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E-mail StoryDeveloper fallout spreads with Dunmore Homes
| Monday, May 5 2008 7:08 PM
Last Updated: Tuesday, May 6 2008 7:16 AM
Tim Fryer is stuck with $7,000 worth of useless letters for the entryway of a tract gone bust.
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In January, The Californian wrote about what industry professionals say is a first for metropolitan Bakersfield: a rash of developer defaults and foreclosures.
Previous reports have detailed Kern projects of Sacramento developer Reynen & Bardis Communities Inc. and the current status of the City in the Hills project in northeast Bakersfield.
This time, we examine local fallout from the bankruptcy of Sacramento homebuilder Dunmore Homes Inc.
Photos:
Sign fabricator Joe Rojas, left, and Jerry Stockton, sign installer/fabricator for Victory Signs, stand with the lettering for Diamond Ridge, a housing development owned by the recently bankrupt Dunmore Homes. Victory Signs is now forced to foot the bill for the $7,000 lettering.
Weeds sprout near utility connections at about 300 unfinished lots at Dunmore Diamond Ridge in southwest Bakersfield. The Sacramento developer behind the project is liquidating operations, leaving companies unpaid for work and materials.
A broken wall and open trenches along McCutchen Road at the Dunmore Diamond Ridge site. The Sacramento developer behind the project has ended up in a liquidation bankruptcy and some Bakersfield companies will lose money for work they've done.
Graphics:
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The Bakersfield signmaker is among many local companies scorched by the bankruptcy of Sacramento developer Dunmore Homes Inc.
“I paid out of pocket,” said Fryer, owner of Victory Signs, about two cast-metal sets of logos, vowels and consonants spelling “Diamond Ridge” that now gather dust in his shop attic.
The 319-home subdivision in southwest Bakersfield won’t go forward under the Dunmore name. The homebuilder’s assets are currently being liquidated in a federal district court in Sacramento.
Fryer doesn’t expect to get any money back.
Like other small subcontractors — Victory Signs employs eight — he’s at the end of the line for any bankruptcy payouts.
It’s a scenario that may become more common as midsize developers struggle during the housing downturn.
Banks that lent money against acreage typically recoup losses first.
Some large contractors can afford their own legal battles to foreclose on liens or force payments from bonding firms.
But small companies often eat the bill.
A litany of such businesses supplied Dunmore entities with everything from engineering services to portable toilets.
Dan Hudson, president of Hudson Tile Inc. in Bakersfield, said red ink will total about $54,000.
“They just left us high and dry,” Hudson said of Dunmore Homes’ nonpayment.
His firm, which these days employs 20, installed ceramic tiling in the six completed units at Diamond Ridge.
Like Fryer, Hudson paid out-of-pocket for materials and labor.
He talked to a lawyer, but found attorney fees would have meant too much debt.
“It was going to devastate us,” Hudson said. “I had to walk away.”
UNFINISHED BUSINESS
Diamond Ridge is one of three sites in Kern owned by Dunmore affiliates.
The other two, on contiguous vacant land in northeast Bakersfield, are owned by Dunmore Westport LLC and GSJ Co. LLC.
The properties, which together cover nearly 300 acres, currently carry a total $55 million worth of defaulted loans.
Here are details:
• Dunmore Westport LLC
Site: About 79 acres at the southwest corner of Morning and Paladino drives.
Units: City officials approved plans for 281 homes in October 2005; land has had some grading work.
Defaults: In default on a $20 million construction loan from Wachovia Bank made in fall 2006.
• GSJ Co. LLC
Site: About 144 acres at the northwest corner of Morning and Paladino.
Units: 373 lots received city approval in fall 2006; the land is still vacant.
Defaults: Currently in default on a $2.5 million loan from Sacramento firm Ethan Conrad. A previous default to Stockmans Bank was canceled in January.
• Dunmore Diamond Ridge LLC
Site: 77 acres at the southwest corner of McCutchen Road and Mountain Ridge Drive.
Units: 319 lots.
Defaults: In default on $32.5 million construction loan from RBC Bank.
Diamond Ridge is the most developed of the three sites and has attracted the most claims for unpaid bills.
From the outside, it looks like any other subdivision sprouted during the recent boom.
