nine states and 15 metropolitan areas.

During the current housing slump, the company quit building in Florida, Ohio, Oregon and Wisconsin. It continued operating in Illinois, Nevada, Texas and California

Denver's Adare Homes Hohnstown Farms LLC Files Chapter 11

Adare Homes Johnstown Farms LLC has filed for Chapter 11 bankruptcy protection, according to court documents.

The Greenwood Village-based homebuilder listed assets and liabilities of $1 million to $10 million on documents filed Dec. 2 in U.S. Bankruptcy Court in Denver. It named only four major creditors.

Adare Homes LLC, also based in Greenwood Village, builds homes in communities along the Front Range, including Commerce City, Greeley and Brighton, according to the company’s website.

Wednesday, November 26, 2008

Bankrupt Homebuilder Neumann Homes to Sell Land

Bankrupt Homebuilder Neumann Homes asked a judge to approve the $9 million sale of land north of Chicago to Cole Taylor Bank.

The lender, a unit of Taylor Capital Group Inc., agreed to reduce its $14.4 million claim in exchange for part of the 600- acre Clublands property in Antioch, according to papers filed Nov. 22 in U.S. Bankruptcy Court in Chicago.

U.S. Bankruptcy Judge Eugene Wedoff agreed to hold an emergency hearing to consider the sale. Cole Taylor, based in Rosemont, was Neumann's lender for the development, and the only interested buyer, the builder said.

Neumann, a 24-year-old company that built 12,000 homes in Illinois, Wisconsin, Colorado and Michigan, filed for bankruptcy in October 2007, citing inadequate funding and weakening of the U.S. housing market.

The Clublands assets include proceeds from a $13.8 million tax bond issued by Antioch for streets, sidewalks and other improvements, as well as three bonds totaling $15.6 million issued by Fidelity & Deposit Co. of Maryland, court records show. Antioch said in July that Neumann had defaulted on its obligations to finish public improvements.

Neumann has secured claims of $151.1 million, unsecured claims of $134.1 million and assets of $291.8 million, court papers show.

George Panagakis, Neumann's lawyer with the law firm Skadden, Arps, Slate, Meagher & Flom, didn't immediately return a call seeking comment.


Tuesday, November 25, 2008

Florida Homebuilders Upset with Federal Bailout Plan

Florida home builders are upset with the way lending institutions are handling the cash from the $700 billion federal bailout.

Home builders are accusing banks of misusing their federal assistance. They say lenders are hoarding the bailout money while demanding repayment of good loans from customers with top credit scores.

Builders also contend banks are eliminating lines of credit and doing away with construction financing.

The Florida Home Builders Association says the situation is driving builders to ruin.

Valrico builder Chuck Fowke says he and other builders have been meeting with members of Congress to seek a “time out” until they can reach a solution with lenders.

Home Builders President Jay Carlson says the business practices are forcing solvent, creditworthy home builders to the brink of financial disaster.

One example cited by builders involves a development in Pensacola where many owners of pre-sold lots are ready to close on their homes, but the deals are falling apart because banks are requiring down payments of up to 50 percent.

Florida Chief Financial Officer Alex Sink met with builders on Monday and promised to work on a solution, but her authority is limited to smaller, state-chartered lending institutions.

The chief economist for the American Bankers Association responds to the builders’ charges, saying banks have not received all the bailout cash yet from the federal government.

James Chessen says one of the most important factors in securing credit is to have a longstanding relationship with a bank.

Chessen says the credit situation in Florida may be among the worst in the country because of the overbuilding in the state.

Friday, November 21, 2008

Land Resource LLC Bankruptcy - Another Southeast Builder Files Bankruptcy

Land Resource LLC, a southeastern U.S. developer, has filed for Chapter 11 bankruptcy earlier this week. Land Resource LLC showed liabilities of over $200 million and assets valued at only about half that.

"The banks stopped making loans to our customers," Ward said in an e-mail. "It just doesn't seem fair that the banks can put us into bankruptcy because of their failure to lend and then get a federal bailout, but then chase me personally and ruin a very good company and put 250 people out of work and affect thousands of property owners and leave them with uncompleted lots."

Ward, who is 60, said he will start over.

The company's assets include 128 unsold lots in Cumberland Harbour in St. Marys, where the largest marina complex on the Georgia coast has been proposed. According to Land Resource, 936 lots have been sold. They asked from $150,000 to $750,000 for lots.

