Kara Homes bankruptcy leaves buyers out in the cold
This is what happened after one of New Jersey's largest homebuilders filed for Chapter 11 bankruptcy protection last October as the housing boom went slack. The court proceeding halted the development of two dozen Kara communities across the state, leaving homeowners living on half-built streets. It also has stranded some 300 buyers, including the Files, who made down payments on homes but have yet to move in. Everyone involved has a tale. But those at Birch Hill may be in the toughest jam. Of the 228 units originally planned, only 80 have been completed. Buyers of another 45 units have made down payments but have yet to close. Various liens on the development exceed its appraised value by $12 million, an amount lawyers and others involved with the proceedings said was the biggest gap of any Kara community.
A VERY EMPTY FEELING
Kara Homes bankruptcy leaves buyers out in the cold
Thursday, March 22, 2007
BY JUDY DeHAVENStar-Ledger Staff
Mark and Debbie File's dream home is $8,000 from completion.
That includes the two air conditioning units stolen last fall. And the stainless-steel refrigerator and microwave that were ripped from the walls over Labor Day weekend -- perhaps, as Mark File suspects, by a contractor angry that the builder, Kara Homes, was behind on payments.
The rest of the development, Horizons at Birch Hill in Old Bridge, is much the same, partially finished and in disarray. The clubhouse that was supposed to open last May is incomplete and cordoned off. The heated pool is just a hole in the ground. The tennis courts and bocce court were never started.
While "No Trespassing" has been spray painted on the boarded-up garage doors of unfinished homes, it has done little to deter vandals. One was so brazen he stole the front door off a unit.
This is what happened after one of New Jersey's largest homebuilders filed for Chapter 11 bankruptcy protection last October as the housing boom went slack.
The court proceeding halted the development of two dozen Kara communities across the state, leaving homeowners living on half-built streets. It also has stranded some 300 buyers, including the Files, who made down payments on homes but have yet to move in.
Everyone involved has a tale. But those at Birch Hill may be in the toughest jam. Of the 228 units originally planned, only 80 have been completed. Buyers of another 45 units have made down payments but have yet to close. Various liens on the development exceed its appraised value by $12 million, an amount lawyers and others involved with the proceedings said was the biggest gap of any Kara community.
On Friday, Amboy Bank asked U.S. Bankruptcy Court Judge Michael Kaplan for permission to foreclose on Birch Hill, located a half-mile mile from the bank's headquarters on Route 9. Homeowners said they would be happy if that happened, if for no other reason than it would mean movement on a development that has been brought to a standstill.
Perry Mandarino, the chief restructuring officer hired to guide Kara through the bankruptcy proceeding, agreed Birch Hill is one of the company's most complex cases.
"Birch Hill is the shackle on our leg," Mandarino said. "It is our 800-pound gorilla."
It has been 10 months since the Files sold their East Brunswick house in anticipation of moving into their Kara home last summer.
Set in an over-55, active adult community, the house was perfect for a couple still working but whose two children are grown but not yet out of the house.
When their new home wasn't ready, they put their stuff in storage and moved into a hotel. Every time they asked, they were told their house would be finished soon. Even after Kara filed for bankruptcy protection on Oct. 5, the Files said they were assured they would be in their home by Christmas.
The first few months after the Files left East Brunswick were a blur of hotel rooms and takeout food. The last few months they've lived in a cramped townhouse they are renting in Birch Hill, around the corner from their unfinished home. When their 21-year-old son, Paul, visits from the University of Connecticut, he has to sleep in the den. Suffice it to say he hasn't visited much.
Without a home but not exactly homeless, the Files miss the little things. They have their television, but who wants to unpack a dozen boxes to find the remote control? Rather than searching for their dishes and towels, it seemed easier to buy new sets.
They've spent about $100,000 on the house, including a $52,900 down payment, extras such as a finished basement, window treatments and new furniture. Mark File estimates he's spent another $50,000 on hotels, temporary housing and storage fees.
They are not sure how much longer they can wait. A few weeks ago, Kara called to say they were close to getting financing to finish the development. Then the financing fell through.
The Files think it might be time to cut their losses, look for another home and go to court to try to get their down payment back.
"It's really taken a toll," Mark File said. "I need to put a picture on the wall, so to speak."
"I'm living in a townhouse, and technically it's my furniture," he said. "But I don't feel like I've lived in a home for the last 10 months."
Tied up in bankruptcy, there's little Kara can do to help buyers like the Files.
"While we understand the frustration of the contract holders, and they're at the five-yard line, we're doing all we can in order to ge that resolved," Mandarino said. "It's just complicated."
As Kara tries to figure out its future in bankruptcy court, lenders, vendors and homeowners have grown frustrated at the slow pace. They complain too much of the financing Kara has obtained during bankruptcy has gone to consultants and lawyers -- some who are paid more than $500 an hour -- and not enough on finishing the homes. Kara's law firm, Greenbaum, Rowe, Smith & Davis, has billed the company more than $1 million.
Kara has yet to file a reorganization plan, although Kaplan, the bankruptcy court judge, last week ordered the Old Bridge-based company to file one within 30 days or start making interest payments on its $230 million in construction debt.
"Every day we delay upsets a group of people, except these people who are making $500 an hour," said Birch Hill homeowner Alan Ross. "The longer this site sits, the more undesirable it gets."
Mandarino said the company has made more progress than people think.
Bankruptcy cases, he said, are a lot like constructing a home. For a long time it might look like nothing is happening, but then "it goes very quickly from being 10 percent to 100 percent in a short period of time," Mandarino said.
He said Kara is on track to file its reorganization plan by mid-April. He said the case has taken time because it is so complicated and because banks have not been willing to lend Kara more money.
"A lot of the lenders were less than happy with Kara," he said.
Mandarino said the company has taken steps to move some of the developments ahead. Kara recently won court approval to borrow $2.85 million to finish 28 homes in a development in Morris County and to auction off six developments in Ocean and Middlesex counties.
But other developments, including Birch Hill, remain in the lurch. In court papers, Amboy said Kara never winterized the unfinished houses at Birch Hill, and it "continues to deteriorate and decline in value based upon the wasting of incomplete homes."
Amboy was once Kara's most supportive lender. But its general counsel, Cyndi Bleier, said in a written statement that while the bank has "continued to negotiate in good faith" it has "been unable to reach any type of amicable resolution." Now, she said, Amboy is looking to protect its interests.
This was not the development Alan and Cheryl Ross envisioned when they moved from Paramus in November 2005.
Birch Hill was everything they wanted. Their home is a three-bedroom villa with three baths and a two-car garage. There's a second-floor loft where Alan Ross has his office and the couple have an exercise room. The Rosses painstakingly picked out their appliances, countertops and fixtures.
Despite the problems Kara has had, the Rosses said the developer built a good home. The only flaw they found was one squeaky floorboard, and one side of a double deck was not built as promised.
All of the Birch Hill homeowners talk of the friends they've found in their neighbors. And they have organized the kind of activities one would expect from a community like theirs, including frequent potluck dinners and other get-togethers. They are hosting a breakfast in a Freehold diner next month -- the kind of function that would have been held in the clubhouse if it were open.
"We all feel we're entitled to the enjoyment that was promised," said Birch Hill Homeowners Association President Frank Ramson.
"It's a first-rate community, even though it looks like a war zone," Ramson said. "But when you get past that war zone and see what will be the clubhouse and the houses and the lay of the community, you can imagine what it could be."
Judy DeHaven may be reached at