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E-mail StoryDeveloper defaults mushroom
Not just homeowners being affected by mortgage crisis
| Saturday, Jan 5 2008 9:54 PM
Last Updated: Monday, Jan 7 2008 8:43 AM
Homeowners aren’t the only ones defaulting on property loans these days.
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Developers still hope to build on the foreclosed Paladino Hills site in northeast Bakersfield.
The foreclosed Poplar Pointe development in Wasco has fourteen finished homes sitting empty behind locked gates. The homes are nestled amid empty lots that reach to the edges of the would-be gated community's walls in this December photo.
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Developers, too, are popping up on Kern County’s roster of delinquent borrowers. Some properties have even foreclosed.
Troubled loans dog large projects — such as SunCal Cos.’ $74 million default to Lennar Corp. for a planned housing development in Shafter — as well as small plans with less than $1 million at stake, county records show.
While not unprecedented in California, the sudden crop of developer defaults are apparently a first for the metro area.
“Never in Bakersfield,” said Bakersfield appraiser Gary Crabtree of Affiliated Appraisers.
In the early 1990s, Crabtree said, the Palmdale-Lancaster real estate market cratered because of layoffs in the aerospace industry.
Pinched developers there let “street upon street” of partially constructed homes go back to banks, he said.
Ridgecrest was also hard-hit, Crabtree added, though it was the commercial warehouse and office sector that was most impacted.
Most defaults came from smaller firms, he said. Well-capitalized national companies walked away from projects but did not leave financial messes behind, he said.
Ocean of dust
In the northeast, signs of the building bust are everywhere, even impacting developments that haven’t defaulted.
New homes in the Four Seasons at Bakersfield retirement community, for example, sit amid a sea of delinquent dirt.
Glenn Shellcross, a 72-year-old retiree, knew the housing market had slowed when he bought a $365,000 home in the budding neighborhood last summer.
The builder, New Jersey-based K. Hovnanian, threw in lots of extras — a landscaped backyard, blinds, appliances and casings on interior archways.
But last week, K. Hovnanian stopped heating the swimming pool to save money, he said.
“I understand only three people were using it,” Shellcross said.
Domino effect
Tom Cook, general manager of Bakersfield paving and grading firm Burtch Construction, said Burtch is owed money by Dunmore Diamond Ridge LLC for work at a southwest Bakersfield project touched by a complicated November bankruptcy filing.
“We haven’t been paid anything at all,” Cook said Thursday about a $900,000 bill submitted in mid-May.
Burtch is now scrambling to pay its own suppliers, Cook said.
Looking to buy?
Folks looking for possible deals on defaulted or foreclosed properties should check the fine print, a title professional says.
Some carry liens and lawsuits from unpaid builders, subcontractors and business associates.
Outstanding liens — anything from owed child support to unpaid contractor’s bills — are attached to the property’s title, said Paul McAdam, escrow manager for Chicago Title Co.’s Kern County operations.
Potential buyers should demand a preliminary title report and title insurance, McAdam said. The preliminary report will show all liens on the property.
Buyers should indicate which items they accept before signing an acknowledgement form during escrow, he said. The final report will come after escrow closes.
Without the preliminary report and insurance from a reputable title company, McAdam said, buyers could be surprised to find they’ve agreed to take on all liens attached to the property’s title.
Defaults
Here are some projects around Kern where developers have defaulted, been foreclosed on or been involved in bankruptcy filings as of Thursday, according to documents filed with the Kern County Recorder’s office and various courts.
Northeast Bakersfield
• Paladino Hills LLC
Loan amount: $10 million
Location: 80 acres near the northwest intersection of Highway 178 and Alfred Harrell Highway.
Details: The property foreclosed in November. The undeveloped site still boasts a sign promoting 185 estate lots in a gated community coming in fall 2006.
The company spent more than two years struggling to get power lines moved from the middle of the site — a delay that contributed to the foreclosure, said local project manager Dewey Hinds.
“It was quite a disaster for the builder,” Hinds said.
The land was repossessed by lender A.W. Properties West LLC, a Rancho Santa Fe-based builder with plans to finish the project, Hinds said. Construction still hinges on moving the power lines, he said.
“We’re at the mercy of PG&E right now,” Hinds said.
• Dunmore Westport LLC
Loan amount: $20 million
Location: 79 acres at the southwest intersection of Morning and Paladino drives.
Details: A construction loan made by Wachovia Bank in October 2006 defaulted in September. The graded site is one of three local projects tied to a Sacramento-area developer that filed for bankruptcy in November (see GSJ and Dunmore Diamond Ridge entries).
• GSJ Co. LLC
Loan amount: $5.5 million
Location: 147 acres at the northwest intersection of Paladino and Morning drives.
Details: One of three troubled sites tied to a Sacramento homebuilder (see Dunmore Westport and Dunmore Diamond Ridge entries). The GSJ loan was taken out in late 2005; it defaulted in November.
• Reynen & Bardis (Cal Kern) LP
Loan amount: $6.8 million
Location: 58 acres near Morning Drive between 178 and Paladino Drive.
Details: The Sacramento-area developers defaulted Dec. 11 after correcting a previous default in November. They bought the land in early 2006. A message left with Reynen & Bardis Friday was not returned.
• Canyons LLC
Loan amount: $3.3 million
Location: Nearly 847 acres south of Hart Park and Alfred Harrell Highway.
Details: The Sacramento-based developer behind the Canyons project is better known to locals through its other company, General Holding. The default notice was filed in August. Messages left with local project manager Robert Kapral were not returned Friday.