In July, Land Resources Companies of Orlando, Fla., parent company of Roaring River, a proposed 4,300-acre, master-planned community in Fayette County next to the New River Gorge National River, closed its Fayetteville office and laid off all of that office’s employees.Friday, the company announced it and 34 of its affiliates and subsidiaries filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code.“I am presuming this does affect the Roaring River project and its lot owners,” Fayette County Commissioner Matt Wender said.

Land Resources officials cited a combination of the declining economy, the credit freeze that is currently gripping the U.S. and a challenging real estate market.“We deeply regret the impact the Chapter 11 filing will have on property owners, vendors and employees,” Land Resource Chairman and CEO J. Robert Ward said. “We remain mindful of our customers whose home sites and communities have not yet been completed.”Ward said that through the Chapter 11 process the company will identify the best means of maximizing recoveries for all creditor constituencies.“Including our customers and employees,” he said.

“As part of this process, we will explore the sale of all the company’s assets to a well capitalized and well positioned purchaser.”Wender says he has always had mixed feeling about the proposed housing development.“I have always been concerned with the encroachment to the rim of the gorge, but the part of the housing development not visible I always thought of as being beneficial to the county,” he said.Approximately 80 lots have been sold as part of the housing development.“I’m very concerned about the lot owners who purchased lots, but can’t build on them,” Wender said.In July, a groundbreaking ceremony for water and sewer services was scheduled, then canceled.“Without that infrastructure, the lot owners can’t obtain building permits to build on their lots,” he explained.

“Now, it appears that they can’t get their money back, either. Those are the people I feel bad for in all of this.”Wender added he was surprised to learn that Land Resources had no escrow or bond funds to guarantee the water and sewer infrastructure being completed.“I’m concerned the lot owners may be in a difficult situation,” he said.Land Resources develops upscale residential resort communities throughout the Southeast and West Virginia.“The sudden and steep economic downturn has significantly impacted Land Resources in each of the markets where the company operates,” Ward said.“Home site sales have also declined dramatically due in large part to the extremely limited availability of credit.

Many well qualified buyers are finding it difficult to secure financing for a second home.” In order to facilitate an orderly negotiation process with its creditors and facilitate a structured sale of the enterprise or its assets, the company filed its Chapter 11 case in U.S. Bankruptcy Court for the Middle District of Florida in Orlando, according to Ward. “Purchasers of Land Resources’ assets may elect to fulfill the developer’s obligations, including those related to funding homeowner associations,” he explained.

“All transactions will be subject to bankruptcy court approval.”Ward said as news regarding the bankruptcy filing becomes available, the company will inform property owners and other stakeholders by posting information on its Web site,”The company has also established a “Frequently Asked Questions” section on its Web site as well, Ward added.

Monday, November 17, 2008

Boston Blobe Shows 6 Steps to Fixing Homebuilding Industry

I love Boston, but does the Boston Globe really know how to fix the homebuilding industry?

The housing market is beginning to resemble one of those super bugs that are resistant to modern medicine: Despite injections of help from the government and lenders, it's still sick. Foreclosures continue at an alarming pace, sales are few, and mortgages are hard to come by.

Just this week Treasury Secretary Henry Paulson said he would not use taxpayer funds to buy up troubled mortgage-related securities, as was originally intended by the passage of the $700 billion federal bailout bill. Congress is expected to develop a new economic stimulus package in the coming weeks, and many housing industry officials and activists hope lawmakers will use the opportunity to devote more attention to fixing the nation's real estate problem.
Here are six of the top ideas being mulled in Washington, and among industry specialists.

1. Cut the rates
How does a 2.99 percent mortgage sound? Silly? Maybe 5.25 percent? Discount loan rates could draw home shoppers off the sidelines and into the market, boosting sales and helping to check falling housing prices. One proposal, plugged by Columbia Business School dean R. Glenn Hubbard and Columbia Business School professor Chris Mayer, includes refinancing primary residences into 30-year fixed-rate mortgages at 5.25 percent placed under mortgage giants Fannie Mae and Freddie Mac.
The National Association of Homebuilders, with 235,000 members, wants Congress to include in the upcoming economic stimulus package a subsidy on conforming 30-year loans that would lower the interest rate to a bargain 2.99 percent. The rate would be for all mortgages on homes purchased through June 30, 2009. For homes bought in the second half of 2009 the subsidized interest rate would be 3.99 percent.

