Foreclosure Crisis Hitting Homes Not Yet Built (California)

[UpInArms]

Source: CBS13

MANTECA (CBS13) ― The biggest foreclosure ever in the Manteca-Lathrop market has rattled homeowners with a dramatic twist in the housing crisis: Many of the foreclosed homes have not even been fully constructed yet.

The lakeside beauty of the Oakwood Shores community, with its Italian-themed architecture and giant homes, is now being outshined by the gloomy economy. The first building you see when you drive through the gate is also the first sign that something is wrong. It isn't finished.

"It's not what I envisioned, but when the market started declining it's kind of what you expected," said Jamie Granda, the first buyer in the community.

Suddenly, Beck Properties, whose flags still fly proudly outside the main gates, filed a foreclosure notice for the Oakwood Shores development in Manteca and two others in Lathrop.

With only a dozen or so of the 480 planned houses finished here, most of the development sits empty. Dirt lots are sitting next to homes sold for $600,000 or more.

Read more: http://cbs13.com/local/foreclosure.unfinished.homes.2.765857.html

[Whoa_Nelly]

1. Builder bankruptcy in Tucson

http://www.azstarnet.com/business/245858

Builder Sierra Pacific in Chapter 11
By Christie Smythe
Arizona Daily Star
Tucson, Arizona | Published: 06.28.2008


Local home builder Sierra Pacific Homes LLC filed for Chapter 11 bankruptcy protection on Friday.

A petition filed with the court provides estimates of $10 million to $50 million for the company's assets and debts. Chapter 11 bankruptcy allows a company to reorganize and pay off debts while it continues to operate.

Among the company's largest unsecured creditors are Colorado River Materials Inc., of Marana, which is owed nearly $500,000, Polaris Land Surveying LLC, of Tucson, which is owed about $18,000 and Tucson Patio Walls, of Tucson, which is owed about $12,000.
Court records show Sierra Pacific also owes about $17,500 to Tucson Newspapers Inc., a joint operating entity for the Arizona Daily Star and the Tucson Citizen.

Sierra Pacific Homes started building in Tucson in 1993 and has built more than 500 homes in Tucson, according to the company's Web site. No one answered calls placed to the company's office on Friday. A message left there got no immediately reply.

Sierra Pacific is part-owned by Torrance, Calif.-based Elite Homes and Tucson-based Tri-Star Development Inc., according to state incorporation information. The president and vice president of Tri-Star Development are John and Renee Agresti, according to corporate filings.

...a little more at link...

[cliss]

2. Wait a minute.

Houses are being foreclosed, and they don't
even exist yet??? I'm having a tough time wrapping my brain around this one.

Sheesh no wonder the real estate market is imploding.

[saigon68]

3. Apparently the Equity is in the "Empty Lot"

LOL

[TechBear_Seattle]

4. It's not so sinister as all that

According to my dad (who's been in the building industry since before I was born), it works something like this....

A company is looking to buy and develop a 40 acre parcel of land. The purchase price for the property is $100,000 an acre. The parcel will be divided into 80 lots. Building infrastructure (sewer, natural gas, electricity, drainage, etc.) will run about $15 million, and building a home on each lot will cost an average of $150,000 each for materials, labor, permits and inspections. Add in the cost of advertising the new development, and the company will likely spend $35 million on the project. The plan is to sell the developed lots for $600,000 each.

The company goes to a bank and gets a commercial loan for $35 million, paying 9% interest a year. Typically with such loans, the developer will repay only the interest, and make a final balloon payment of the principal. Under these terms, total interest on the loan comes to $9,450,000, or monthly payments of $262,500. The total repayment amount will be $44,450,000. If the lots sell as expected, the company will take in $48,000,000 for a net of $3,550,000.

Ok, are you still with me?

