Defaults drag down prospects for builders
Efforts to reduce costs not paying down debt
By Mike Freeman-Union-Tribune Staff Writer March 1, 2009
As San Diego’s housing downturn drags into a fourth year, homeowners and home builders are increasingly having the same problem: keeping up with their mortgages. In the past six months, a series of builders has defaulted on loans or lost property to foreclosure. Loans taken out to construct neighborhoods or buy land are coming due after years of slower-than-expected sales, leaving builders with many empty lots and not enough cash flow.
William Lyon Homes of Newport Beach defaulted last month on a vacant, 5-acre parcel along San Elijo Road in San Marcos. According to deed records, William Lyon missed a payment that was due Dec. 20 and owes $5.5 million to its lender. The company didn’t respond to a request for comment.
On Feb. 19, Union Bank filed a default notice on loans made to a subsidiary of San Diego’s Corky McMillin Cos. The default involves two loans to develop 151 homes in McMillin’s Indigo at Lomas Verdes neighborhood in Otay Ranch.
Barratt American, a Carlsbad-based builder that filed for Chapter 11 bankruptcy protection in December, is in default on its undeveloped, 1,400-home Fanita Ranch project in Santee. Fanita Ranch was a separate partnership and was excluded from Barratt’s bankruptcy. “There have been notices of default filed in connection with Fanita, and we are currently working with new financial partners and the lenders involved,” said Mick Pattinson, chief executive of Barratt.
Defaults, the first step in the often-lengthy foreclosure process, don’t necessarily lead to lenders taking back projects. Borrowers often work out deals with their banks to get back on track. Read more about SEH Development/Home Fed via Defaults drag down prospects for builders.