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  1. #1
    Join Date
    Sep 2003
    High up above and deep down under

    Default The new ghost towns

    The new ghost towns

    More people buying into new developments are being left high and dry when their builders file for bankruptcy. Here's how homeowners can protect themselves.
    By Melinda Fulmer, MSN Real Estate

    The view from Mari Kunz's new house in Murrells Inlet, S.C., is far from what she pictured when she and her husband, Larry, bought into this Levitt and Sons retirement community last summer.

    Instead of tropical landscaping, lush green lawns and a steady stream of other active seniors on bikes, she sees street after street of empty lots, framed unfinished houses and streetlights that don't work.

    "We are the only house in Phase 2," Kunz says. "We are kind of out here by ourselves."

    Levitt filed for Chapter 11 bankruptcy in November, putting the brakes on construction at the couple's development, Seasons at Prince Creek West. The move left them and the rest of the residents without the lifestyle, amenities or services promised them.

    The posh Grand Clubhouse was never built, and the fitness center consists of little more than a gaping hole for the indoor pool and a couple of walls.

    Homeowners like the Kunzes are just the latest victims of the tumbling housing market, which has forced a number of home builders into bankruptcy. In the past year, at least eight home builders have filed for bankruptcy protection, according to the National Association of Home Builders, including Levitt of Fort Lauderdale and regional builders such as New Jersey’s Kara Homes; Elliot Building Group in Pennsylvania; Neumann Homes in Illinois; and Turner-Dunn Homes in Arizona.

    A number of others are expected to follow suit in the next year, says James Wilson, senior housing analyst at JMP Securities in San Francisco. Others may simply wind up giving community assets back to the bank to avoid bankruptcy. "The market is really focused now on which builders could fail to make it," Wilson says.

    What they lost

    Empty streets and missing clubhouses and swimming pools are just the most visible problems that the customers of insolvent builders face. Many will deal with subcontractor liens on their property that block access to refinancing or a sale. And when things break down -- as they often do in the first year of homeownership -- no one is around to perform needed warranty work. The Kunzes have already paid for a broken pipe fitting and drywall work, after they discovered a leak. And the sprinkler system was never installed in their phase of the project.

    At Seasons, security also was a casualty of the bankruptcy. Guards who had manned the front of the gated community were fired. The gate is now left propped open during the day. "We are feeling quite vulnerable," Mari Kunz says.

    And, she says, they are frustrated because they are still paying association fees for security, an activities director and other staff and services that are not being provided.

    Homeowners are doing their best to pick up the slack. Mari Kunz says she has begun watching her new neighbors' half-built homes to make sure no one vandalizes them or steals fixtures and kitchen cabinets, as some thieves have done on other streets.

    And one of her neighbors has begun lining up activities, so the residents' social outlets don't consist of angry homeowner meetings.

    The Kunzes are actually among the luckier customers in Seasons; their house was finished before the bankruptcy filing. Dozens of other residents who put down a deposit for the $300,000 to $400,000 homes in this community south of Myrtle Beach don't know when they will see their houses built or their money back. Some had already sold their other homes and were living with relatives. And many can't afford to walk away from their pricey deposit.

    "We have seen homeowners stressed. The two couples that have houses across from us … all of their goods are in storage somewhere and they have no idea when it is going to be resolved," says Larry Kunz.

    Some states, such as California, require that deposits be held in escrow, or that the builder post a bond. But in other cases, contracts specify that the money will be used to fund new construction. That was the case for Turner-Dunn Homes of Phoenix, which filed Chapter 11 bankruptcy a year ago, leaving many residents with little hope of getting their money back.

    Levitt's Florida bankruptcy attorney, Paul Singerman, has said publicly that he has asked the court to return customer deposits obtained after Aug. 29. However, he did not return repeated calls for comment.

    How things went wrong

    As the housing market has tumbled, builders have been stuck with large inventories of land -- and the debt that goes along with it. Many buyers, seeing housing prices fall, have decided to wait out the bust. Others simply can't qualify for a mortgage as the credit crunch has tightened lending guidelines. Cancellation rates by prospective homeowners have exceeded 40% in some markets, analysts say, forcing builders to slash prices even further to raise cash.

    "The housing downswing is still under way," says Dave Seiders, chief economist for the National Association of Home Builders. "The pressure is continuing to build."

    Even builders in far better shape are mothballing projects, leaving ghost towns of empty houses and sales offices. Lennar Homes, for one, decided to halt construction at its planned 1,100-unit Central Park West development in Irvine, Calif., after finishing one group of 259 attached homes. It has since returned the 14 deposits to buyers who signed a contract for that phase of the development and will just let the units sit empty until the market improves.

