The Foreclosure Report

Arkansas Builders Going Into Default

The Arkansas Democrat Gazette. "The companies providing lumber, concrete, cabinets and the central vacuum system for the house at 1 Partridge Run want their money, but Betty’s Homes isn’t paying. The house is at the heart of the spiffy Quailridge subdivision, where new brick homes start at $275,000."

"A few months ago, a house like the one on Partridge Run would have sold before it was finished. Not these days. Builders now have more homes than buyers, particularly ones with price tags near $300,000. More and more Northwest Arkansas homebuilders are dealing with liens and foreclosures because they can’t pay their debts to banks and construction suppliers."

"'There are undoubtedly going to be more foreclosures on the builders,' said Ross Ridout, an attorney and vice president of Ridout Lumber Co. 'Northwest Arkansas is overbuilt significantly. Builders need to sell houses, and if they don’t sell, they can’t afford for them to sit there unsold and pay interest.'"

"The 2,245-square-foot house on Partridge Run is on the market for $291,900, but a quagmire of materialman’s liens, foreclosures and bankruptcy complicates the sale. Bella Vista-based Betty’s Homes, one of the region’s largest homebuilders and the company that built the Partridge Run house, filed for bankruptcy Oct. 20. The company owes $ 8,984,741.33 to banks, according to its Chapter 11 filing. The company, which built houses in Bella Vista, Centerton and Lowell, also owes $885,928.54 to construction supply companies."

"'Things kept getting later and later, but we did continue to extend credit to them,' said Jennifer Grandon, a billing supervisor for a Springdale company that hasn’t been paid $2,085 for garage doors that went on the Partridge Run house on June 26. 'After a certain point, we did have to file liens. If they would pay, we’d still do business with them.'"

"Liens give vendors leverage against builders by preventing the sale of a home until the builder pays for the materials used to build it."

"Materialman’s liens are increasing in Washington County, too, although less dramatically. The filings grew from 85 in 2004 to 139 in 2005, county records show. There were 207 in the first 10 months of this year."

"Many suppliers are convinced they’ll never get all the money owed by Betty’s Homes. Banks are paid first in bankruptcy proceedings. They get first dibs because they obtained collateral for their loans, Tulane Law School Dean Lawrence Ponoroff said. 'It’s not that they’re banks,' Ponoroff said. 'It’s that they’re secured creditors.'"

"The construction supply companies are unsecured creditors, so they get paid after the banks. Betty’s Homes listed more than 130 unsecured creditors in paperwork filed Nov. 6 with the bankruptcy court. Betty’s Homes listed assets of $15,925,652.06."

"Dennis Tune, president of Tune Concrete in Fayetteville, said the 25 liens filed by his business against Betty’s Home are more than he’s filed in the previous 20 years. Tune said he’ll be surprised if his company receives 'a dime for every dollar' it’s owed. 'I’m mad at myself because I let them get that far in debt, and I’m mad at myself for not shutting it off earlier,' Tune said. 'It’s the homebuilders’ fault, the banks’ fault because they loan anybody who has a pulse money, and the suppliers who have been overzealous with credit. It’s all our fault.'"

"The changed home-building environment has affected employees of some companies. Betty’s Homes has let six or seven employees go, Bond said. Wholesale Overhead Door laid off six employees, Grandon said. Other companies have taken similar approaches, reducing employees’ hours and eliminating jobs."

"Between 1, 100 and 1, 250 newcomers move into Benton and Washington counties each month, according to researchers at the Center for Business and Economic Research, a part of the Sam M. Walton College of Business at the University of Arkansas at Fayetteville. Despite the rapid growth, there were 525 more unoccupied homes in Benton and Washington counties in September than in May, according to the Skyline Report."

"The latest Skyline Report, made public Monday, showed 2,956 unoccupied homes in the two counties at the end of September. The figure is significant because new housing starts for both counties dropped to the lowest point in two years. Builders started 204 single-family houses during the third quarter, well below the record 462 started in the second quarter of 2005."

"The glut of unsold houses shouldn’t have been a surprise, said Jeff Collins, the center’s director who began pointing out the signs of a coming surplus as early as two years ago. 'Things weren’t looking very good,' Collins said. 'It’s like this: I kept telling people two plus two is four. If you don’t like four, I can’t help that, but the number is still four.'"

"The glut didn’t worry Don Marley, the Fort Smith developer who started the Quailridge subdivision in Centerton last year. Quailridge builders will be able to keep selling houses despite the abundance of similarly priced houses in other subdivisions. 'I wanted to set a better standard,' Marley said earlier this month as he showed off the curvy, community swimming pool behind the property owners association clubhouse. 'We wanted this to be a neighborhood.'"

"The subdivision is among the newest in Northwest Arkansas; the first homes were occupied in the spring. At present, 13 homes in Quailridge are occupied, and 44 others are finished on the outside and within a month of competition inside. None have buyers, though. Another 33 houses are in an earlier stage of construction, and 78 lots have been sold but construction hasn’t begun.'"

"Ridout, the lumber company vice president, said some responsibility for what’s changed in Northwest Arkansas’ housing market rests with the banks. 'There’s a tremendous amount of banking competition in Northwest Arkansas, and they are starving for construction lending,' Ridout said. 'They are doing a poor job of qualifying their customers. It’s the banks being in tough competition and needing construction loans, and there’s an influx of builders who are new to the market.'"

"Northwest Arkansas’ booming economy and the region’s population growth are main reasons for so many new banks and bank branches, said Charles Miller, government relations director for the Arkansas Bankers Association."

posted by Ben Jones @ 1:38 PM