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.

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.

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.





-->

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.

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, www.landresource.com.”The company has also established a “Frequently Asked Questions” section on its Web site as well, Ward added.

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.

Buena Vista Custom Homes - Another Imploding Oregon Builder

Buena Vista Homes hasn’t gone bankrupt like some other custom home builders in the housing slump, but according to The Oregonian, the company faces a growing list of unpaid bills.
The newspaper reports that Sterling Savings Bank sued Buena Vista because the company allegedly stopped paying its loans.

Sterling seeks to recover $11 million in loans and foreclose on some 50 lots Buena Vista owns in a Happy Valley subdivision, according to the newspaper.
Happy Valley is among the areas hardest hit by the metro area’s housing downturn.
Buena Vista owner Roger Pollock says he will attempt to renegotiate his loans with the bank but that can’t happen until he’s defaulted.

Pollock joins a growing list of area homebuilders who have gone under since the housing bubble burst, which economists say occurred in late 2006.
Pacific Lifestyle Homes Inc. announced last month it was filing for Chapter 11 bankruptcy.
In September, Renaissance Homes, a Portland-area luxury home builder, announced it was entering bankruptcy as well.

Legend Homes, one of Oregon’s largest home builders, filed for bankruptcy in June after its parent company made some bad land investments.

Homebuilder Roger Pollock can claim some success simply because his company, Buena Vista Custom Homes, hasn't been forced into bankruptcy like three of his competitors in the housing downturn.
But public records show that Pollock, 47, and his affiliated companies face a growing list of mortgage defaults, past-due construction bills and unpaid homeowners dues.

Buena Vista's new stone-fronted headquarters in downtown Lake Oswego sits unfinished with plywood covering parts of the building. Banner Bank of Walla Walla says Pollock's company, Pollock Commercial Holdings LLC, has defaulted on its $5 million construction loan, and his general contractor has gone to court to collect $1.3 million in unpaid bills.

But Pollock's bigger problems are with his housing projects.
Sterling Savings Bank sued Buena Vista because it said the company stopped paying its loans. The bank is seeking to recover about $11 million in loans and foreclose on about 50 lots Buena Vista owns in a Happy Valley subdivision, areas hardest hit by the Portland area's housing slowdown.

Pollock blamed the commercial project problems on the lender that he said backed out of commitments to provide more funding.

On his housing work, Pollock said he stopped paying loans on his rentals because the rents didn't cover his mortgage. He hopes to renegotiate those loans and possibly resell his subdivision lots. But that plan, he said, was stalled when Sterling Savings Bank stopped the talks after months of negotiations.

"The only way to start negotiations with the bank is if you're in default," Pollock said. "I don't think they know what to do. Do you take the home? Do you wait to see if you get any of the (federal) bailout?"

Lawyers representing Pollock's lenders either didn't return calls seeking comment or declined to comment.
Like most homebuilders, Pollock and Buena Vista made a fortune during the 2004 to 2006 housing boom.

Trade journal Builder Magazine in 2005 named Buena Vista the nation's fastest-growing homebuilding business. Pollock made plans during the heat of the boom to build a more visible headquarters on Lake Oswego's main downtown street.

As the housing market slowed, Pollock later decided not to move into the building if he could find other tenants. He'd hardly need the space now, since he's now one of just three employees of a company that employed 50 at its peak.
"Buena Vista, we're just on hold until the market comes back," Pollock said.
Before he could finish the 20,000-square-foot building and find a tenant, the project ran into financial trouble.

In August, Carlson Testing Inc. of Tigard filed a small-claims case against Pollock Commercial Holdings LLC. Subcontractors Dallas Glass, Cascade Fire Protection Co., Sowles Co., Portland Electrical Construction Inc. and Western Partitions Inc. all filed liens for unpaid bills.
In September, the general contractor, Precision Construction Co. of Portland, filed a $1.3 million lawsuit for unpaid bills.

Last week, lender Banner Bank filed a lawsuit asking the Clackamas County Circuit Court to appoint a receiver to manage the project. The bank said Pollock had defaulted on a $5 million construction loan when he failed to pay his construction bills. It also said Pollock didn't make his monthly $31,600 payment starting in September.
Banner Bank's most dangerous allegation was that Pollock used some of the loan funds for "purposes unrelated to the construction."
Banner Bank's suit provided no further detail, and its lawyer, Kimberley Hanks McGair, declined to comment. In some cases, such charges can lead to a criminal investigation. Federal prosecutors are currently investigating possible bank fraud charges against at least two other Oregon developers, both in Deschutes County, who allegedly misappropriated construction loan proceeds.

Pollock denied the allegation. "That's completely false," he said. "We've provided them with complete documentation since August, and they haven't even looked at it."
He said Banner Bank agreed upfront to provide another $2 million loan to finish the building but later changed its mind. "The bank is stalling in funding the rest of their loan," Pollock said. "The truth about Banner Bank will come out in due time.

"We fully intend to countersue them if they won't honor their commitment."
Houses go to auction
Last year, Buena Vista became the first major local builder to auction off its excess inventory in the housing slowdown. It sold 177 homes and 11 lots for about $75 million in two auctions.
Even so, Pollock and his companies held onto dozens of rental homes and lots as Portland-area home prices declined for the first time in a generation.

Sterling Savings Bank filed two lawsuits against Pollock and his companies. The first seeks to foreclose on homes and lots, many of them in Happy Valley's Lincoln Heights subdivision.
The second says Pollock or his company had defaulted on loans for 20 rental properties, all but two in Happy Valley. A Clackamas County judge appointed Ted Durant & Associates Inc. as receiver and directed it to collect rents from Pollock's rental homes.

But in court filings, the receiver accused Pollock and his company of demanding that the tenants continue to pay rent to Pollock's company. One tenant said Pollock contacted him and was "very pushy, articulated very strongly that he was still the person in charge and had ownership/control of all the properties," according to an e-mail the receiver sent to Pollock's lawyer.

Pollock denied pressing the renter for the payment and said he has collected no rent from the properties since the receiver took over.

The homeowners' associations in Pollock's neighborhoods are also seeking money for unpaid bills.
Northwest Community Management Co., which manages the homeowners' association, filed six liens against Buena Vista seeking $4,900 in unpaid dues. Pollock said all the homes were rentals but he stopped making the payments while he negotiates with his lenders.
Despite his troubles, Pollock insists that he and Buena Vista will make it through. While his commercial project has unpaid bills, Pollock stresses that Buena Vista has paid all of its subcontractors.

"We're not going out of business," he said. "We're not going bankrupt. We're just watching the market."

D.R. Horton to Lose up to $900 Million in Q4

After the stock markets closed Tuesday with all eyes on the presidential election, home builder D.R. Horton Inc. warned investors that it expected to lose as much as $900 million in its fiscal fourth quarter -- about 18 times as much as in the prior-year period.D.R. Horton, one of the nation's largest home builders, projected a loss for the quarter ended Sept. 30 of $800 million to $900 million, including an expected tax benefit of $350 million. That works out to about $2.53 to $2.84 a share.

Analysts had forecast a loss of 58 cents a share on revenue of about $1.6 billion when D.R. Horton reports its financial results on Nov. 25, according to a poll by Thomson Reuters. In the year-ago period, D.R. Horton lost $50.1 million, or 16 cents a share. The company projected that revenue for the quarter would fall by half to $1.5 billion.Shares of Fort Worth-based D.R. Horton rose 19 cents to $6.87 in regular trading. The stock was down 11 cents in after-hours trading.

M/I Homes - Sell of Land, Layoff People

"We're facing what may well be the most difficult time in the history of the building industry," Robert H. Schottenstein told financial analysts yesterday in addressing the company's third-quarter financials.

The Columbus homebuilder said it lost $58.7 million in the three-month period as it continued to struggle with low demand for new homes.

Included in the Columbus homebuilder's loss were pretax charges of $43.5 million for asset impairments, reflecting the housing downturn's effects on land and property values, and a loss from operations of $14.9 million. M/I's per-share loss for the quarter was $4.18, compared with a $1.73-a-share loss a year ago.

Yet as it continues to sell land and cut expenses, including layoffs, M/I has a few things going for it, Schottenstein said.

During the quarter, the company reduced its debt to zero. At the beginning of 2007, Schottenstein said, M/I owed $410 million on its homebuilding credit line. M/I reduced its debt-to-capital ratio over that period from 44 percent to 32 percent.

