SPECIAL REPORT : Lien times
Posted on Sunday, November 19, 2006
URL: http://www.nwanews.com/adg/News/173400/
— CENTERTON 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.
Because houses aren’t selling fast enough, the impact has rippled through to lenders as well as to suppliers, who are cutting staff and extending less credit to builders.
“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.
“ It’s not good.”
BETTY’S HOMES 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 with the U. S. Bankruptcy Court in Fayetteville. 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 Wholesale Overhead Door, 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.
Of the 937 materialman’s liens filed from January through October in Benton County, 315 were against Betty’s Homes. The county saw 325 materialman’s liens filed in 2005 and 345 in 2004, Benton County circuit clerk’s office records show.
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.
In Pulaski County, 138 materialman’s liens were filed in the first 10 months of this year and 190 in all of 2005, said Pat O’Brien, the county’s circuit clerk.
Bob Abercrombie, a Bella Vista resident who owns Betty’s Homes, declined to comment for this story, referring questions to Stanley Bond, a bankruptcy lawyer in Fayetteville. Abercrombie intends to pay his debts, Bond said. The bankruptcy allows Betty’s Homes to reorganize, giving the court the right to work with Abercrombie to come up with a plan to pay creditors. “Our intent is to make everyone whole to the extent that the revenue will support that,” Bond said. “That’s not always possible. “ To paraphrase Mr. Abercrombie, what he told me was he didn’t want to do it, but he saw no immediate solution to his problem. He’s going to make everyone whole if he can.”
SUPPLIERS SUNK 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. Among those owed the most money were Ridout Lumber Co. of Rogers ($ 125, 000 ), Randy Gray & Associates in Gentry ($ 83, 324. 34 ) and Smith Tile Co. in Springdale ($ 78, 891. 17 ).
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.
The builder owes Tune Concrete $ 54, 680. 34, court records show. 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.”
Tune Concrete no longer extends as much credit to builders, and debts aren’t allowed to lag.
“We aren’t giving as much leeway,” Tune said.
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.
Abercrombie has been a good customer, some suppliers said, and they’d do business with him again if he gets his debts paid and houses begin selling again.
“He’s a fairly responsible guy, so it’s significant to see him have problems,” Ridout said. “He wasn’t one I would have expected to be the first to have trouble.”
Others said their long relationship with Abercrombie gives them hope that he’ll repay them.
“He’s a victim of a bad market,” said Bob Carruthers of RC Electric, a Bella Vista company owed $ 14, 260. “He’s been great to work with for 10 years.” Abercrombie now is focusing entirely on his construction business in hopes of turning around the financial future of Betty’s Homes. He closed Abercrombie Real Estate on Nov. 9, selling the company’s office space in Bella Vista to Benchmark Real Estate in Lowell. Benchmark now operates a branch office at the Bella Vista location, said Darrel Ankeny, Benchmark sales manager.
SKYLINE WARNING 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, a document produced quarterly by the center and commissioned by Arvest Bank that’s used to measure changes in the Northwest Arkansas real estate market.
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 reduced number of housing starts eventually will reduce the number of unoccupied new homes, said Kathy Deck, the center’s associate director.
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.
The subdivision’s advantages, Marley said, are its amenities and the association, which charges $ 300 in annual dues. The dues help maintain the clubhouse, pool and playground. Still, Marley acknowledged he’s slowing the subdivision’s development because there are so many houses for sale in Benton County. Homebuilders want to rid themselves of inventory before starting construction on new houses. That’s why he’s delaying the sale of the last 14 home sites of his 183-lot subdivision. He has contracts to sell the remaining lots. “We’re having to give them more time to close due to market conditions,” Marley said. “These are my customers. I’ve got to work with them. If it slows down for them, it slows down for me. I’m trying to be realistic.”
TURN IN KEYS In the months before Betty’s Homes filed for bankruptcy, a rumor spread across Northwest Arkansas, passing quickly from building inspectors to mayors to Wal-Mart Stores Inc. vendors to soccer moms.
As the urban legend goes, homebuilders across Benton and Washington counties are walking into banks, acknowledging they can’t sell new houses and leaving the keys with bankers as a way to repay loans.
It doesn’t work that way, though.
“I’ve heard a silly rumor that a guy turned in 120 sets of keys,” said John Lewis, retired Bank of Fayetteville president. “The trouble with that is there’s nobody building that many.”
Every time he heard some version of the “keys” rumor, banker Gary Head tried to find the bank or builder involved.
“I never found it to be true,” said Head, president and chief executive officer of Fayettevillebased Signature Bank of Arkansas.
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.
Three start-up banks have opened in Northwest Arkansas in the past two years — Signature Bank, Pinnacle Bank in Bentonville and Legacy National Bank in Springdale.
Other banks have expanded to Northwest Arkansas, including Bank of the Ozarks of Little