Go to the mobile version of this Web site.

Login | Contact Us | Site Map | Paid archives | Electronic edition | Subscription Questions | Extras

Village Homes files for Chapter 11

Builder blames credit crisis and depressed housing market

By John Rebchook, Rocky Mountain News (Contact)

Published November 7, 2008 at 11:46 a.m.
Updated November 7, 2008 at 11:57 p.m.

Text size  

More Real Estate

More stories »

Greenwood Village-based Village Homes of Colorado, the largest privately held home-building company in the metro area, has filed for bankruptcy protection.

The 24-year-old company blames the credit crisis and the depressed housing market for its filing for reorganization under Chapter 11.

"There is no question about it," said Garry R. Appel, the attorney for the company, which has built more than 10,000 homes in Colorado since it was founded by John Osborn in 1984. "It is the credit crunch and the downturn in the housing market, which has created this enormous problem for homeowners and home builders across the country.

"Village Homes is facing the same problems that have fueled this crisis."

Matt Osborn, John Osborn's son and the 2008 president of the Home Builders Association of Metro Denver, agreed.

"It's an industrywide epidemic," Osborn said. "We're not the only home builder in Chapter 11. We're facing the same factors and credit market tightening that is impacting the housing market here in Denver and across the country. Chapter 11 gives us the best opportunity to really recapitalize and restructure our balance sheet and prepare for the future."

He said it is too early in the process to determine how that will take place.

The company has assets of $103.9 million and debt of $138.4 million, according to the bankruptcy filing. "Inappropriate actions," by lenders, led to the bankruptcy, according to the filing. The builder said in its filing that its lenders breached a financing agreement by "refusing to fund the vast bulk" of its requests.

Appel declined to elaborate on any specific points in the bankruptcy.

"I don't think we should deal with any of those issues right now," Appel said. "But I do think we will resolve all of our issues with the banks."

Asked if the company, which builds in about a dozen communities, including Castle Rock and Granby, plans to sell any land to raise money, Appel said: "Not at the present time. But that could be an option later."

He said the bankruptcy filing should have no impact on existing homes that are under warranty or pending home sales.

"It shouldn't mean much of anything," Appel said of the effect on consumers. "The business will continue as usual for the company and for the home buyer."

Osborn agreed.

"The feedback from the customers I have seen today on average has been positive," Osborn said. "I really haven't had time to talk to our sales office about what they're hearing. And we only filed on Thursday afternoon, so the word is just getting out."

Village Homes said it had sales of about $85 million this year through October. The company had revenue of $184.2 million last year and $219.4 million in 2006, court papers show. It will build about 220 to 225 homes this year, compared to about 410 last year, Osborn said.

The biggest secured creditor is Guaranty Bank, a unit of Austin, Texas-based Guaranty Financial Group Inc., with a claim of $86 million, court papers show. Auto and home lender GMAC LLC and its home mortgage unit, Residential Capital, hold a combined secured claim of $36.1 million.

Housing consultant S. Robert August said that the bankruptcy filing is an unfortunate sign of the times, but he thinks Village Homes will emerge.

"Village Homes is one of the premier builders in Colorado," August said. "We think the market has bottomed out and is poised to turn around. Until then, the question is how you can handle your debt."

However, Scott Anderson, a senior economist for Wells Fargo, was less optimistic.

Anderson, a keynote speaker at the 2008 Expo Fall Forecast sponsored by the University of Denver and other groups on Friday, predicted the Denver economy will sink into a "mild recession" in 2009 and home prices, on average, will fall another 10 percent. The good news, he said, is that affordability in the Denver area will be the best it has been since the late 1990s, because of falling home prices.

Village Homes has been slashing the prices of its homes. For example, one home in Granby that was priced at $565,067, is now at $465,067. And a home in Parker, previously priced at $630,560, is now listed at $499,000.

Comments

  • November 7, 2008

    12:07 p.m.

    Suggest removal

    B300 writes:

    Is it possible that they could have been part of the problem by building all those homes that folks really couldn't afford?

  • November 7, 2008

    12:12 p.m.

    Suggest removal

    chickenlittle1234 writes:

    B300 - Yeah, it is, though I hate to see this. I'm likely to be saying that more and more, too, because I don't think this will be the last builder to go belly-up.

  • November 7, 2008

    12:25 p.m.

    Suggest removal

    B300 writes:

    chickenlittle; its sad to see so many out of work because of this, but some how we brought it on our selves. I hope our new president can help us get it right, and get us back on track! I also beleive folks need to learn their limits, and not live beyond their means. We seem to have an over load of huge homes that people really cant afford! We are so spoiled!

  • November 7, 2008

    1 p.m.

    Suggest removal

    ObiWan writes:

    B300 writes:

    Is it possible that they could have been part of the problem by building all those homes that folks really couldn't afford?

    If they were building all of those homes people couldn't afford, can you really blame them? Afterall, they would have just been responding to an improperly inflated MORTGAGE market. If people keep coming up to you with the mortgages for a 300K house, you're not going to say, "Well, sorry, no, we're only going to build 150K houses for the good of the nation." The mortgage industry created this mess 99% more than the home-building industry did.

  • November 7, 2008

    1:05 p.m.

    Suggest removal

    rightwingnut writes:

    Obiwan,
    Horse****

  • November 7, 2008

    1:14 p.m.