Meanwhile, it also is reducing the number of communities in which it builds homes. Schottenstein said the company had 9,530 lots at the end of the quarter, 43 percent fewer than a year earlier and down nearly a third from the beginning of 2008.
Schottenstein also said M/I has had positive cash flow for eight quarters in a row.

M/I's shares increased $1.45 yesterday to close at $11.95, nearly a 14 percent boost.
However, Schottenstein also warned of job cuts ahead in the face of lower demand. M/I delivered 555 homes in the third quarter, down 29 percent from the third quarter of 2007. It also booked 456 new contracts in the quarter, a 19 percent decline.
Through the first nine months of 2008, the company's new contracts are down 30 percent, to 1,540.

"Demand is weak, consumer confidence is at or near a historical low, unemployment is rising, and tightened mortgage lending standards, combined with the unprecedented turmoil in the financial markets, have further contributed to very difficult conditions for homebuilders," Schottenstein said.

Related terms - M/I Shottenstein, MI Homes, M/I Homes bankruptcy rumors, low demand for new homes, home demand, MI Homes layoffs, MI homes sells land MI Homes Selling Land, MI Homes layoffs

Standard Pacific - Losses up, Sales Down

Big Homebuilder Standard Pacific Corp. on Thursday said its third-quarter net loss tripled after a $368.4 million pretax charge to buy down the value of homes and land.

The housing slump seems to be worsening for some.

"Housing market conditions deteriorated further during the quarter," said CEO Jeffrey Peterson, in a statement. "It does not appear at this time that the earlier efforts by the federal government to stabilize the housing market across the country has had any meaningful impact."

Standard Pacific said net new home orders fell 32 percent in the quarter to 921 homes. The worst performance was in Texas, followed by a tie between Southern California and the Carolinas.

Standard's housing backlog of new homes completed but not yet delivered fell 59% to $395.7 million. New home deliveries was down 24 percent to 1,188.

California, which comprised half of revenue for Standard Pacific , saw sales fall by 31 percent. The Southwest was down 42 percent and the Southeast fell 46 percent.

Standard Pacific develops homes in California, Arizona, Texas, Colorado, Nevada, Florida and the Carolinas.

Gunstra Builders of Indianapolis Shuts Down Most Sales Offices

From Indystar.com

Gunstra Builders, a large Indianapolis area homebuilder, has shut most of its sales offices and stopped communicating with clients, leaving buyers at its projects wondering if Gunstra will stay in business or fall prey to the nation's housing downturn.

One of Gunstra's partially finished projects is a 77-townhouse development called Monon on Main in Carmel's new Arts & Design District. Residents there are exchanging e-mails to figure out what's going on with Gunstra, which hasn't staffed its sales office on the site for over a week.

At Blackthorne, a housing development in Plainfield zoned for 322 units, Gunstra has turned management over to another company and stopped new construction with only 23 homes sold.
Lafayette-based Gunstra hasn't commented publicly on its viability. Calls to its main office went unanswered Tuesday and Wednesday.

Phones are disconnected to at least seven Gunstra communities where the company is building homes in Indianapolis, Carmel, Fishers, Plainfield and Zionsville.

"They've retrenched. I am under the impression they are hunkering down . . . to weather the storm," said Jeff Watkins, owner of Environmental Services Associates in Carmel, who serves as a spokesman for residents of Gunstra's Monon on Main townhome project. He said he has talked to Gunstra officials recently.

About 38 units at Monon on Main have been sold, with others sitting unsold and some partially built, Watkins said. Construction has stopped. On Wednesday, townhomes sat partially built on a silent, weedy quarter-block that holds a trailer-sized trash bin and stacks of bricks.

Soori Ardalan, who runs Soori Gallery in a townhome at Monon on Main, said Gunstra recently told her by e-mail it no longer would respond to maintenance issues she has with the home she bought almost a year ago and she would have to turn to a warranty company.

"I don't know what's happening," Ardalan said, calling herself "very disappointed" with Gunstra's disappearance. Besides her concerns about getting repairs done on her unit, she said residents also wonder if they need to take control of their residents association from Gunstra.
The city of Carmel has pushed redevelopment of its old downtown, and Monon on Main occupies a key site on the north side of Main Street.

"Monon on Main is a pretty high-profile project. If this means it's going to end up . . . unfinished, that's not what we had in mind," said Mike Hollibaugh, Carmel director of community services. He said he is trying to find out the status of Gunstra.

The company, which specializes in condominiums and townhomes, was started in 1976 by Bruce Gunstra, a former construction manager for National Homes Corp. He expanded into the Indianapolis market in 1984, and the company has built hundreds of homes since.
In Plainfield, Gunstra has notified residents of its Blackthorne development that a new management company has taken over running the fledging homeowners association, a resident said. With the development far from done, a promised clubhouse and swimming pool haven't been built.

Earlier this year, a nursing home developer arranged with Gunstra to buy 9.3 acres in the Blackthorne subdivision for a 264-bed facility, but the rezoning request was denied by Plainfield.
Homebuilders in Indiana and elsewhere find themselves under financial stress as a result of their own overbuilding, a large inventory of unsold older homes on the market and the end of a period of easy-to-get mortgages requiring small down payments during the housing boom years of 2002-2006.

In the metro area, new home construction has plummeted to an estimated 5,000 units this year compared with a peak of more than 15,000 in 2001 and 7,331 last year.
Among the major builders who have disappeared from the Indianapolis market in the past 18 months are locally based Davis Homes, which shut its doors in July, and Los Angeles-based KB Homes, which pulled out last summer. Is Gunstra going Bankrupt?

Centex Posts Smaller Loss, but huge recenue cut

Centex Corp. posted a smaller net loss for its fiscal second quarter Tuesday, but the housing slump cut the struggling home builder’s revenue by more than half.

Dallas, Texas-based Centex (NYSE: CTX) said that it lost $172 million, or $1.38 per share, for the quarter that ended Sept. 30. That compares to a loss of $644 million, or $5.26 a share, in the year-ago quarter.

Factoring out an after-tax gain of $30 million for the sale of its Westwood Insurance Agency, Centex recorded a third quarter net loss from continuing operations of $202 million, or $1.62 per diluted share – an improvement from the year-ago comparable loss of $645 million, or $5.27 per diluted share.

The narrowing of the net loss resulted from an $873 million reduction in paper losses taken for impairments on land and joint ventures.

The bottom-line improvement was not indicative of Centex’s top-line performace. The company’s revenue plummeted 54 percent, to $1.01 billion, matching the 54 percent drop in sales orders, which fell to 2,728. Factoring out results from Centex’s Financial Services business, the company posted a 55 percent drop in home-building revenue – to $953 million – as closings plunged 48 percent.

Centex has long been one of the most active home builders in the Triangle. The company ranked No. 1 on Triangle Business Journal’s list of residential homebuilders for years before falling into second place with 928 homes completed in 2007. This year has been hard on Centex’s national and local operations, as evidenced by longtime Raleigh division President Hampton Pitts resigning in July after 16 years with the company.

Pulte Homes Reports Eighth Straight Loss as Sales Slump Deepens

From Bloomberg - Oct. 22 -- Pulte Homes Inc., the third-largest U.S. homebuilder, reported its eighth consecutive quarterly loss as the frozen credit markets reduced mortgage lending, deepening the housing recession.

The third-quarter net loss narrowed to $280.4 million, or $1.11 a share, from $787.9 million, or $3.12, a year earlier, the Bloomfield Hills, Michigan-based company said today in a statement. The loss was more than analysts estimated. Revenue fell 37 percent to $1.56 billion from $2.5 billion a year ago.

Construction of single-family homes fell in September to the lowest in 26 years as builders cut production to match vanishing demand. Mortgage rates are rising, unemployment is increasing and only the most-credit worthy homebuyers are able to borrow, just as the growth in foreclosures across the country adds to the inventory of homes for sale.

``The competition between the builders is going to become ruthless,'' Vicki Bryan, senior high-yield analyst at Gimme Credit LLC, said in an interview before the results were issued. ``There's a chance this year could top last year as far as horrible quotient.''

Pulte, the builder of Del-Webb homes for retirees, was projected to report a net loss of 53 cents a share, according to the average estimate of 12 analysts in a Bloomberg survey.

The shares fell 60 cents, or 5.7 percent, to $9.95, in New York Stock Exchange composite trading, giving the company a market value of $2.6 billion. Pulte dropped 33 percent in the past 12 months.