    The problem is most apparent in the extreme boom-and-bust markets of California, Florida, Texas and Nevada, where a strong economy had builders bidding up land at public auction, says John McManus, editorial director of Big Builder magazine.

    While a slowing market should have given builders pause before starting a new phase of a community, many had already invested so much that they couldn't stop, McManus says. "At that point, there's no going back."

    Local communities left to pick up the pieces

    When construction on large communities stalls, it's not only residents who are victimized. Municipalities are often the ones left to clean up the mess.

    When New Jersey builder Kara Homes filed for bankruptcy protection last year and ceased construction on the Horizons at Birch Hill development in Old Bridge, N.J., the city was left to cope with a number of potential health and safety hazards. Besides dealing with a stagnating retention pond in the community, city crews had to pull out the 40-foot trash bins that were left there; put a fence around the gaping hole that had been dug for a swimming pool; finish some of the streets and bring in a police patrol to keep contractors and others from vandalizing the 50 or so lots that were left in some partial state of construction.

    "It was pretty unsightly," says Old Bridge Mayor Jim Phillips. "The 70 people who lived there were really left in the lurch. I felt the town had to respond to the situation."

    Hope for a rescue

    The hope for residents in Horizons and other stalled communities is that a new builder can step in and take over the projects. Some will be brought in by the banks that have taken back property. One of Kara's lenders recently hired a new builder, the PRC Group, to take over Horizons at Birch Hill, Phillips says. However, work has not yet started.

    Maplewood Homebuilders, a joint venture between developer Glen Fishman and hedge fund Plainfield Asset Management, acquired 12 other Kara communities in September.

    Work began last month on Kara’s old developments, including the Horizons Woodlake Greens development in Lakewood, N.J., where the mostly finished clubhouse -- which sat empty for a year -- should be opened in the next week. The 100 homes and lots that were in some stage of development are now being finished, says Maplewood Chief Operating Officer Kevin Fiore.

    Maplewood, he says, is honoring the 16 contracts and deposits that were put down on the Woodlake Greens development before Kara filed for bankruptcy protection. A handful of others, he says, decided to walk away from the project and their deposits, which in most cases totaled at least $50,000.

    "For the most part, there is a huge sense of relief about us coming in," Fiore says. "People are really anxious to move into their homes," after more than a year of no construction. With some of the larger homes, he says, the wait was even longer -- up to four years.

    "(Maplewood) came in with a lot of vim and vigor after they got the properties," says Jim Lithgow, president of the Woodlake Greens homeowners association. "They have really cleaned it up tremendously."

    And, he says, to their credit, Maplewood has taken on some of the home repairs promised by Kara, after that builder left homeowners "high and dry."

    How to protect yourself

    There's no sure-fire way for prospective buyers to ensure that they won't get caught up in a builder's financial woes. Buyers' rights in this situation vary with state law and the terms of their contract. Real-estate attorney Bruce Lorman in Santa Monica, Calif., advises buyers to have an attorney look over the sales contract before they sign it.

    And, he says, check out your builder's financial condition as best you can, before you sign on the dotted line. That may be pretty easy, if the builder is a large, publicly traded entity like Lennar. If it's a smaller home builder, he says, you have to do a little more homework. Get a list of the builder's other developments and search court records for lawsuits against the developer in those projects. Ask the builder for proof of liability insurance and check to make sure he is licensed. But, perhaps most important, make sure your deposit goes into an escrow account, which a builder can't touch unless he has delivered the goods.

    "Make sure you are protected," Lorman says. "The market has changed pretty dramatically, and a lot of builders are stuck with a lot of land."

    Moreover, builders say, drive by the property you are considering at different times of the day to make sure construction is continuing.

    The Kunzes' neighbor Donna Jones says it became pretty clear about a month or two before Levitt filed bankruptcy that work was slowing down or stopping on certain houses. "Crews were getting laid off and we said, 'Something funny is going on around here,'" she recalls. "They were putting up a lot of them, but not getting them finished."

    So far, Larry Kunz says, no one is getting any answers about the project's future from Levitt officials or its attorneys. But he remains optimistic.

    "My basic emotion is I'm saddened," he says. "I think it's a viable development and it will finish out. But there's going to be some rough sledding over the next months or years."

    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  2. #2
    Join Date
    Jun 2005


    Geeze it is tough over there.
    Andrew W is it like this all over USA or only patches?


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