    Suggest removal

    chickenlittle1234 writes:

    ObiWan - In the face of rightwingnut's witheringly highbrow and witty response, I concur. On another page, I was carping about corporations being overly focused on quarterly results, but I acknowledge it's hard to blame them when the epenalty for missing their numbers is a huge selloff. Similarly, a home builder's job is to build. That's what they do, and I don't blame them (completely) for the housing crisis. We've done a lot of work in the shop here that has led us to the conclusion that mortgage money does drive the market value. The common critique of this view is that it's an auto-correlation - of course you'd have more mortgages if more houses are selling, and of course, the mortgages are higher if the values continue to rise. However, values rise following increases in mortgage liquidity, and a positive feedback loop becomes established, leading to more and more loans, with looser and looser underwriting standards. The relationship isn't as strong for residential mortgages as it is for commercial mortgages, but it does hold

  • November 7, 2008

    1:21 p.m.

    Suggest removal

    mountmassive writes:

    Something else to consider-the mortgage interest tax deduction. Borrow $100,000 at 6%, you get $12,000 a year of deduction (which is about the standard deduction you'd get without borrowing a dime) Borrow $300,000, and you get $36,000. Our tax code is encouraging big mortgages!

    The sacred cow mortgage interest deduction is among the most regressive elements of our tax code-disguised as "middle class tax relief." The people it benefits most are those that can afford million dollar plus houses.

  • November 7, 2008

    1:21 p.m.

    Suggest removal

    Darwin writes:

    We can lay a large part of the blame on the government (both parties). Now we want the same government to fix the mess they helped create. This is the same government that gave us Social Security, IRS, FEMA, etc. Great scheme they have. Create a problem than come riding on a shiny horse saying "we will save you". Now the auto companies want the government (us) to pay for the workers pensions. Easy enough to do, just raise our taxes to pay for it.

  • November 7, 2008

    1:28 p.m.

    Suggest removal

    mountmassive writes:

    Something else to consider-the mortgage interest tax deduction. Borrow $200,000 at 6%, you get $12,000 a year of deduction (which is about the standard deduction you'd get without borrowing a dime) Borrow $600,000, and you get $36,000. Our tax code is encouraging big mortgages!

    The sacred cow mortgage interest deduction is among the most regressive elements of our tax code-disguised as "middle class tax relief." The people it benefits most are those that can afford million dollar plus houses.

  • November 7, 2008

    1:34 p.m.

    Suggest removal

    sb24 writes:

    This story prompted me to make my first comment at the RMN. Village Homes is a family owned builder that is run by very good people. This is terribly sad. They have been a positive part of the Denver community for decades. This is not a pump and dump national builder. Give them a break.

  • November 7, 2008

    1:37 p.m.

    Suggest removal

    chickenlittle1234 writes:

    mountmassive - I partially agree. I don't know how we'd eliminate the tax deduction for ownership without having home values fall another 20-30% (or more). However, I'd be all in favor of eliminating the interest deduction on all home loans except the first mortgage. What contributed to the housing bubble (or the mortgage bubble) was the use of our homes as an ATM machine through second mortgages and home equity lines of credit (HELOCs). Instead of paying down one's mortgage through amortization, we were all able to get interest-only 2nds or HELOCs and overleverage our houses. Take away the tax deduction for that, and that loan suddenly becomes more expensive on an after-tax basis. This may not stop cashing out, but it would at least provide a significant disincentive.

  • November 7, 2008

    1:38 p.m.

    Suggest removal

    B300 writes:

    obiwan; that still puts them as part of the problem!

  • November 7, 2008

    2:54 p.m.

    Suggest removal

    denvernorthwest writes:

    sorry to burst your bubbles but builders build what the buyers want. Their Five Parks sub in Arvada was voted community of the year 3 years in a row. They build a good house and it is too bad they are in trouble. When local builders go under you get stuck with all of the crap homes built by the nationals like Lennar, Pulte and such.

  • November 7, 2008

    2:59 p.m.

    Suggest removal

    smitrh92 writes:

    Guys and gals
    This is a huge loss for Denver. VH builds one of the best quality homes available for the money. In my small opinion, mortgage brokers went wild with weak requirements for loans, and wall street fueled the flame. Some licencing requirements would also potentially limit dishonist people from going into the mortage business. Scams were and are still rampant around town. Hopefully, VH can come out of this when ever our economy comes back. It could be a while.

  • November 7, 2008

    3:51 p.m.

    Suggest removal

    Quagmate writes:

    Wasn't it yesterday that Metrolist was saying how good the Denver market was?

    Here is the reality - WE the people have spent our capital earnings for the next ten years. WE went out and bought homes at 120% leverage, WE ran up credit cards, WE bought cars with second mortgages, WE bought second homes, WE spent like drunken sailors and now what? Consequences?

    The entire economy was based on a lie WE told ourselves enough times we eventually started to believe it. We have borrowed our future to pay for today and the future is upon us.

    This won't be the only company that goes under good or bad, but it only illustrates that this economic collapse is only at the beginning stages and our government really can't do much because the damage is already done.

  • November 8, 2008

    10:27 a.m.

    Suggest removal

    WarrenJimmyBuffett writes:

    Vast oversupply of homes equals no need for new homes and BKed homebuilders. Feast to famine. Kind of like over farming. The soil goes dead.

  • November 10, 2008

    2:05 p.m.

    Suggest removal

    Biff writes:

    I was going to post the same thing SB24 did. The Osborn's are very honost business people. Its always sad to see Colorado grown family business have to go through this. They'll figure it out.