Also after the close of regular trading today, Ryland Group Inc., the California homebuilder that lost 31 percent of its value in the past year, reported a third-quarter loss as home sales fell and increasing foreclosures pushed down prices.

The net loss in the three months ended Sept. 30 was $65.7 million, or $1.54 a share, compared with a net loss of $54.7 million, or $1.30 a share, a year earlier, Calabasas, California- based Ryland said today in a Business Wire statement.

The average price for a Pulte home in the second quarter fell 11 percent to $320,000. Pulte, founded in 1950 by William Pulte, the company's largest shareholder, sold the most homes in the second quarter in Arizona, Nevada and New Mexico.

Pulte's results came a day after NVR Inc., the builder of Ryan Homes, reported a 60 percent decline in net income.

NVR is the only major homebuilder to remain profitable in the three-year housing slump. NVR has remained profitable because it uses options to control land. That has prevented the company from having to reduce the estimated value of its land assets significantly.
In a July survey, the Federal Reserve said that 75 percent of U.S. lenders indicated they'd tightened their standards for prime mortgage lending.

Employers cut the most jobs in five years in September, pushing the unemployment rate to 6.1 percent as nonfarm payrolls fell by 159,000, the U.S. Labor Department said on Oct. 3.
U.S. housing starts will drop to 525,000 in the second quarter of 2009, a record 70 percent decline from the peak in the third quarter of 2005, according to a Mortgage Bankers Association forecast. Mortgage originations for home purchases will fall 20 percent this year to $912 billion, according to Jay Brinkmann, the association's chief economist.

Homebuilder Ryland Group posts loss of $65.7 million

From the LA Times

Calabasas-based home builder Ryland Group Inc. reported a third-quarter loss of $65.7 million Wednesday as revenue dropped 26.7%.The hard-hit builder's sales were $526.2 million during the period of July 1 through Sept. 30, down from $717.5 million for the same period a year earlier.

The loss of $1.54 a share exceeded 11 analysts' average projection of $1.10 a share, according to a Bloomberg survey. Ryland released the earnings results after the close of regular trading. The company's shares fell $1.10 to $17.90. The stock has dropped 35% this year. Company officials declined to comment, saying they would do so in a conference call with analysts today.
Ryland builds homes in 17 states. Some of the firm's California developments are in areas particularly hard-hit by the housing crash, including the Inland Empire and the Coachella Valley. Like other construction businesses, the firm has been hurt by a reduction in demand and prices for homes. Ryland closed escrow on 2,017 homes in the quarter, compared with 2,495 closings the same period last year. The company's average closing price on a home for the quarter was $254,000, down from $284,000.

Florida Home Builders Association Executive Director Quits

With the state's home building industry in a slump and cutbacks in the industry's Tallahassee-based trade group, the Florida Home Builders Association said today that its executive director has resigned to pursue other opportunities. J. Emmett Reed, CEO and executive vice president, will step down Jan. 1 and be succeeded by longtime FBA staffer Paul Thompson.

In recent years Thompson has been overseeing marketing and handling the group's big annual trade show in Orlando, the Southeast Building Conference.Florida Home Builders Association President Jay Carlson said that "Reed's many contributions to the success of our association will leave an enduring legacy." Reed worked for the group 11 years in various roles, including membership director, and was the driving force behind creation of the educational Foundation and Future Builders of America program.

He said in a prepared statement today that he cherished his time with the builders and "will have nothing but fond memories. But for me it's time for new challenges."

Sacramento California Homebuilder and Developer Files Personal Chapter 11

Central Valley developer Christo Bardis has filed for Chapter 11 personal bankruptcy listing liabilities between $100 million to $500 million, and assets of $10 million to $50 million, according to filing this week with the U.S. Bankruptcy Court in Sacramento.

Mr. Bardis is co-founder of Reynen and Bardis Communities, a Sacramento-based developer with new-home communities in Elk Grove, Sacramento and West Sacramento in the Central Valley as well as in northern Nevada.

His partner, John Reynen, filed for personal bankruptcy earlier this year.
Both had given personal guarantees on loans used to buy land for the company.

Mr. Bardis told the Sacramento Bee newspaper that the filing of personal bankruptcy would help keep his company in business. The company has not filed for bankruptcy.

Pacific Lifestyle Homes of ORegon Files Chapter 11 Bankruptcy

A third Portland-area homebuilder has faltered amid the nationwide housing crisis.
Pacific Lifestyle Homes Inc. of Clark County says it will file Thursday for protection under bankruptcy laws. The 12-year-old company is one of the largest homebuilders in Oregon and southern Washington.

Earlier this year, Oregon builders Legend Homes and Renaissance Homes made similar Chapter 11 bankruptcy filings.

Pacific Lifestyle Homes founder Kevin Wann says the company has about $56 million in bank debt and the company has 24 employees — down from 115 people three years ago.
Wann's bankruptcy consultant Clyde Hamstreet says he expects the company will be restructured and survive.

Ugh, what homebuilder will go bankrupt next?

Confidence in U.S. Homebuilding Market Hits All Timee Low - Credit Markets May Worsen

Bloomberg says:

Confidence among U.S. homebuilders slid in October to the lowest level since record-keeping began in 1985, a sign the crisis in credit markets may deepen the worst housing recession in a generation.

The National Association of Home Builders/Wells Fargo index of builder confidence decreased to 14, less than forecast, from 17 in September, the Washington-based association said today. A reading less than 50 means most respondents view conditions as poor.
The meltdown in worldwide financial markets that has clogged credit and sent U.S. stocks plunging is likely to worsen the economic slump. Home sales and construction will probably keep dropping as access to loans is restricted, weighing on growth well into 2009.

"Tight credit standards, rising unemployment and the potential for further home-price declines will continue to dampen housing demand and the still significant housing inventory overhang will continue to weigh on construction activity,'' Stephen Stanley, chief U.S. economist at RBS Greenwich Capital Markets in Greenwich, Connecticut, said before the report.

The builder confidence index was forecast to fall to 17 this month from an originally reported reading of 18 for September, according to the median estimate of 41 economists surveyed by Bloomberg News. Projections ranged from 15 to 20.
Wall Street

Today's report "reflects builders' assessments of the recent events on Wall Street, the rapid deterioration in job markets and the corresponding weakness in consumer confidence,'' NAHB chief economist David Seiders said in the statement. "The impacts of the record-breaking housing contraction have spilled over to other key sectors of the economy and weighed heavily on financial markets.''

Other reports earlier today showed the credit crisis is taking a toll on other parts of the economy. Industrial output fell 6 percent in the third quarter, the most since 1991, and a factory index for the Philadelphia region hit an 18-year low this month.

The builders' confidence gauge, which was first published in January 1985, averaged 27 last year. The confidence survey asks builders to characterize current sales as "good,'' "fair'' or "poor'' and to gauge prospective buyers' traffic. The survey also asks participants to gauge the outlook for the next six months.
The group's index of current single-family home sales fell to 14 this month from 17 in September.

Expectations Plunge
The index of buyer traffic decreased to 12 from 14. A measure of sales expectations for the next six months plunged to 19 from 28.

Confidence deteriorated in all four regions, led by declines in the South and Northeast.
U.S. foreclosure filings rose to a record in August as falling home prices made it harder to sell or refinance homes to pay off mortgages, RealtyTrac Inc., an Irvine, California-based seller of foreclosure data, said on Sept. 12.

The Commerce Department may report tomorrow that builders in September began work on 870,000 homes at an annual rate, the fewest since 1991, according to the median estimate in a Bloomberg survey. Building permits probably also fell.

Combined sales of new and existing homes have fallen 36 percent from their peaks in mid-2005. Home construction has declined 61 percent from a peak in January 2006. The supply of unsold homes on the market remains above 10 months' worth of sales, signaling homebuilding is likely to continue falling.

Lennar Corp., the second-largest U.S. homebuilder, on Sept. 23 reported its sixth straight quarterly loss as potential buyers struggled to get mortgages and rising foreclosures increased the supply of homes on the market.

"The weakness in the market actually accelerated as a result of increased foreclosures, weakened consumer confidence and tightened mortgage lending standards,'' Chief Executive Officer Stuart Miller said in a statement.

How will the credit crisis affect the homebuilding industry?

Firch 2009 Homebuilder Outlook - New Construction Continues to Fall

New home construction and sales will fall further next year as U.S. homebuilders continue to face tough market conditions for at least another year, concludes Fitch Ratings in a report released Tuesday.

