Homebuyers could lose more than $15 million in Levitt & Sons bankruptcy
More than $15 million in deposits on homes that were never started or are partially built may be lost by homebuyers who had contracts with Levitt & Sons, which is now in bankruptcy. The 547 homebuyers involved have more than $17 million on deposit, but have been offered only $2,450 each as a settlement.
After writing the bankruptcy story for BloggingStocks, I was contacted by Roberta Licker, who is fighting for a return of her $41,391 deposit from Levitt & Sons. She's one of 547 people, mostly retirees and near retirees, who saw their retirement dreams destroyed when Levitt & Sons stopped construction in October 2007 and then filed for bankruptcy in November. These folks have a total of more than $17 million in deposits on unfinished or unbuilt homes, yet there is no representative on the unsecured creditors committee of 22 representing the interest of these homebuyers.
Levitt & Sons is owned 100% by Levitt Corporation, but the corporation is making the case that the corporation is not liable for the funds lost by homeowners and other unsecured creditors, primarily tradespeople, because Levitt & Sons was a separate limited liability company (LLC). That's one of the big issues. Will the LLC status protect Levitt Corporation? We probably won't know that answer for years until after several legal battles.
Roberta Licker wants the bankruptcy judge, Raymond Ray, to either place at least one of the homebuyers on the unsecured creditors committee or to allow a second committee that will represent these homebuyers. Tomorrow, Judge Ray is holding the first of at least two hearings for the people who have filed "pro se" (without attorney representation) motions with the court asking for a return of their deposits. In many cases, these deposits were supposed to be put in escrow, in other cases the homebuyers did waive their escrow rights.
Roberta Licker and her husband Donald did not waive their escrow rights when they signed their contract in May 2007. Construction never started on that home. They agreed to an extra $375 charge at closing to pay the costs of a Surety Bond to put 10% of the purchase price of the house in escrow. When the bankruptcy story broke, they pulled out the contract signed by a Levitt & Sons-authorized representative and found out that she had crossed out their initials agreeing to the Surety Bond. There funds were never put in escrow. After numerous calls and a letter giving escrow agent Broad and Cassel proof that they had agreed to the bond, a portion of their deposit was transferred to an escrow account, but as of this writing they are only being guaranteed a $2,450 refund as a creditor holding an unsecured priority claim.
The refund of $2,450 is all that is being guaranteed to the 547 homebuyers, who have an average of about $31,000 on deposit. About 29 of them made deposits of less than $2,450, and they will get the full amount on deposit back. Some have deposits of over $100,000, but they too can only get a maximum of $2,450 back if the current agreement drafted by the creditors committee is accepted by the judge. After reviewing the court documents, I found the largest deposit was made by Dick Schaguer of Sarasota to Levitt & Sons of Manatee County (Florida). He has $122,882 on deposit.
Roberta Licker told me, "We are trying to get organized as a whole unit to fight for our hard-earned retirements. Many of us cannot afford attorneys at a gross hourly wage of $300 per hour. So we are writing our own letters to the court asking for our contracts to be terminated and our money refunded."
In one pro se letter to the court, Margaret and Joseph Crisci told Judge Ray, "We are retirees (ages 74 and 77) and live on a fixed income. The $43,183 good-faith deposit represents a substantial portion of our retirement savings. . . As senior citizens, we do not have the luxury of time to recoup our savings and get on with our retirement years." Reading through the pro se letters that are now motions with the bankruptcy court, one can find many similar stories of destroyed retirement dreams.
In a series of posts, I will follow these folks through the Levitt & Sons bankruptcy process, as well as talk about things you can do to try to protect yourself when you buy a new home. Unfortunately with the current state of the economy, more builders may face bankruptcy in the next year and more homebuyers may face the loss of their deposits. Hopefully the Levitt & Sons case can set precedents that will make it easier for everyone to get their money back.
Lita Epstein has written more than 20 books including Working After Retirement for Dummies.