Homeowners in a partially completed Montgomery County development say that the builder, the financially strapped Leadership Group, has left them stuck with unfinished roads, crumbling retaining walls, leaky basements and other problems while it negotiates with its creditors in an effort to avert bankruptcy and complete is unfinished homes.
The creditors, more than 350 subcontractors and suppliers to whom Leadership owes an estimated $7 million, also are getting anxious. Attorney Roger Frankel, who represents the subcontractors and suppliers in negotiations with Leadership and its lenders, told the creditors this week that they can expect to receive between "20 cents and 40 cents on the dollar" of what they are owed if the talks result in an agreement that will enable the developer to finish work on nine projects where construction stopped more than a month ago.
"Of course, if (the negotiations do) not succeed and this case ends up in bankruptcy court, we would anticipate the distribution would be substantially lower," Frankel said in a letter to the creditors.
The negotiators are at work drafting a document on the basis of a "nonbinding" agreement reached two weeks ago, a job that will take about two more weeks. If all the parties sign the completed agreements, work could resume in two to three weeks, Frankel said.
In addition to the amount owed suppliers, subcontractors and other unsecured creditors, the developer owes an estimated $7 million to its lenders, according to a source.
About 75 residents of the Woodrock subdivision, one of Leadership's projects in Potomac, attended a homeowners association meeting this week and sought to learn more about the financial condition of the company. But they voiced their anger when two Leadership employes at the meeting, Margaret O'Reilly and Dottie Sherman, said they were attending as members of the association's board of directors and were not authorized to discuss the development company's financial affairs.
When one Woodrock resident asked if Leadership could provide a written report, Sherman said she did not think so, because the company's status is unclear. She said she would ask Larry A. Goldstein, a Leadership employe and president of the homeowners, organization, for a report. Goldstein was not able to attend the meeting, Sherman said.
Sherman said the association has signed a contract with Leadership to provide snow-removal services this winter, evoking laughter and angry comments from the homeowners. "We do have the equipment and people to do it," she responded.
Unfinished roads in Woodrock, which is off MacArthur Boulevard, will not be completed until next year, Sherman said. She added that the roads are covered by performance bonds, and that county officials must approve the work before the bonds can be released.
Also posing problems in Woodrock are dead and dying trees, and defective drainage, flood control ponds and retaining walls, according to Stanley Nunneley, a homeowner. Nunneley headed the meeting, a special session called by the owners to question the board.
Michael Potter of MTM Management Associates, which was hired by the Leadership-controlled homeowners association, said the question of when repairs will be made and work completed "all gets back to the problem of Leadership. When they get back to work, they'll take care of it."
Repairs and other work covered by the one-year warranty on the Leadership houses are not being done, creating hardship for families and causing concern that house values will be lowered as a result, owner Ronald B. Bergman said after the meeting.
The inability to have warranty problems taken care of is a "major concern" for many Woodrock owners, most of whom have purchased their houses within the last six months, one owner said.
Another owner, Sandra Garrett, said her basement was awash in more than two feet of water during recent heavy rains. The foundation has "major" cracks that an engineer has said will cause it to shift, the roof leaks and storm drains have backed up, she said.
Several homeowners complained that Leadership, which still controls the association, has held few meetings and has not kept Woodrock residents informed about the development's progress and problems. Sherman told the homeowners the board will call an annual meeting soon to appoint a committee to nominate new officers and to name members of other association committees.
Ironically, Woodrock, where the home range from moderately priced town houses to single-family homes costing $300,000 and up, has 161 sold units, one short of the number needed before Leadership is required to hand over control of the homeowners association to the residents.
However, one homeowner at the meeting said buyers probably cannot be found for any completed or nearly completed homes in the development because the houses have mechanic's liens against them and could not be delivered with clear titles. Inn an earlier interview, Frankel also said liens have been filed against nearly all of the company's finished, but unsold, homes.
A mechanic's lien asks a court to order sale of a property, leaving a homeowner the choice of paying the bill or losing his home. In practice, courts rarely order the sale of a home after it has been purchased by an individual unless the lien is very large, according to one attorney familiar with mechanic's liens.
Potter said Leadership has paid all it owes the homeowners organization. In response to questions, Potter said he was hired as an "independent manager" and could not be required by the developer to pay the company out of the association treasury for work done in Woodrock. "They can't order me to give them money . . . but they can fire me," Potter said.
"You would get all the ($20 monthly homeowners') assessments paid up if people felt Leadership had no control of the money," homeowner Tom Podesta told Potter.
Several owners have withheld money because they are angry about problems in Woodrock, but probably will pay when they realize they cannot vote on association business and officers unless their accounts are current, Bergman said.