2. Make like Sheila
Sheila is Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., who's become something of a cult hero among housing activists because of what she's doing for customers of failed IndyMac Bank who are facing foreclosure. Her agency is systematically modifying these mortgages to more affordable levels, so borrowers' monthly payments are as low as 31 percent of their income. Already around 5,000 customers have had loans adjusted by an average of $380 a month or about 23 percent. Methods include lowering a loan's interest rate, forgiving some of the principal debt, or extending the repayment period. Importantly, Bair would pay loan servicers $1,000 for every mortgage they modified, giving them an incentive to work out, instead of foreclose on the loan.

Bair wants to expand the IndyMac model across the industry. One problem: Too many of the borrowers who receive help still have trouble affording their homes and end up being foreclosed on again. The FDIC proposes that the US government would absorb up to half of the losses of those homeowners who default a second time, with the lenders or mortgage holders eating the other half. The estimated cost is $25 billion. The rub? Paulson has frowned on spending that kind of money because taxpayers are unlikely to recoup these losses.

3. Own the loanSenator John McCain, US Representative Barney Frank, a Newton Democrat, and various academics have come up with a simple idea: Have the government buy up troubled loans instead of waiting for lenders to figure out how to fix them. This, they argue, would speed the pace of loan modifications, more quickly helping distressed homeowners avoid foreclosure. One novel approach involves using the government's power of eminent domain to take, not the property, but the loan notes from investors who may be reluctant to part with them.

During the presidential campaign, McCain suggested using around $300 billion of the bailout fund to buy hundreds of thousands of loans. The government would then issue those homeowners new loans at more affordable levels. Other supporters have suggested the original lenders would have to forgive a portion of the old loan, if the home has since lost value, as part of the buyout agreement. But now that Paulson has nixed the idea of spending bailout funds on mortgages, it's unclear where funds for a loan buy-up would come from.

4. Share the pain, gain
A growing number of proposals resurrect an idea known as "shared appreciation mortgages," in which struggling homeowners would be forgiven a portion of their mortgage debt. In exchange, if the home appreciates in value or the borrower later sells at a profit, the lender would get a share of that profit.

The arrangement is a component of the federal Hope for Homeowners program, a new loan program at the Federal Housing Administration that refinances mortgages for homeowners who owe more than what their house is currently worth.
Academics such as Andrew Caplin and Thomas Cooley of New York University argue that the agreement gives taxpayers an "ownership stake in the future." The shared appreciation model was used years ago in limited measure, but has largely stalled because of an arcane tax ruling by the Internal Revenue Service.

Meanwhile, Hope for Homeowners got off to a slow start, partly because lenders are required to write down loans to participate. It now has 180 lenders enrolled, although some will only finance loans in certain areas of the country.

5. Buy cooperation
Harvard Law School professor Elizabeth Warren is circulating a proposal to buy cooperation from mortgage servicers, who perversely are in the position of making money doing a foreclosure. Many loan servicers, who are the liaisons between homeowners and investors, are limited in what they can change in loans by contract terms with the loan holders.
Warren said even if legal issues are eliminated, servicers need financial incentives to help homeowners. She proposes the US government pay servicers for each loan modification that results in a family receiving a fixed-rate mortgage with an affordable payment. Secondly, she said owners of second mortgages, who often block modifications because they stand to lose money, should receive a 10 percent bounty on the face value of the loan for writing it off and getting out of the way. Finally, she recommends a fee for specialists who assist homeowners through the negotiations and paperwork. The mortgage problems are too complex to be solved without the help of some highly incentivized middlemen, she argues.

6. Reform bankruptcy laws
This is another idea that has been around the track before and remains popular. Some Democratic lawmakers and housing officials want to amend bankruptcy laws so judges would be allowed to modify a debtor's mortgage as part of a bankruptcy proceeding. The plan was excluded from the original bailout plan but proponents want to re-insert it in the new stimulus. Nobody wants to go into bankruptcy, but when losing your home is the other option, advocates of the law change say this could make a world of a difference. Some hope the law change would push lenders to work harder to modify loans before going to court. Opponents, however, counter that this authority would violate the sanctity of contracts and be a remarkable intrusion into private business matters.