The Leadership Group, a failing Montgomery County development company that is $16 million in debt, and its creditors are nearing an agreement that is expected to give the creditors about 30 percent of the money owed them and cover warranty work for about 300 homeowners, according to attorneys for both sides.
Subcontractors, suppliers and other creditors probably will receive the money over a period of a year as Leadership's assets are sold, according to their attorney, Roger Frankel. He said the first distribution of money probably will be made in late March or early April.
About 300 owners whose houses are still under Leadership warranty can turn to the developer's insurer, Homeowners Warranty Corp. (HOW) for repairs and other work, according to Judith Karp, an attorney for Leadership. Ordinarily, HOW requires homeowners to ask builders to perform warranty work before they file claims with HOW. Under a recent agreement, HOW will waive this requirement, Karp said.
The agreement with HOW "resolves a lot of claims by a lot of homeowners" that could total as much as $1 million or more, according to Frankel.
Frankel and Karp said both sides are close to agreement on most of the remaining issues, but cautioned that the settlement is not final until the document is signed.
Potential purchasers of Leadership homes who had signed contracts and put down deposits are having their deposits returned, Karp said.
David Wolff, who had paid Leadership $15,000 in a deposit and money for extra amenities in a house costing more than $350,000 in the Palisades development in Potomac, said the entire sum has been returned. The Wolffs were among dozens of purchasers who sold their homes or canceled leases on the strength of the developer's assurances that their new homes would be completed by a specified date.
Wolff, who said his family is "is very pleased that our life is back on track," decided last fall not to wait for the house they contracted for and bought another Leadership-built home from a family who had owned it for 18 months. The Wolffs lived in a temporary rental home for several months before moving into the new house before Christmas.
Another prospective purchaser, David Guskin, and his family lived in two temporary homes while waiting for more than a year for their Leadership house in the Woodrock development in Potomac. The Guskins first were told their home would be ready for occupancy by last August. They canceled the lease on their first rented house, then had to rent another one when the Leadership home was not finished in August. Guskin expects to soon complete the purchase of another $400,000-plus Montgomery County house, ending what he said had been an "unpleasant" year.
Banks and savings and loan associations that financed Leadership's construction projects are trying to get their money back through foreclosure sales of property in 10 developments in Montgomery County and Northern Virginia. The sales started several weeks ago and are continuing, according to Frankel. The lenders have agreed to waive their right to sue Leadership for any differences between the proceeds of foreclosures and the amount owed the financial institutions, he said.
Although property in one Montgomery development, Tuckerman Walk, sold for about $100,000 more than the amount of the construction loans, the shortfalls in other projects are expected to be in the "millions of dollars," Frankel said.
The Federal Savings and Loan Insurance Corp. also has agreed to waive its claims to sue for the difference between the amount it receives in a foreclosure sale of Leadership property and the amount owed on a defaulted loan, according to a FSLIC spokeswoman. The $7.8 million loan from Mt. Vernon Savings and Loan was used to purchase several properties behind the Bethesda Metro station, which Leadership hoped to assemble for a large development project, Karp said.
The agreement signed by Leadership and FSLIC also required Leadership to make a $200,000 payment to the insurance corporation, the FSLIC spokeswoman said.
Money to pay subcontractors, suppliers and nonconstruction lenders will come from the sale of about $5 million of Leadership Corp.'s assets. An estimated $1 million more will come from the sale of personal property, mostly real estate, of Robert D. Berger and company President Peter J. Berman, Leadership's owners, Frankel said. In return, the creditors will agree not to sue either man personally for unpaid debts, Frankel added.
Leadership will remain in existence for the next "year or two" as Berger and Berman "work to resolve their problems," but will not embark on any construction, Karp said. Then the corporation will be dissolved, she said.
Berger and Berman, longtime Montgomery County builders, formed Leadership in 1981 after dismantling their former company, Berger Berman Builders Inc., according to sources familiar with the companies. They were best known for building luxury houses, with sales prices of $300,000 and up, but they recently also have built homes for first-time and move-up buyers.
Leadership's collapse in the midst of a booming real estate market startled industry observers. Several sources said the company expanded quickly soon after it was established, probably without enough employes and executives to handle the growth. The sources said "very poor accounting and financial records" masked the magnitude of their financial problems until it was too late.