A block wall rings the perimeter. Signs advertise homes from 1,457 to 3,596 square feet. Flags boasting the Dunmore name whip overhead on white poles.
A closer look shows telltale signs of the bust that’s broadsided buyers and builders alike.
The wall? Chunks along McCutchen are knocked down, bricks laying in dirt next to open trenches tangled with wiring.
The flags? Tattered.
Roads with gem-based names — Aquamarine, Moonstone, Sapphire — carve through the tract but remain unpaved.
Inside, the dusty expanse is broken by bright orange utility wires coiled against poles planted in each lot.
A few units on Pearl Ridge Drive, at the southern end of the neighborhood, appear complete but have not been sold, property records indicate.
At the northwestern corner, where Aquamarine Peak Drive approaches McCutchen’s current dead-end, three model homes stand amid lush landscaping like a miniature oasis.
One of the units is the former sales office. Its front window is partially boarded with plywood and a sign taped to the glass door shows it closed Sept. 28.
Inside, the space is empty.
TAXES, INTERRUPTED
Dunmore affiliates are currently behind on more than $312,000 worth of local property taxes, a Californian tally of records from the Kern County Treasurer-Tax Collector’s office shows.
The Diamond Ridge project is up to date in payments while the two northeast sites, Dunmore Westport and GSJ Co., are delinquent.
Jordan Kaufman, assistant treasurer-tax-collector, said Dunmore’s unpaid bills won’t break the bank. But county officials, he added, don’t take missing taxes lightly.
“Every dollar we collect is very important,” Kaufman said.
A delinquency exceeding $300,000 is “something we would consider some very large bills,” he said.
Despite growing financial troubles among mid-size developers, the county is nevertheless close to collecting property taxes at last year’s rate of 96.9 percent, Kaufman said.
For the current fiscal year, which ends June 30, the office expects to have pulled in 96 percent of the $971 million levy.
Tax collectors in at least two other counties — Placer and Tulare — have filed claims in the Dunmore bankruptcy.
Rita A. Woodard, Tulare County’s auditor/treasurer-tax collector, said that county is owed nearly $204,000 in property taxes for a Dunmore project with just seven completed homes on 345 lots.
Kern hasn’t filed a claim, Kaufman said, because the county hasn’t been formally notified of the bankruptcy.
As is typical, Dunmore Homes created a separate limited liability company for each of its projects.
Technically, the LLCs haven’t filed for bankruptcy protection — that’s why the county hasn’t been notified — but documents in the main corporation’s bankruptcy case indicate the affiliates are considered essentially worthless.
The county might file a claim after looking more closely at the case, Kaufman said.
MILLIONS IN PLAY
The bankruptcy case is becoming increasingly complicated.
It started as a reorganization case in November — one originally filed in New York and later moved to California — but has since turned to a liquidation proceeding.
The bankruptcy raised eyebrows because the former head of Dunmore Homes, Sidney B. Dunmore, had sold his 50-year-old family company for just $500 not long before the filing. The once-prominent homebuilder had projects in play from Sacramento to Bakersfield during the recent boom.
In April, Dunmore’s new corporation, DHI Development, filed for liquidation bankruptcy. That case also lists many Bakersfield companies as creditors.
What’s more, Dunmore Homes has filed suit against Travelers Casualty and Surety Co. of America to stop certain payments guaranteed to construction firms.
Some Bakersfield companies are pursuing their own cases against Dunmore Homes and affiliates in Kern County Superior Court.
The Aleco Corp., for example, is owed more than $2.3 million for excavation, grading and other work at the Diamond Ridge and Westport sites, legal filings show.
T. Scott Belden of Bakersfield law firm Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, LLP is one of several lawyers at the firm working on the Aleco case.
Such lawsuits are necessary, Belden said, because bankruptcy proceedings don’t cover so-called “mechanic’s liens” — essentially unpaid construction bills — filed against project-specific limited liability companies.
Aleco and other firms are also claimants in the bankruptcy case, where they might recover a bit more cash they’re owed, Belden said.
While the Dunmore Homes bankruptcy case is complicated, it’s not unusually baroque, he said.
And it won’t be the last developer bankruptcy to touch Kern.
“I think we’re going to see a lot more of these,” Belden said, as developers who bought land during the boom struggle.
“They can only hold on for so long,” he said.