Next year, there is a 60 percent chance that total new home construction will fall by almost 13 percent from projected 2008 levels, new home sales by 7 percent and existing home sales by 3 percent, the credit ratings firm said in a 173-page report.

If the U.S. should enter a sharp recession, however, Fitch said the combination of home priced declines, job losses and weaker consumer confidence will likely result in lower housing starts, weaker new and existing home sales.

"If mortgage rates should again rise or credit terms tighten further, then our housing forecasts could turn even more pessimistic," analyst Robert Curran wrote in the report. "And of course, if the economy, possibly now in a modest recession, slides into a sharp recession, then the downturn would not only deepen, but could extend further into 2009 or even 2010."

As a result, the firm expects the homebuilding sector will face more intense operational and financial pressures next year.

Homebuilders have seen sales and profits tumble this year as falling home prices, tighter mortgage lending and competition from deeply discounted foreclosed properties have combined to sap demand for new homes.

While home prices have fallen in many markets that saw dramatic home appreciation during the housing boom, many would-be buyers have stayed on the sidelines because of uneasiness over the economy.

Fitch expects homebuilders will close 2008 with revenues down by 34 percent to 40 percent, on average.

The firm's outlook for the sector is "Negative."

Fitch expects housing weakness to persist into 2009, despite recent government initiatives like the $700 billion U.S. government bailout and other efforts to prop up the nation's financial sector.

Still, should the nation avoid a pronounced recession, Fitch said housing could begin to stabilize toward the end of next year.

In that scenario, the firm sees the demand for new homes bottoming out early in 2009 and then picking up later in the year.

Fitch said Texas, the Washington D.C. area and southeastern states, excluding Florida, could be among the first markets to see a recovery.

Homebuilder TOUSA Files Chapter 11 Bankruptcy

Homebuilder TOUSA Inc., which has been operating under bankruptcy protection since January, said Tuesday it has filed its plan of reorganization with the bankruptcy court.
The plan would convert more than $300 million in second-lien debt to equity and do away with about $1 billion in bond debt and another $600 million of unsecured obligations, the company said.

TOUSA also would issue new debt with the aim of fully paying off claims by first-lien bank creditors and partially paying claims for second-lien bank creditors, although both payouts would be subject to the outcome of pending litigation.

Holders of TOUSA common stock would not receive anything under the reorganization plan.
The company expects to have between $125 million and $145 million in cash once it emerges from bankruptcy.

TOUSA Chief Executive John Boken said the plan would allow the builder to emerge from Chapter 11 "with a stronger balance sheet and greater financial flexibility that will position TOUSA to compete effectively in the industry and to continue to deliver quality homes to our customers."

The builder said affiliates Universal Land Title Inc., Preferred Home Mortgage Co. and Alliance Insurance and Information Services will remain part of the company once it emerges from bankruptcy.

TOUSA has operations in 10 states. It filed for bankruptcy protection in January, citing the flagging sales as the housing slump worsened. It filed its plan with U.S. Bankruptcy Court for the Southern District of Florida, Fort Lauderdale Division.

Homebuilders looking to offer Smaller, less expansive, less expensive homes

When the U.S. housing market hit the skids, homebuilders like KB Home that thrived by offering large homes and expensive amenities began to rethink their home designs with an eye toward making smaller, less costly homes.

Three years into the downturn, that trend appears to be intensifying, as many builders scramble to make their wares palatable and affordable to first-time buyers and compete with a trove of preowned homes and deeply discounted foreclosed homes on the market.
Los Angeles-based KB, which builds homes to order, began downsizing some of its floor plans last year.

"That worked for a time, but the market continued to move away from us," Chief Executive Jeffrey Mezger said recently. The company initially pared down 3,400-square-foot (316-square-meter) homes that sold for around $450,000 to smaller, 2,400-square-foot (223-square-meter) homes selling for around $300,000.

Today in Business with ReutersNations coordinate bid to revive economies IMF prepared to aid HungaryStocks rise sharply after vows of new bank capital Now, the builder is shrinking floor plans again. It recently launched a new line of homes in foreclosure-ravaged Southern California that start at 1,230 square feet (114 square meters) and are priced a little over $200,000.
Other builders, including Warmington Homes and John Laing Homes, have taken similar steps, as the industry seeks to stem losses due to falling home prices, tighter mortgage lending standards and skittish buyers. New home sales fell in August to the slowest pace in 17 years, while the median sale price fell 5.5 percent to $221,900.

The trend in smaller homes is a reversal of more than two decades of expanding floorplans, during which median size single-family went from less than 1,600 square feet (149 square meters) to more than 2,200 square feet (204 square meters).

That steady drive by builders to erect increasingly bigger homes peaked during the housing boom. Derided by some as McMansions, these super-sized homes packed with amenities helped drive up home prices even more.

Beyond competing with preowned homes on the market, declining home prices have also made it less profitable to build large homes, said Nishu Sood, a Deutsche Bank analyst.
"The only way to respond to the lower price environment ... is to make the home smaller," Sood said. "As you kind of reduce the floor plan size, we're getting back to more the way things were historically, kind of undoing the excesses, not just from a price perspective but home size and (fewer amenities)."

KB Home began to rollout its most recent iteration of smaller homes earlier this summer in Beaumont, California, as part of a development dubbed Highland Vista.
The homes are 1,230 square feet (114 square meters) and have three to five bedrooms.
Previous KB Home developments in the Beaumont area were built with homes in the 3,000-square-foot (279-square-meter) range.

"We really looked at what can the first-time buyer afford based on the median income for those markets and that's kind of how we designed our house to meet that price point that would attract those buyers," said Steve Ruffner, president of KB Home's Southern California Coastal Division.

The company plans to roll out more of these smaller floor plans nationwide beginning next year.
The homes, while smaller, feature large open spaces, a so-called great room often linking the living room and dining room area that might have previously been walled off. The homes also have a two-car garage standard and storage space.

"The square footage isn't the focus, it's really the utility and efficiency and flexibility of the home that is our focus," Ruffner said. "You could have a three-bedroom, 2,500 square-foot (232-square-meter) single-story home and all you had was wide hallways and bigger rooms. It wasn't really giving (buyers) the utility."
"The trend definitely is going to be, I think, getting back to the basics: What people can afford is the type of home they're going to buy."
That's the driving thought behind Warmington Homes' Summer Park Estates development in Galt, California.

At Summer Park, the company is building out the third phase of the development with homes that are markedly smaller than previous phases.
The older homes averaged 3,500 square feet (325 square meters) and typically sold in the mid to high $500,000 range. In contrast, the newer homes average 2,200 square feet (204 square meters) and will be priced in the low $300,000 range.

"We will continue to build smaller houses and that's a function of price, because financing is more difficult to get today," said Allen Morris, senior vice president of sales and marketing for Warmington Homes, which is based in Costa Mesa, California.

Homebuyers' tastes, possibly influenced by tighter mortgage lending, are also helping drive the changing trends in new homes.

Big formal entries, high ceilings and lavish light fixtures are also not as high a priority among many buyers these days, said Linda Mamet, vice president of sales and marketing for Irvine, California-based John Laing Homes.

Stock Market Rally Leaves Most Homebuilders Behind

NEW YORK, Oct 13 (Reuters) - The broader market rally this morning bypassed most U.S. home builders on Monday after several analysts issued notes describing very stale order trends and weak traffic in the homebuilders field.

The Dow Jones U.S. Home Builders index was down as much as 1.3 percent in morning trading while the broader market was up about 5.5 percent.

It has been recently reported that sales center traffic at the weakest levels since January 2001, when he started his "Neighborhood Watch" report, which surveys 150 sales managers in 20 markets monthly.

The fourth quarter "may prove (to be) the weakest climate for new home sales since the production homebuilding business effectively began in the late 1940s," Reichardt wrote.
Toll Brothers Inc (TOL.N:) shares were both down -- Toll nearly 2 percent at $20 and Ryland as much as 4.9 percent at almost $19 -- after Credit Suisse analyst Dan Oppenheim downgraded both. Ryland was downgraded to "neutral" from "outperform" and Toll to "underperform" from "neutral."

Another hit to asset values as home prices continue to fall has not yet been factored into Toll's share price, making it too expensive "given its premium valuation and its high-end focus," wrote Oppenheim, who sees sees an additional 45 percent decline in raw land values and extremely weak order trends over the next several quarters.