Mortgage rates go up and credit tightens; very few people are buying new houses. This is especially true in the area where the developer is building. A year into the project, only three of the 80 homes have pre-sold; normally they should be half gone by now. He could continue building, spend his $44+ million and end up with a nearly empty development now worth only $25 million, but that will probably bankrupt his company. A surprising number of developers are sole proprieterships; if this is the case, then he will end up bankrupt too. Or he could stop paying on the loan and allow the bank to seize the property and move to protect the assests he has left. Sure, foreclosure will make it much harder to get his next development loan when the economy improves, but at least he will still have a company to run.

That is basically what it comes down to in these situations. This kind of situation was never uncommon to begin with, and nowadays is becoming the rule rather than the exception.

[Voltaire99]

5. Actually, it is rather sinister.

Thank your dad for helping crash home values through his industry's irresponsible development policies.

Time to severely regulate that mafia before it does more harm.

[Dreamer Tatum]

6. Bullshit

That's the way ALL KINDS of real estate is developed. Jesus, you're acting like someone put a pox on the land and it's completely uninhabitable. Get a grip. As for crashing home prices, you can't blame a burst bubble on a guy just because he's holding a needle.

Here's what's going to happen: since there are homes there now, and since it's zoned and plumbed for residential real estate, some developer is going to buy the development from the bank(s) at a discount and...wait for it...build and sell homes there, probably with concessions from the county to get things moving and the tax base extended. It might not happen overnight, but it will happen.

"Severe" regulation? What the hell does that even mean? By "severe," I suspect you mean "punitive," at which point I direct you to the fact that the developer/partnership/whatever FILED BANKRUPTCY. Explain to me (without using slogans or generalities) how "severe" regulation would make the process more efficient.

[snooper2]

7. Don't you love people...

who have no idea what they are talking about :rofl:




GOBAMA!

[Dreamer Tatum]

12. I tried to explain it anyway

:rofl:

[TechBear_Seattle]

8. My dad is a contractor, not a developer

He is one of the first people to get burned when developments go under, which is why he is familiar with the process. If the developer defaults, then my dad doesn't paid. If he doesn't paid, then he has no money with which to pay the foundation pourers, the framers, the electricians, the roofers, the plumbers, the landscapers, the cabinet installers, the floor installers, the carpet installers or anyone else involved in building the houses.

But thanks anyway for your concern. :eyes:

[renate]

11. thank you for your explanation

Even if your dad had been a developer, the response above seems a bit... out of proportion. Since when is it a crime to build houses that people want to buy? Sounds to me like a time-honored and respectable way to make a living. Even if he built the kinds of McMansions that are sitting vacant now (and I'm not assuming he did), unless he was a banker pushing loans on people who were clearly ineligible, he wouldn't have been responsible for the real estate crisis.

But anyway, thank you very much for your detailed explanation of how even unbuilt homes are affected. And I really hope your dad is doing okay through all of this.

[PassingFair]

9. You lost me...

where does the 44 million go after the bank seizes the property?

"He could continue building, spend his $44+ million and end up with a nearly empty development now worth only $25 million, but that will probably bankrupt his company."

[TechBear_Seattle]

10. Let me see if I can clarify

The developer will owe $44,450,000 to the bank once everything is done. If everything is peachy and sells as expected, he will make over $3.5 million.

Let's assume that he finishes, but because of the mortgage crunch and real estate devaluation, the development now has a value of only $25 million. At best, he going to be out almost $19.5 million if he can sell the development at value. At worst, he is out the $44.45 million, plus whatever overhead he incurs for maintenance. This loss is entirely his.

Suppose instead that he walks away after a year and a half. He has made 18 months of interest payments worth $4,725,000. He still has $10 million available from the loan, which he returns to the bank along with the ownership papers to the development. He is out almost $5 million. Only partially finished, the development is worth, say, $15 million. The bank ends up with the $15 million in property, the $10 million repayment of principle and 18 months worth of interest, a total of $29,725,000. Assuming it can dispose of the property for its value, the bank has lost just over $5 million on the deal; otherwise, the land can (usually, unless the bank is in very bad shape) be held as a long-term asset, appreciating in value (hopefully) and being disposed of latter.

So there is no 44 million if the bank seizes the property.