November 7, 2008 2:53 PM

Village Homes files for bankruptcy

His words now seem prophetic.
When Matt Osborn, a senior vice president at Village Homes Colorado, was named the president of the the Home Builders Association of Metro Denver in 2008, an article he had this to say in an article he penned for a HBA publication.
"This is a time when we as an industry are most vulnerable," Osborn wrote. "Our market has been impacted significantly by a record number of foreclosures over the last few years, and the recent turmoil in the mortgage markets has made what was once a difficult market in which we operate, now downright turbulent."
Greenwood Village-based Village Homes the largest and one of the most respected privately held home building company in the metro area, filed for bankruptcy protection on Thursday afternoon.
"It's unfortunate, but it's something that had to happen," Osborn said. "It is just a sign of what is going on in the U.S. and even globally, and it was the option we kind of had to take. It's an industry wide epidemic."
The company is 57 percent owned by John Osborn, who is owed more than $1 million by Village Homes, according to the bankruptcy filing. Donn Eley of Morrison owns 38 percent of the company and Cheryl Schuette, president and chief operating officer, owns 5 percent.
"Village Homes has chosen to reorganize so that we may continue to do business in light of the current realities of the housing market," Schuette, said in a statement. "Unfortunately, a troubled mortgage and credit industry, expanding home inventories, rising foreclosure rates, downward trends in home and land prices, and reduced consumer confidence have made this action necessary."
The company's 's attorney, Garry R. Appel, said Village Homes is a victim of the credit crisis.
"There is no question about it," said Appel, the attorney for the 24-year-old company that has built more than 10,000 homes in Colorado, since it was founded by John Osborn in 1984. It filed for reorganization under Chapter 11 of the federal bankruptcy laws in Denver on Thursday.
"It is the credit crunch and the downturn in the housing market, which has created this enormous problem for homeowners and home builders across the country. Village Homes is facing the same problems that have fueled this crisis," Appel added.
The company has assets of $103.9 million, and debt of $138.4 million, according to the bankrupty filing. "Inappropriate actions," by lenders, led to the bankruptcy, according to the filing. The builder went on to say in the bankruptcy filing that that its lenders breached a financing agreement by "refusing to fund the vast bulk" of its requests.
Appel declined to elaborate on any specific points in the bankruptcy.
"I don't think we should deal with any of those issues right now," Appel said. "But I do think we will resolve all of our issues with the banks."
Asked if the company, which builds in about a dozen communities from Castle Rock to Granby, plans to sell any land to raise money, Appel said: "Not at the present time. But that could be an option later."
He said the bankruptcy filing should have no impact on existing homes that are under warranty or pending home sales.
"It shouldn't mean much of anything," to consumers, Appel said. "The business will continue as usual for the company and for the home buyer."
Village Homes said it had sales of about $85 million this year through October. The company had revenue of $184.2 million last year and $219.4 million in 2006, court papers show.
The biggest secured creditor is Guaranty Bank, a unit of Austin, Texas-based Guaranty Financial Group Inc. with a claim of $86 million, court papers show. Auto and home lender GMAC LLC and its home mortgage unit, Residential Capital, hold a combined secured claim of $36.1 million.
Housing consultant S. Robert August said that the bankruptcy filing is an unfortunate sign of the times, but he thinks Village Homes will emerge.
"Village Homes is one of the premier builders in Colorado," August said. "We think the market has bottomed out and is poised to turn around. Until then, the question is how you can handle your debt."
However, Scott Anderson, a senior economist for Wells Fargo, was less optimistic.
Anderson, a keynote speaker at the 2008 Expo Fall Forecast sponosored by the University of Denver and other groups on Friday, predicted the Denver economy will sink into a "mild recession" in 2009 and homes prices, on average, will fall another 10 percent. The good news, he said, is that affordability in the Denver area will be the best it has been since the late 1990s, because of falling home prices.
Village Homes has been slashing the prices of its homes. For example, one home in Granby that was priced at $565,067, is now at $465,067. And a home in Parker, previously priced at $630,560, is now listed at $499,000.

Posted by John Rebchook at 2:53 PM | Comments (3)