One builder looked good though, as Oppenheim upgraded Meritage Homes Corp (MTH.N:) to "neutral" from "underperform," however, and its shares bucked the trend by rising as 14 percent, or $15.96.

How Bad is the Florida Housing Market? Florida Housing Market Stats

The Star Tribune reports on Florida. “Fort Myers is the spring home of the Minnesota Twins, and so many Minnesotans visit or live here for at least part of the year that some have called it ‘Edina by the sea.’ It may still feel like paradise…but a short drive or a foreclosure bus tour reveals what was left behind when the housing bubble burst. Just east of Fort Myers, the weekend tours wind through Lehigh Acres, a once-fast-growing city of about 70,000 that’s been hard hit by the housing meltdown. It’s easy to reserve a tee time at the local Copperhead Golf Club, where fairways are lined with vacant houses and undeveloped lots.”
“‘You can get a house that sold for $700,000 three years ago in the $200,000s today,’ the starter told a group of hackers from the Midwest last week.”

“There were a staggering 22,000 foreclosure filings in Lee County, where Fort Myers is located, in 2007-08, compared with 1,600 in 2005-06.”

“In south Florida today, even the most informal conversations quickly turn to the economy and the housing free fall. There were few signs of a rebound at Copperhead Golf Course last week. ‘Come back Sunday,’ an employee said as he helped the Midwesterners pack up their clubs. ‘We’re really hurting on Sunday.’”

The Naples News. “September’s snapshot of home sales in the Fort Myers area is a picture of climbing sales yet growing inventory. September’s median sales price slipped another 6 percent from August to $126,250. That’s 42 percent lower than a year ago at $218,000.”

“The ratio of homes sold compared with new homes listed, which indicates to Realtors if the market is reaching a balance, fell to 33 percent compared with 39 percent in August. The drop came as the number of newly listed homes spiked 27 percent to 2,277 in September from 1,850 the month before. Realtors were encouraged by a 25 percent jump in pending sales as more than 1,400 contracts were signed in September. But as borrowers have struggled to receive loans, those pending sales may not translate to sealed deals.”
“The total number of homes on the market, 12,614, was the highest it’s been since November when there were more than 13,400 listed.”

“A leading economist said Southwest Florida’s housing market continues to sit on the bottom. Hank Fishkind was the keynote speaker at the conference, hosted by the Chamber of Southwest Florida. At last year’s event, Fishkind said the Southwest Florida housing market had bottomed out.”
“‘It just keeps banging along the bottom,’ he said. ‘Certainly, I couldn’t anticipate the financial panic.’”
“Fishkind said foreclosures in Lee County seem to have peaked, with year-to-date numbers down, but foreclosures in Collier County doubled in the same period. ‘It looks to me like we’ve seen the worst. Collier County’s going to have some problems going forward though,’ he said. ‘I didn’t think we’d see the surge in foreclosures in Collier County. I think it’s the last of the speculators throwing in the towel — or being forced to.’”

The News Press. “‘When we see a recession due to housing and credit issues, as we are seeing now, Florida suffers more than the rest of the U.S. and Southwest Florida suffers more than the rest of the state,’ Fishkind said. ‘Florida, in general, and Southwest Florida, in particular, depends on the ability of people in Northern states to move here. If they can’t sell their house in Boston … they can’t move here.’”

“At last year’s conference, Fishkind also predicted a two-year recovery period. ‘It’s never an easy task to pick the top and the bottom of a market,’ he said. ‘I’ve been at this 30 years and I’ve made my share of mistakes.’”

The Miami Herald. “Just how busy is Miami bankruptcy lawyer Michael Brooks these days? ‘If I wanted to schedule appointments Monday through Sunday, 9 to 6, I could do it,’ Brooks said. ‘It’s getting to the point where we’re turning away business.’”

“Nearly 13,500 personal bankruptcy filings were recorded in the first nine months of this year in the U.S. Bankruptcy Court for the Southern District of Florida, an increase of 75 percent from the almost 7,700 filed during the same period in 2007.”

“Bankruptcy trustees and lawyers attribute the surge in filings in South Florida to the area’s rising tide of foreclosures, brought on by falling property values and costly mortgage loans. ‘In the old days, people were saving their home from foreclosure [by filing for bankruptcy],’ said Jeffrey Tromberg, a lawyer for the Florida Debt Relief Center in Fort Lauderdale. ‘Now, more often than not, they are walking away from their home. They are no longer even attempting to save their home in bankruptcy.’”

“Most of what Brooks sees are people who bought multiple investment properties on the west coast of the state or north of Palm Beach County and who can no longer keep up with what they owe. ‘People are surrendering these properties left and right,’ Brooks said.”

“For months, South Florida business leaders have been thanking their lucky stars for Europe. A Miami vacation, a Fort Lauderdale Beach condominium, a boat made in West Palm Beach — all seemed cheap when you were paying in euros. Now, it seems, it may be time to pay the piper.”
“Marine-industry consultant Jim Bronstien heard an interesting story. ‘There were a number of offers for very large yachts, and the offers were rescinded after the market fell 700 points,’ said Bronstien, of Marine Business Advisors in Palm Beach County.” “He said the industry has a lot tied to Europe’s fortunes. ‘I think anybody who isn’t a little bit concerned would be ill-advised,’ Bronstien said. ‘The world is changing pretty rapidly.’”

“A Coral Gables lawyer has been charged with helping to broker a crooked mortgage deal that used identity theft to buy a Coconut Grove house for more than three times what it was worth. Delaila Estefano and two men were charged last week with first-degree grand theft, organized fraud and using a fake ID.”

“According to an arrest warrant released Monday, someone in February used the identity of Bernardo Humbero Barreira to obtain a $484,286.06 mortgage from lender Citi Mortgage for a house owned by Romney. The price tag: $600,000. But co-defendant John Romney had paid just $185,000 for the two-bedroom, one-bathroom house just six days earlier. No payments have been made on the loan, police said.”

From Miami Today. “As foreclosures have spiked and loans become more difficult to come by, divorce proceedings have been prolonged, and in some cases, couples have put off a pending split. And in the case of death, homes have become controversial as parts of wills.”
“In cases of death, especially if it is the last living parent, a house left to split between children can be a messy matter, said Circuit Court Judge Celeste H. Muir, probate division. This is usually because most of the parents’ wealth is tied up into their home, Judge Muir said. ‘When somebody dies, if their will says they sell the house, it becomes a problem,’ she said. ‘The usual scenario is the children are expecting the proceeds to be 2006 prices and not 2008.’”

The Tampa Tribune. “The developer of Element, a 395-unit building under construction, has decided to turn the whole building into a luxury apartment complex, said John Akin, senior VP for development of Atlanta-based Novare Group. Akin would not say how many condo units have sold but said there were not enough contracts to finish the building as a condominium.”
“‘It will be a condo-quality apartment complex,’ Akin said.”

“Swaths of vacant land dot downtown streets. Some just happen to be the size of condo developers’ dried up dreams. Now, the big questions are what will be built on the land, and how long will it take to sell it?”

“‘We’ve got places where we could run cattle if we wanted,’ said Wilson Stair, the city’s urban planner.”

The Orlando Sentinel. “Orange County government will buy and fix up as many as 200 foreclosed homes in the next year, and sell them to moderate- and low-income buyers to help clean up neighborhoods worst hit by the mortgage meltdown. A $28 million federal housing grant will pay for the program, which could remove as many as 1,000 homes from the foreclosure ranks before the aid runs out in 2013.”

Orlando Housing Market - “Inside Orlando’s city limits alone, 5,000 properties went into foreclosure last year, according to data from Realty Trac. Financial experts say that number could continue growing until next year. ‘This is just a drop in the bucket,’ Commissioner Teresa Jacobs said.”

From WPTV. “At EZ Cash Pawn in West Palm Beach, they don’t need some wall street guru to tell them the economy is tanking. Shop owner Bob Desantis says their shelves are so stacked with electronics, musical insturments, guns, fishing poles, scuba gear - you name it, that they’re having to turn business away. With the housing bust, construction workers come through the door every day, he says, trying to get cash for unused power tools.”

“‘I have to decline it,’ says Desantis, ‘I have no choice. I have tools in the warehouse now. Every single tool you can think about. Electronics, plumbing tools.’”

“At Provident Jewelry and Loan on Clematis Street, store owner Robert Samuels says all kinds of people are coming through his door. ‘It’s crept from the lower and lower middle class to the middle and upper middle class,’ says Samuels.”