• Other
Loan amount: $5.1 million
Location: 33 acres on the north side of Paladino Drive east of Morning Drive.
Details: Two couples from the Paso Robles area borrowed money from a group of private investors in the San Luis Obispo area in July 2006. The loan, taken out against three parcels of mostly vacant land, was supposed to be paid back in a year, records show. It defaulted in September. Neither couple could be reached Friday.
Southwest Bakersfield
• Dunmore Diamond Ridge LLC
Loan amount: $30.6 million construction loan
Location: 77 acres on the south side of McCutchen Road between Ashe and Stine roads.
Details: The Diamond Ridge site, while not in default, is swamped with liens and lawsuits further complicated by a November bankruptcy filing. It is one of three troubled projects here tied to Sacramento-area Dunmore Homes (see GSJ and Dunmore Westport entries).
Dunmore Homes, founded in 1953, was sold for $500 in September, according to the Sacramento Business Journal, and some lenders are now calling the deal fraudulent. New owner Michael Kane of Sacramento filed for bankruptcy protection in New York state, miffing some creditors, including several Bakersfield construction companies. Some lawsuits filed in Kern against Dunmore Diamond Ridge are now hinging on results of the bankruptcy proceedings. Messages left at Kane’s and the Dunmores’ companies Friday were not returned.
Southeast Bakersfield
• BVGG LLC
Loan amount: $4 million
Location: About 72 total acres on several parcels near Cottonwood Road around Casa Loma Drive and Watts Drive, including former golf course land switched to residential use.
Details: The Bakersfield developer defaulted in December on a loan taken out in 2004. For those interested in local real estate trivia, a lawsuit filed against BVGG in April by Crisp & Cole Real Estate is still on the books. Company representatives could not be reached Friday.
• Cottonwood Villas LLC
Loan amount: $2 million
Location: 40 acres north of Cottonwood Road between Planz and Pacheco roads.
Details: A default notice was filed in September against Chino-based Cottonwood Villas. Current owner Cottonwood Land Holdings LLC lists Los Angeles-based Larry Sakamoto as the company’s contact, state business records show. When reached Friday, Sakamoto said questions would need to be directed to the company, but said he had no contact information for anyone involved.
Wasco
• Poplar Pointe LLC
Loan amount: $9.9 million construction loan
Location: 10 acres on the northwest corner of Filburn and Poplar avenues.
Details: The would-be gated community has walls and gates, but entrances are locked. Fourteen completed houses sit empty amid two dozen or so dirt-topped lots.
The Irvine-based developer defaulted in November on a construction loan made in June 2006, while construction liens have piled up in recent months. A message left Friday afternoon was not returned.
Lawsuits simmer between the current developer and two former developers from San Luis Obispo County, with financial and legal disputes extending to a pair of related developments in Paso Robles.
An online auction company offered the 14 existing homes in a recent sale. The auction site, www.fre.com/163, lists all properties with sales pending. As of Friday, no completed sales had been recorded with the county.
• Eagle Meadows of Wasco 77 LLC; Eagle Meadows of Wasco 75 LLC
Loan amounts: Two loans of $2.1 million apiece
Locations: 77 acres of ag land at the southeast corner of Gromer and Magnolia avenues; 75 acres of ag land near the southwest corner of Palm and Filburn avenues.
Details: The Stockton-based companies of developer Kent Hoggan defaulted in late October on loans taken out in February 2006. Jake Jacobsen, vice president of operations, said the company is working with lenders to try to get the properties out of default and hopes they’ll be able to hold on to the land.
Shafter
• SunCal Mission Lakes LLC
Loan amount: $74.3
Location: About 515 acres north of 7th Standard Road northwest of the intersection with the Calloway Canal.
Details: In late September, the subsidiary of Irvine-based Suncal Cos. defaulted on a loan from Lennar Homes of California Inc. Officials from Miami-headquartered Lennar Corp., a national homebuilder, said they would take the property back when it foreclosed, but declined to say what the company’s ultimate plans are for the proposed 5,300-home Mission Lakes project.
Rosamond
• Desert Star Communities LP and related companies
Loan amount: $11.4 million construction loan
Location: 23 acres at the northwest corner of 35th Street West and Orange Street.
Details: In November, the Bay Area company defaulted on a loan made in January 2006.
Two other companies registered to the developer, Stuart J. Reed, had sites foreclose in 2007: Desert Star Communities II LP and Heritage Gardens Properties Inc. The first site sits on 15 acres immediately north of the defaulted site; the Heritage property is near Stetson Avenue and 40th Street West. Several lawsuits and dozens of liens cloud the picture.
Eugene Salmonsen Jr., Reed’s lawyer, said Reed is negotiating with lenders while trying to secure alternate financing.
Looking to buy?
Folks looking for possible deals on defaulted or foreclosed properties should check the fine print, a title professional says.
Some carry liens and lawsuits from unpaid builders, subcontractors and business associates.
Outstanding liens — anything from owed child support to unpaid contractor’s bills — are attached to the property’s title, said Paul McAdam, escrow manager for Chicago Title Co.’s Kern County operations.
Potential buyers should demand a preliminary title report and title insurance, McAdam said. The preliminary report will show all liens on the property.
Buyers should indicate which items they accept before signing an acknowledgement form during escrow, he said. The final report will come after escrow closes.
Without the preliminary report and insurance from a reputable title company, McAdam said, buyers could be surprised to find they’ve agreed to take on all liens attached to the property’s title.