Bonding companies which insured the completion of roads and other public facilities in more than 15 Prince William County residential subdivisions have gone bankrupt, sticking the county with the responsibility for nearly $300,000 worth of work that has not been finished in four of the projects, according to an assistant county attorney.
The developer of two of the four subdivisions that are in default is Battlefield Builders Inc., the Prince William-based company that ceased operations in the face of nearly $25 million in unpaid debts to lenders, subcontractors and suppliers, said the attorney, James E. Barnett.
The county will complete roads, storm drains, curbs and gutters and other unfinished work in the four communities as soon as possible, said G. Richard Pfitzner, chairman of the Board of Supervisors. "It's a public responsibility and it [the work] will be done," he said. Developers of the other subdivisions will be given 30 days to find new bonding companies, according to Barnett.
The bankrupt insurers are Ideal Mutual Insurance Co. of New York state and Eastern Indemnity Co. of Maryland, Barnett said.
Ideal Mutual also held performance bonds on 48 projects in Fairfax County, including one being developed by Battlefield. A $380,000 bond covered roads and other public facilities in West Springfield Mews, a subdivision where only preliminary work had been done, according to Henry Schenke, chief of the bonds and agreements branch of the Fairfax Environmental Management Department. No houses had been built, he said.
Developers of the other projects where Ideal held bonds and of 17 projects bonded by Eastern Indemnity have been given 60 days to get new bonds or other forms of surety, Schenke said.
Work in two Loudoun County subdivisions also was bonded by Ideal Mutual, according to Daniel Travostino, assistant county attorney there. One of the subdivisions is a Battlefield project, Chestnut Run. The developer of the other subdivision has indicated he will get another bond, Travostino said.
Loudoun officials were notified that the Supreme Court of New York, a court similar to the Virginia circuit court, had ordered all policies issued to persons or companies outside the state to be canceled, according to Travostino.
State-run guarantee funds in New York and Maryland, which are supposed to reimburse holders of the policies of defaulted companies, are available only to residents of those states, and the Virginia guarantee fund does not cover these public facilities bonds, Prince William attorney Barnett said.
Prince William attorneys will file claims on the assets of the two bankrupt insurance firms in hopes of recovering at least a portion of the bond amount, Barnett said. Any money received will go into a general fund that can be used to finish up the work. The four projects involved in the recent defaults will be placed on a list of subdivisions in which the county must pay for work.
The two Battlefield projects insured by Ideal Mutual are section two of Montyville Estates, covered by a now-worthless $140,000 bond, and section four of Fernbrook, where the bond was for $120,000. Barnett said the county estimates the work still to be finished in Fernbrook will cost about $125,000 and the Montyville work will cost approximately $60,000.
The Maryland insurance firm held bonds on two sections of Daleview Manor, built by CDH Corp., according to the assistant county attorney. Cecil D. Hilton Jr., owner of the company, "disappeared about a year ago," Barnett said. His project was insured for $74,000 and the work not yet finished will cost about $60,000 to complete, he added.
Eastern Indemnity also had insured the completion of public facilities in Lynn Forest, built by the development firm of Piercy & Sutton, said a Prince William official. The bond from the defaulted insurer was for $50,000; the county estimates the work still to be done will cost $26,000.
Barnett said these are the first defaults by insurers of performance bonds in his three years in the county attorney's office. "Having two bonding companies go under is certainly unusual, plus having Battlefield Builders leaving us with about 10 subdivisions," he said.
The county has moved to collect funds from companies holding bonds in most of Battlefield's subdivisions. Barnett said it appears that bonds and, in some cases, letters of credit on other Battlefield projects in Prince William will cover all the work that is still to be completed.
In Loudoun, the county has required builders to post new bonds when their insurance firms default, said attorney Travostino. When a builder defaults, the developer who gets the project after foreclosure is required to post performance bonds. Travestino said this is the first time he has ever known a bonding companies and developers of the same projects to default.
An attorney for SKI Real Estate Inc., the new owners of 26 homes in Chestnut Run, the former Battlefield subdivision in Loudoun, said SKI is "aware" of the Ideal Mutual default and may challenge the New York court's order to cancel the bonds "if we think it can be challenged."
Representatives of SKI plan to schedule a meeting, probably early this week, with prospective buyers who held contracts with Battlefield Builders for Chestnut Run homes. The new owner "is ready to sit down and renegotiate contracts," said the attorney, Thomas J. Cavuto, whose law firm, Thomas & Fiske, represents SKI and the Battlefield title company, District Realty Title Insurance Co.