The Palm Beach Post. “A mortgage fraud ring used bogus deals for 13 homes in Palm Beach County to steal more than $1 million from lenders, Florida Attorney General Bill McCollum said Wednesday. Using straw buyers, Johnson Cuffy applied for mortgages. Once the loans closed, the straw buyers posed as owners and took home equity lines of credit from the lenders. The participants kept some of the proceeds and moved the rest through nonexistent companies to Johnson Cuffy, McCollum said.”

“Don Suozzo long dreamed of living on the beach. He couldn’t afford it. ‘I’ve been looking to get on the beach for 20 years, and the pricing was absolutely horrendous,’ Suozzo said. ‘The best we found was $300,000 and four or five blocks from the ocean.’”

“Then came the post-boom storm of mortgage defaults, and Suozzo started shopping for deals. In May, he became the proud owner of an oceanfront condo in Highland Beach. He paid $290,000 for the 2,240-square-foot unit. The previous owner paid $782,000 for the unit in 2005, then lost the condo to foreclosure.”

“During the first eight months of 2008, 18,065 properties in Palm Beach County went into some stage of foreclosure, according to the Palm Beach County Clerk and Comptroller’s Office. That’s more than in the previous two years combined.”

“With lenders willing to deal, foreclosures are the most active corner of the housing market, said Laurie Davies, a foreclosure specialist in Boca Raton. ‘Everybody’s looking for a fantastic buy,’ Davies said. ‘A lot of houses are going for 30 percent to 40 percent less than they should be.’”
“And compared to the bubble-inflated prices of 2005 and early 2006, the discounts are even bigger. Davies points to a couple of recent foreclosure sales that sold for half of their previous prices. In Wellington’s Olympia development, a home recently sold for $238,000 after going for $530,000 in 2006. At CitySide in West Palm Beach, a townhouse sold for $180,000 in July after trading for $505,000 in 2006.”

“Professionals in the gambling business have some pretty pointed opinions about the Wall Street titans who brought you the current financial crisis. ‘The problem is they were playing with other people’s money,’ says a stern-faced Alexander Havenick, whose firm runs poker parlors and dog racing tracks in the Miami and Fort Myers areas. ‘Would you do that with your own money?’”

“In Havenick’s business, everyone places his or her own bets, whether on a racing greyhound or three kings. Handing money over to Wall Street middle men with a taste for crumby mortgages has turned out to be a bad wager for the American public, he says.”

“Charles Anderer, publisher of the Casino Journal and Indian Gaming Business magazines, couldn’t agree more. ‘It’s a mug’s game,’ says Anderer, speaking of the state of affairs in the roller-coaster stock market and the other dealings by those financiers. ‘They say Wall Street has been operating like a casino lately, but that’s an insult to the casinos.’”

Centex Suspends Cash Dividends - A week after selling Insurance Agency

Dallas-based homebuilder Centex Corp. said Thursday that it is suspending its cash stock dividend because of deteriorating economic conditions.

The company said that during the last four quarters it has paid about $20 million in dividends.

On Thursday, Centex’s stock closed at down 14 percent for the day at $10.17 – a new low for the year.

Moody’s Investors Service on Wednesday downgraded of Centex’s debt ratings.

Just Last Week Dallas-based homebuilder Centex Corp. said Wednesday that it has sold an insurance subsidiary. Centex said it sold its Westwood Insurance Agency to ZC Sterling of Atlanta for $55 million in cash and other undisclosed terms.
The transaction closed on Sept. 30. Westwood is a California-based firm which provides insurance to homebuilder customers. Under terms of the sale agreement, Westwood will continue to provide insurance services to Centex customers, the companies said.

The Westwood transaction is the latest in a series of sales by Centex which is focusing on its core building business. The big builder lost $150 million in the quarter ended June 30.

How Can I tell If a Homebuilder is Stable or is going Bankrupt?

Question: I'm interested in purchasing a home in Del Webb's Shadow Hills project in Indio, Calif. I note that Pulte Homes, which builds the homes there and may even own Del Webb (or vice versa), is on the danger list on the Home Builder Implode-O-Meter Web site. Any thoughts or recommendations? Should I stay away from this Del Webb community?

Answer: Pulte Homes Inc. owns Del Webb, of that I'm sure. But otherwise, who knows? This is a tough, tough market, and only time will tell which builders survive and which do not. I hesitate to give more than general advice about any particular builder because I have no greater insight than anyone else, save for perhaps a stock analyst, who should be able to go over the company's financials and determine whether or not it has any staying power left. But I will say this, though: Pulte did pretty well in J.D. Power Co.'s most recent home-builder customer satisfaction study. Why is this important? Because in times like these, the first thing many builders cut back is customer service. Once buyers close and move in, they are often forgotten because a troubled builder is concentrating on selling other homes, not making previous buyers happy. But Pulte brands (which besides Del Webb include DiVosta Homes) ranked highest is customer satisfaction in 11 of the 33 markets surveyed. You can find the rankings for all 33 markets here. "In 2008, a wide variety of home builders perform(ed) well," said J.D. Power's Paula Sonkin. "In the midst of the volatility that has defined the overall housing market during the past two years and has caused several home-building companies to go out of business, many local and regional builders have seized the opportunity to attract and serve potential home buyers."

Also, let me point out what the Home Builder Implode-O-Meter itself points out: The builders on its watch list are not necessarily in deep do-do. The companies may have gone through some kind of adverse change -- perhaps a key executive has stepped aside -- but they are still up and running, the Web site notes in its fine print. Other possible setbacks include a steep and rapid decline in the firm's value -- and what big builder hasn't experienced that kind of fall from grace? -- or there may have been a rescue by a parent company.

Beyond that, it's always wise to make sure your prospective builder has a solid foundation, not just in these troubled times but always. Doing this kind of legwork isn't simple, but it is worth it. Otherwise, you could end up going down with the ship. There isn't any precise way to research a builder's staying power, but here are some steps you can take to protect yourself against the possibility the company might fail:

1. Check with your local courthouse to see if any of the builder's subcontractors and material suppliers have filed liens because they have not been paid. "Follow the money," says an Idaho builder who asked to remain anonymous for fear of being ostracized by his colleagues. "Once a lien has been filed, 70% of all builders won't be able to dig out from under. So this rolls right to the issue of stability." It's not uncommon for a builder to use his cash to meet his own payroll before paying any or all the 120 or so vendors who work on a house, hoping he can use cash from the next sale that comes through the door to pay for the work and materials on the previous sale. Subs and suppliers often let a builder slide because they want to keep working too. But only for so long. When it becomes evident to them that the company is in dire straights, they file liens against the builder so they'll be in the line of creditors should the builder file for bankruptcy.

2. Talk with the subcontractors you see working on the project. "We hear from subs about slow pay problems long before a builder files for bankruptcy," a Maryland consumer affairs expert advised me a long time ago. Even if they aren't being paid on time -- a sure sign of cash flow problems -- they might remain mum. But one or two may be angry enough or so far behind that they'll spill the beans. After all, they are consumers too. While you are walking the job, look for tell-tale signs of problems. Lack of activity is one. The absence of building materials is another. Sales are slow these days, to be sure. But if there are no signs of activity, the pace may be too slow to carry the project.

3. Require the builder to provide lien releases signed by every vendor on the job saying they have been paid. This may be a logistical nightmare for the builder, but if he wants your business, he may agree. Sales are hard to come by these days, so a builder who is in good shape may agree to do this just to ease your concerns.

4. Ask for permission to speak with the builder's bankers about his financial strength. Lenders are often the last to know when a builder is in trouble. Still, a builder who balks at your request may or may not be trying to hide his difficulties. But in today's troubled times, a sound company shouldn't have any problem with this request either. And if the builder does agree, the bank has a duty to be honest. If not, it could be held liable if the builder folds.

5. Demand that your deposit money be held in a separate escrow account. In most states, builders are permitted to place earnest monies into their own accounts and use the funds to operate their businesses. But in today's market, some will use your money to finish the previous buyer's house, again hoping to use the next buyer's money to work on yours. Builders may balk at first, but if it means the difference between a sale and no sale, they should cave. "I've never seen a single builder blow a deal over (earnest money), not one," says an Ohio buyer-broker.

6. Ask for the names of the company's most recent buyers to get their take on the builder. One of the first places a builder in trouble will cut is warranty work, so you'll want to know whether or not the company is attending to so-called "punch list" items in a timely manner. Also ask if the builder cut corners, switched suppliers in midstream -- say from one appliance maker to another -- without notice or permission, or has generally failed to be responsive.

