Builder's Troubles Put Buyers in a Bind
Tuesday, August 5, 2008
Jane Hwang spent $120,000 and devoted five years waiting for her perfect custom home. Then in one brief phone call, she learned she might lose it all. The builder, Seville Homes, couldn't pay its bills, and its bank was seizing Hwang's nearly completed house.
Scared of losing her investment, Hwang pounced into action. She went to the auction on the Fairfax County courthouse steps and outbid a bank for the house.
"For five years I have been fixated on this place," said Hwang, a real estate agent. "I planned my retirement, I put all my life in there. I had to grab that house."
Despite buying the Annandale home at a foreclosure auction for $700,000, Hwang, 59, said losing her deposit, as well as paying to complete construction and resolve lingering zoning concerns, means that the home will cost her more than $50,000 over the original $800,000 price. She does not expect to be able to move into the home until at least October.
Hwang said she saw Stephen Korfonta, Seville's owner, nearby during the auction, but they did not speak. "I was so angry," she said.
Seville Homes, a small Virginia builder, collected hundreds of thousands in deposits in recent years for homes in Northern Virginia that it never delivered. There are foreclosure filings on 19 Seville properties, according to data collected by ForeclosurePoint, on online listing service, including a Vienna house assessed at $1.2 million and an Annandale house assessed at $1 million. A $2.2 million five-bedroom home owned by Korfonta personally has also been in the foreclosure process, according to ForeclosurePoint.
The housing downturn that is setting foreclosure records, inflating the volume of homes for sale and dragging down prices has also created a cash crunch for new-home builders. Without the financial cushion to weather a slowdown, small builders such as Seville have stumbled and become overwhelmed with property they bought two or three years ago and now lack the funds to complete, analysts said.
Delinquencies on construction loans for single-family homes jumped to 10.8 percent during the first quarter, compared with 2.7 percent during the corresponding period last year, according to Foresight Analytics, a California research firm. Among the struggling builders is Caruso Homes of Crofton, which filed for bankruptcy court protection last month after a cost-cutting campaign failed to sustain it.
In the Washington region, the number of new homes being built has fallen by half since 2005, to 23,378 this year, according to an estimate by MetroStudy, a Houston-based housing research firm.
Seville's struggles have sent would-be homeowners scrambling to protect their investments. The company used the deposits of the homes in foreclosure to fund operations, so it is not able to return the funds, said Brian West, Korfonta's lawyer. "Our hope has always been that the customers would be able to purchase the homes from the bank," West said.
It is common for some small builders to use a buyer's deposit to help fund operations instead of putting it in escrow, said Kenneth Wenhold, director of the mid-Atlantic region for MetroStudy. "There are a lot of builders having issues, especially smaller builders who are wrestling with cash flow and still trying to build houses."
Some former Seville clients have bought their homes -- in various stages of completion -- at foreclosure auctions and are now spending thousands more to finish them and to resolve zoning issues. Others are hoping that their deposits, which topped $200,000 in some cases, will eventually be returned.