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Building Industry Struggles - Sub go Unpaid
Saturday, 28 March 2009

Troubles build up for housing contractors
Another indicator of how the builder woes are rippling though the housing market is the number of complaints received by the Texas Residential Construction Commission, the agency that regulates home builders.  Duane Waddill, the TRCC’s executive director, said consumer complaints related to builders abandoning work sites or other financial issues like earnest money refunds made up 19 percent of the agency’s complaints in the last fiscal quarter, up from 14 percent in the previous three months.  “There’s clearly a major increase in the complaints we’re getting related to builders no longer in business,” he said.

Troubles build up for housing contractors
By NANCY SARNOFF

When residential roofing contractor Ralph Cox started his company six years ago, he rarely had a problem getting paid by the builders who hired him.

But with the housing industry now in turmoil, Cox is having a hard time collecting.

About five builders, he said, owe him about $400,000. Some of his invoices date back to June of last year.

Already, Cox has had to lay off two employees, and he’s not sure if his business will survive if he doesn’t get paid.
         
     Ralph Cox is one of a growing number of local
     building contractors having difficulty getting paid.
     About five builders owe him approximately $400,000.

“A small company like myself ... it can almost ruin you and it may ruin me,” he said. “I don’t know if I can recover from this stuff, the way things are going.”

Cox is one of a growing number of local building contractors and suppliers getting stiffed, as builders are caught in a trap of sinking home sales and a lack of credit.

“This is a huge problem right now,” said Dan Wallrath, a custom builder and vice president of the Greater Houston Builders Association. “Big companies are going out of business because they’re sitting on inventory they can’t get rid of.”

Builder Brian Binash said his company, Wilshire Homes, has significantly discounted prices and recently had to stop construction on an estimated 15 homes.

That’s because a line of credit the company had with Franklin Bank dried up after the bank was taken over by the Federal Deposit Insurance Corp., Binash said. But the builder has other concerns.

Last month, Wisenbaker Builder Services filed suit against Wilshire Homes Houston for failure to pay more than $400,000 for labor and materials on various home building projects in 2008.

The contractor filed liens against the properties and is asking a judge to order that the properties be sold to pay the outstanding amounts that are due.

Binash said he has been negotiating payment plans with other creditors and most of them have agreed to the terms.

And this week he learned the FDIC had approved a compromise that will allow his company to take its loan out of Franklin Bank receivership and place it with an investor that will fund the unfunded portion of the loan, allowing the company to finish homes and continue with its plan to pay off vendors.

As for the lawsuit, “we’ll defend it, and probably at end of day there will be a structured settlement,” he said.

Some of the homes named in the suit, however, are now owned by third parties.

Wisenbaker’s attorney declined to comment on the case.

David Powers Homes, a high-end home builder with more than 20 years experience in the Houston area, has struggled to pay contractors and vendors.

And some have filed lawsuits.

David Powers, too, said he lost a major line of credit, which hampered his ability to finish some homes and pay contractors, as well as employees, some of whom are owed six weeks back pay.

“We’re trying to close homes and accumulate cash to take care of matters like this as soon as possible,” he said.

Banks are working with his company, he said.

In addition to suing for payment, many contractors file liens against the homes built by the builders, creating potential problems for the homeowner.

When a lien is filed on a home that’s been purchased, the homeowner typically has to resolve the matter by filing a title insurance claim.

Scott McBee, chief claims counsel for Stewart Title Guaranty Co., said the insurer is paying more lien-related claims than in the recent past.

“It’s on the rise,” he said, comparing today’s levels with prior years when builders were flush and could pay their bills.

Attorney Thomas Barber said his firm has filed several hundred liens over the past few months for its contractor clients. The typical volume is just three or four a month.

“In my 25 years of filing lien claims, it’s an unprecedented time,” he said.

Another indicator of how the builder woes are rippling though the housing market is the number of complaints received by the Texas Residential Construction Commission, the agency that regulates home builders.

Duane Waddill, the TRCC’s executive director, said consumer complaints related to builders abandoning work sites or other financial issues like earnest money refunds made up 19 percent of the agency’s complaints in the last fiscal quarter, up from 14 percent in the previous three months.

“There’s clearly a major increase in the complaints we’re getting related to builders no longer in business,” he said.

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