7. Add a "springing" provision to the sales contract. This is a clause that allows you to back out of the deal if the builder files for bankruptcy. Builders typically won't let a buyer amend their standard contracts. But today's housing market calls for extraordinary measures, so a sound builder shouldn't have any trouble with this consumer protection.

8. Another place builders tend to cut early is office personnel. If the company lays off construction staff, it could simply be phasing down to get in step with the slowing market. But if there is no one to answer the phone and direct calls, trouble may be brewing. Ditto if the builder has canned project superintendents, estimators or design and sales and marketing staff. These are all "lifeline" positions, so if these key personnel slots are vacant, buyer beware.

9. Consider taking out a construction loan, one that automatically switches to a permanent mortgage when the house is completed, in your name. That way, the builder will be paid in draws only as various phases of construction are completed. If the builder fails, you'll be left with a partially completed house that very likely will cost your more to finish than you originally planned to spend. But at least the unfinished place will be yours. You won't lose your deposit, and your house won't be tied up in legal proceedings.

10. Make sure the builder offers a third-party warranty. This won't protect you if the business goes under while the house is under construction. But if the builders goes belly up after you move in, the warranty company should step forward to make whatever repairs are necessary. Many builders have their own one-year warranties. But they aren't worth a hoot if the builder is no longer around to back it up.

Nationally syndicated columnist Lew Sichelman has been covering the housing market for 35 years. Because of the volume of mail he receives, he cannot answer individual questions, nor can all questions be answered in this space. E-mail lsichelman@aol.com

Trend Homes, Arizona Builder - Najafi Reorg/Buyout Chapter 11

J. Craig Anderson - Oct. 10, 2008 12:00 AM
The Arizona Republic

This year has been a difficult one for Trend Homes, but in some ways the Chandler-based home builder has been fortunate.

It was on the brink of insolvency in January when private equity firm Najafi Cos. agreed to purchase the bulk of its assets through a Chapter 11 bankruptcy proceeding.

Now, the second incarnation of Trend Homes, or as company CEO Reed Porter calls it, "T2," is trying to pick up where its failed predecessor left off.
Porter spoke with The Arizona Republic recently about the company's recent troubles and where things stand today.

Question: How is the company's health now compared with a year ago?

Answer: First of all, it is a new company. The Najafi Cos. formed a new legal entity. They acquired assets of the old company through the bankruptcy, including homes, lots, computers and other equipment. They also purchased the names Trend Homes and Classic Communities and hired all the (50) old employees, too. But it is a brand-new company that doesn't have any of the old issues.

Q: What led Trend Homes to file for bankruptcy protection in January?

A: It was kind of what would be known as a prepackaged bankruptcy. The deal was heavily negotiated with the creditors. Najafi wanted to buy the company's assets, but those assets had decreased substantially because of the housing market. They were no longer worth as much as the debt. So the old Trend Homes sold almost all of its assets to Najafi through what's known as a 363 sale, which can only happen through Chapter 11 reorganization. It's a complex process that allowed Najafi to purchase assets and assume some of the debt. The old (company) is still in Chapter 11.

Q: What's the relationship like with Najafi, and what role does Trend's new owner play in day-to-day operations?

A: We now have new credit that allows the company a fresh start to go ahead and continue to do business, and we can offer homes at today's market price. We're no longer hanging around with a bunch of overpriced assets. Our new home prices are competitive with foreclosures and short sales, and we're ready to go. Trend's six communities completed construction on all the unfinished homes this summer. We're eager to get some new homes sold in those communities.

Q: Several weeks ago, the company was trying to reach an agreement with its former land bank, Taro Properties Arizona, to buy nearly 500 vacant lots inside the partially built Cooley Station North subdivision in Gilbert that were going into foreclosure. What was the outcome of those talks?

A: When Taro filed for bankruptcy (in August), that stayed the foreclosure. We're still trying to put a deal together to buy those lots, but there's no plan at all. Certainly we have an interest in continuing to build homes there. The new Trend Homes will continue to build homes in six of the old Trend's seven communities, but Cooley Station North is being treated differently because it has a different bank. For whatever reason, they didn't like the terms that the other bank liked.

Q: Even though you don't have any plans to continue building homes inside Cooley Station North, you are still the sole member of its homeowners association board of directors. Are you planning to step down from that position?

A: That's being worked out through the Taro bankruptcy. The new Trend Homes doesn't have any assets in Cooley Station North, but Taro owns 65 percent of the property. The last thing (Taro) wants is for the property to decrease in value. They've got $30 million worth of land that they're trying to protect. The management company is still operating, but everyone's doing all they can to cut costs and services during these difficult times. It's a challenge everywhere. Every single partially built community is having trouble with the HOA.

Renaissance Custom Homes LLC of Portland Files Bankruptcy

Robert D. Miller Jr., the acting U.S. Trustee overseeing the bankruptcy proceedings for Renaissance Custom Homes LLC, has appointed a committee to represent the Lake Oswego home builders’ largest unsecured creditors.

Citing a weakened residential housing market, Renaissance sought protection from its creditors on Sept. 25 by filing under Chapter 11 of the U.S. Bankruptcy Code. It was the third major home builder to file bankruptcy this year.

Hal Keever, vice president of WH Pacific, will chair the unsecured creditors committee.

Other members include David Howells, president of Howells Custom Cabinets, Sean Loth, corporate officer of Precision Countertops; Chris Cory of Curtis Heintz Excavation Inc.; Thomas Courtney, vice president of TruGreen LandCare LLC; Scott Crawford, president of Rex Hill Masonry Inc.; Katherine Bailey, recovery officer for US Bank; Steven Johnson, chief financial officer of Parr Lumber Co.; and Kory MacGregor, president of Roth Heating & Cooling.

Renaissance had consolidated assets of $115 million and liabilities of $110 million as of June 30.

It simultaneously filed bankruptcy for three of its companies: Renaissance Custom Homes LLC, Renaissance Development Corp. and the Lakes at Fishers Landing LLC.

The company hopes to exit from bankruptcy by next spring.

Earlier this year, Legend Homes, Portland’s ninth-largest home builder, filed bankruptcy. Clackamas homebuilder Tony Marnella and three of his companies also filed bankruptcy this year.

How to Protect Yourself Against a Homebuilder Bankruptcy

When a homebuilder goes bankrupt, the company's creditors aren't the only ones who suffer. Often, so do those who have paid sometimes hefty deposits for houses that remain unbuilt and new homeowners living in a development with half-built homes and incomplete amenities.

In the past year, the tumbling housing market has claimed such large builders as Fort Lauderdale, Fla.-based Levitt & Sons, a unit of Levitt Corp., Elliott Building Group in Pennsylvania, Turner-Dunn Homes Inc. in Arizona, Kara Homes Inc. in New Jersey and Neumann Homes Inc. in Illinois.

When these builders file for bankruptcy, subcontractors stop working, unfinished homes in various stages dot the communities, crippling liens are placed on occupied homes, clubhouses are incomplete and swimming pools and parks are never built.

People who have placed deposits on homes either never get their money back or face delays of months or years before it is returned.

"The houses sit until someone comes in and decides to complete them," says Tracy Cross, of Tracy Cross & Associates, a Schaumburg, Illinois-based real estate research firm. The buyers "can't move in, they can't get their deposit back and they can't get out of the contract."

In November, Levitt and Sons became the nation's largest builder to file for bankruptcy. In its bankruptcy filing, the company lists assets of less than $1 million and debts of more than $100 million.

Some home builders such as Centex Corp. and Pulte Homes Inc. aim to survive by selling houses at bargain prices, scrapping growth plans and slashing jobs. But as the housing market continues its downward slide, other home builders could find their companies in jeopardy.

Problems for homeowners and buyers

Attorney Brian Meltzer, of Meltzer, Purtill & Stelle LLC, in Chicago, Ill., has represented home builders for more than 30 years. He notes that these bankruptcies create numerous problems for homeowners. One of the most pressing issues will be warranty service issues on their homes.

Cross believes that homeowners living in a bankrupted new home community have few options when their home has a major problem. If the foundation has cracks, the floors aren't level, the roof is leaking or the foundation is shifting, the homeowner will have to pay for the repairs. If a new entity takes over the development, it can help the homeowner -- but it has no obligation to do so.

