What happens when a builder goes bankrupt? (RE market, incentive, foreclosure)

[sbd78]

I would definately be careful buying new construction after seeing what happened with Neumann homes in my area. Neumann homes was a big builder, I believe they were one of the top 5 builders in Illinois, and they also built in Colorado, Wisconsin, and Michigan. Do your homework, get a lawyer, and have the lawyer check into the financial stability of the company you are building with. I sure wasn't expecting that after closing on my Neumann home the company would go bankrupt a month later. I've got liens on my home, and my warranty is out the window, and I'm one of the lucky ones! There are half built houses scattered throughout my subdivision all the potential buyers of those have to sit around and wait for the bankruptcy to work itself out, and find out when, if, and by whom their home will be finished. They can't even go buy a different home since they are under contract with this one. Lots of others have large deposits down that they may never see again. A lot of people are in limbo and freaking out, I belong to a Yahoo group about it. So after learning the hard way, do your homework before choosing a builder and check into their financial stability! Bankruptcys can take years, and are very messy!

[Greenchili]

So, how does one go about checking out a builders financial situation?
And, we wouldnt get a lawyer, too expensive. What do you know about
Centex, if anything? I know here, they are very slow to release homes.You
have to wait till the home is up and 1/2 done before they even release them
to put a $5000 deposit down. Seems they are very cautious. All this makes
me nervous.


Greenchili

[Big M]

Originally Posted by Greenchili

So, how does one go about checking out a builders financial situation?
And, we wouldnt get a lawyer, too expensive. What do you know about
Centex, if anything? I know here, they are very slow to release homes.You
have to wait till the home is up and 1/2 done before they even release them
to put a $5000 deposit down. Seems they are very cautious. All this makes
me nervous.

Greenchili

I'm no expert but I watch the financial reports from all the major builders regularly. For example, the last quarter, Centex lost around 650 million. Same quarter previous year, made 100 odd million profit. I would be surprised if this, or any company makes a profit for the last quarter 2007 or all of 2008. Can a major builder survive if it takes a hit for 500 million+ for 5 or more quarters? I'm convinced that some of them won't.

[magellan]

Originally Posted by Greenchili

So, how does one go about checking out a builders financial situation?
And, we wouldnt get a lawyer, too expensive. What do you know about
Centex, if anything? I know here, they are very slow to release homes.You
have to wait till the home is up and 1/2 done before they even release them
to put a $5000 deposit down. Seems they are very cautious. All this makes
me nervous.


Greenchili

Most of the big ones are publicly owned, so their financial data is public knowledge.

Centex?

Centex - Investor Relations - Investors (http://phx.corporate-ir.net/phoenix.zhtml?c=112195&p=irol-irhome - broken link)

[Eric Young]

Originally Posted by Greenchili

So, how does one go about checking out a builders financial situation?
And, we wouldnt get a lawyer, too expensive. What do you know about Centex, if anything? I know here, they are very slow to release homes.You have to wait till the home is up and 1/2 done before they even release them to put a $5000 deposit down. Seems they are very cautious. All this makes me nervous.

Deposits are generally protected in the event of a builder's bankruptcy as long as they are in a segregated escrow account that is not under the control of the builder. Check with whoever is handling the escrow and ask for a statement in writing.

Advance payments for options are usually at risk, although limited protection for these monies can sometimes be built into the contract.

Depending on the specifics of your local market, subdivisions still in their early phases are going to be at greater risk than those which are nearing completion.

I hate to run the self-serving advertisement but, if you're considering the purchase of a new home, it is probably more important than ever that you have a highly-qualified real estate agent and/or an attorney advising you.

[Greenchili]

Thanks you guys for all the info. Hmmm,now what to do. Centex has told
us we needed to have a realtor present the FIRST time we viewed models.Of
course we didnt. Plus,we wouldnt get the 3% local hero discount if we used
a realtor? Im confuzled now,and already have been looking at resales also.
The floorplan for Centex is perfect for us..............to be continued.

Greenchili

[sbd78]

Originally Posted by Greenchili

Thanks you guys for all the info. Hmmm,now what to do. Centex has told
us we needed to have a realtor present the FIRST time we viewed models.Of
course we didnt. Plus,we wouldnt get the 3% local hero discount if we used
a realtor? Im confuzled now,and already have been looking at resales also.
The floorplan for Centex is perfect for us..............to be continued.

Greenchili

Most likely, if you choose to build a Centex home you will be fine. But I do recommend scraping up the cash for an attorney to look over your contract, etc. before you sign anything, and also to address your concerns about whether they are a financially healthy company. I did not use an attorney (or a real estate agent) when I purchased my new Neumann home, and now I wish I had. For as big a purchase as a home is, its worth the money. Like I said before, I recently purchased a new home, and a month after closing, the builder (Neumann) went belly up, and a lot of Neumann's customers are worse off than we are. (They have put down large deposits, or have homes under construction, etc.) So it does happen and its best to protect yourself as much as possible.

[Eric Young]

I guess it's like the old Clint Eastwood line...

Do you feel lucky? Do you?

It's you're money. You can either pay someone to advise you or can you take your own chances.

[jimj]

What about purchasing a completion bond? At least that way you know if things grind to a halt the house will get finished, maybe not by the original builder but one the insurance will pay for.

[sbd78]

Here is a good article on the subject:
When Home Builders Hit the Skids - WSJ.com