As for the houses partly under construction, what most likely happens is that the lenders or another entity step in and hire the trades to finish those houses. The home buyer will then get the house he or she contracted for. In the meantime, the home buyer is "stuck" and can't get out of the legally binding contract.

How can potential buyers protect themselves?

Both Cross and Allen C. Balk, at Meltzer, Purtill & Stelle LLC, recommend checking out the builder before purchasing a home. Look at the progress in the subdivision. Drive around. Is anyone working? If it looks like there isn't that much production, it may be indicative of other issues.

Knock on doors and ask people if they are happy with their home. If you decide you want to live in that community, purchase a completed inventory home, which eliminates much of the risk.

Look up the company on the Internet. If it's a public company, you'll be able to find out how it's doing in different markets. Find out if land is being revalued.

Buyers should also make sure that their earnest money is in a third party escrow account because if there is a bankruptcy there is a right to terminate the deal.

"If the money is not in such an account, you become an unsecured creditor," he added. However, this provision can vary from state to state so it's up to the buyer to find out if this is done in their state.

Buyers sometimes can add a "springing provision" to their contract. This is a clause in the contract that allows the buyer to walk away if the builder files for bankruptcy protection. Most contracts don't contain them. This clause only "springs" into effect with a bankruptcy filing.

"There is nothing wrong with asking your lawyer to put this in the contract," says Balk. "It's important to check with your state to see how enforceable this clause is."

Greenspan Says Major Homebuilders Face Chapter 11 Bankruptcy in 2008, 2009

The collapse of the subprime mortgage market may push some big U.S. home builders toward Chapter 11 bankruptcy protection starting next year, according to bankruptcy advisers and lawyers who specialize in the real estate industry.

The weakest publicly held builders are staying out of bankruptcy by relying on the profit they made when sales boomed, and on the public debt they sold in those years, said Ronald Greenspan, a lawyer and financial adviser to the creditors of four bankrupt subprime mortgage lenders. Home builders issued $3.6 billion in public debt in 2005 and 2006, though only $600 million of that comes due this year, he said.

"There is no sword over the industry's head yet," Greenspan said Saturday at a conference of the American Bankruptcy Institute in Washington. "That doesn't mean the industry is not wounded. Instead, the breaking point could come in 2008 or 2009."

The real estate market has been powered in recent years by subprime homebuyers, who typically have shaky credit histories. Now that such loans are no longer being made, demand for new homes will plunge, pushed down even further by the more than one million homes now in foreclosure, Greenspan said. At least 30 home lenders have halted operations or sought buyers in the past 12 months, including 5 that went bankrupt since November.

None of the major, publicly traded home builders have declared bankruptcy, though there are signs that many are in financial trouble, Greenspan said, declining to name specific companies. The value of shareholder equity for some companies equals or exceeds the value of the undeveloped land that the companies have under contract, Greenspan said. As the housing downturn continues, that land will fall in value.

Today in Marketplace by Bloomberg
Bank of America moves quickly to cut jobs after earnings disappointSony profit helped by camera sales, but game console still trailing rivalsMicrosoft profit soars 23 percent, beating expectationsThe perceived risk of owning the bonds of some of the biggest U.S. home builders has risen since a wave of bankruptcies hit the mortgage industry that caters to homebuyers with poor credit histories. Credit default swaps have more than doubled in price since Feb. 1 for two of the four biggest builders, D.R. Horton and Pulte Homes, and for Toll Brothers, the big luxury-home builder.

Credit default swaps are financial instruments based on bonds and loans that are used to speculate on a borrower's ability to repay debt, and were created to shield bondholders from default.

Kara Homes, a New Jersey builder, was one of the first major, closely held home builders to file for Chapter 11 bankruptcy protection, in October. Such regional builders are likely to precede any of the big public companies into insolvency, said Kara's bankruptcy lawyer, David Bruck.

By 2008 or 2009, some of the larger companies will have to restructure as the housing crunch continues, he said, adding, "It's only a matter of time."

D.R. Horton Dumps Land at Big Loss for Tax Benefits

As it struggles through the housing crisis, home builder D.R. Horton Inc. is unloading land across California at big discounts.

Horton, the nation's largest home builder by unit volume, is jettisoning thousands of house lots in far-flung areas, partly to reap the tax benefits from selling property at a loss.

Michael Corkery/The Wall Street Journal

D.R. Horton recently sold this undeveloped parcel in Chino Hills, Calif., a hard-hit housing market east of Los Angeles.

As builders try to survive one of the worst housing downturns in U.S. history, land buyers and brokers expect more such tax-motivated fire sales of undeveloped land this year. That could set a new low for land prices in California and other troubled housing markets. The sales also could indicate a shift for big builders: from developing huge swaths of land in the exurbs, to building smaller developments closer to metropolitan areas.

Horton two weeks ago sold about 2,000 house lots in Desert Hot Springs, a blue-collar community in the far reaches of Southern California's Inland Empire, for $7.8 million, according to county records. William Shopoff, a land investor who bid unsuccessfully for the property, estimates Horton paid about $110 million for the land before spending to prepare the property for development by grading and installing infrastructure such as sewers.

Horton also recently sold a four-acre parcel in Escondido, near San Diego, for $4.4 million, about 25% of what it paid for the property in 2005, according to the county assessor.

Horton, based in Fort Worth, Texas, declined to comment for this article.

Buyers of some of Horton's land in Southern California include a venture between Foremost Communities Inc. and Starwood Capital Group LLC, which together bought 250 house lots from the builder, according to a person familiar with the matter. The investors plan to hold the lots until the market recovers, this person said. A spokesperson for the venture didn't return a call.

As new-home sales sank to a 17-year low, builders can no longer count on doubling their investments by buying undeveloped parcels, preparing the property and selling the homes on it. Horton, which built nearly 53,000 homes at the peak of the housing boom in 2006, has posted quarterly losses since the April-June quarter of last year.

The fire sales are a silver lining in those clouds. Tax law allows companies to apply losses from land and other asset sales to past profits and reap a tax refund. More sales are expected soon because the companies can apply losses only to profits earned as far back as two years and 2006 was the last profitable full year for most builders.

Horton told investors in June that it expects to receive a tax refund of $519 million over the next two years. At the end of last year, Lennar Corp. pocketed a $200 million tax refund after taking a 60% discount on its sale of 11,100 house lots to a joint venture it formed with Morgan Stanley.

"There's going to be a rash of builders shedding assets," said Tom Reimers, executive vice president of O'Donnell/Atkins, a real-estate advisory firm in Irvine, Calif. "It's all tax-motivated."

By dumping land, builders are chasing cash that allows them to keep current with lenders and pay overhead expenses.

Horton had $851.2 million in cash on hand at the end of its fiscal third quarter, June 30, up from $270 million at the end of last year, according to research firm Zelman & Associates. Horton owes about $210 million in annual interest payments, according to Zelman.



So far, most publicly traded home builders have managed to muddle through the housing mess. One reason is the builders' financing arrangements. Many such large companies have long-term corporate debt that doesn't come due for another year or two, giving them breathing room amid the credit crunch. The builders typically don't need lender approval to keep building as long as they honor certain debt agreements at a corporate level.
Most closely held builders, on the other hand, use project-specific financing, in which they need a bank's approval to start each new development. Lenders have completely cut off credit to most small builders, forcing many to file for bankruptcy protection. Analysts expect more than half of the nation's small and midsize builders will fold during the housing downturn, which has already forced such private companies as Levitt & Sons of Fort Lauderdale, Fla., and Kimball Hill Homes of Rolling Meadows, Ill., to file for bankruptcy.

Still, big builders like Horton aren't out of the woods. Horton has $585 million in debt that needs to be paid off in 2009, $362 million due in 2010 and $450 million in 2011, according to Zelman.

Horton's recent land sales also could reflect an industry shift. Over the next few years, builders will likely build smaller developments closer to large metro areas, where house prices are expected to recover faster than in the far-flung regions. That contrasts with 2005, when builders bought massive parcels in California's exurbs and earned big profits as land values skyrocketed during the housing boom.

Horton, for example, is interested in buying 50- to 150-lot parcels that are already developed and closer to certain cities in the San Francisco Bay area, says a person familiar with the company's thinking.

"The builders are going to build in the better locations for the next few years, and live to see another day," said Steve Reilly, a land broker with Prudential Realty in Danville, Calif. "The downside is they are never going to see the kind of margins when lots were doubling and tripling in value in the time it took to build a house."

From the Wall Street Journal