Up For Bid

As Foreclosure Hits A Howard Builder, Some Experts See A 2nd Wave Of Housing Market Woes

Recession Tales

April 24, 2009|By Lorraine Mirabella | Lorraine Mirabella,lorraine.mirabella@baltsun.com

Auction signs sprout from manicured front yards of a row of new brick and stone townhouses in Columbia, signaling yet more foreclosures amid the collapse of the luxury housing market. n But in what some experts see as the latest wave of foreclosures to hit the Baltimore area, the homes' builder, rather than homebuyers, went into default.

Two separate lenders have foreclosed on 35 of Dale Thompson Builders' unsold homes, building lots and unfinished houses in Columbia's Scot's Glen townhouse development. One lender also foreclosed on seven lots in a neighborhood of $1 million homes in western Howard County, according to public records detailing property auctions. Two auctions are scheduled for Friday.

Though builder foreclosures have not been as frequent or severe in the Baltimore area as elsewhere in the U.S., they have become more common in the past few months, and more are likely, some real estate experts believe.

"This is pretty new, but it is absolutely going to happen more," said Pat Hiban, a broker with Pat Hiban Real Estate Group at Keller Williams Crossroads in Ellicott City. "The swing that that business goes through is massive."

Some builders with high debt loads have found themselves unable to withstand big drops in market demand and property values.

Auctioneer Paul C. Cooper, vice president of Towson's Alex Cooper Auctioneers, is seeing what he describes as a "second wave of foreclosures," after individual homeowners, that now has reached some small, new homebuilders in the region, including many in Prince George's County. Many, Cooper said, were unable to obtain the financing to complete a project, and "they couldn't sell the models, much less sell new homes on unimproved lots. As their funds run out, they will reach a point where, if they can't work it out with a bank, the bank will foreclose."

Cooper said builders have come to him asking about auctioning their unsold homes and lots to forestall a bank foreclosure. But often, he is forced to turn the business away when builders owe more than an auction sale will likely bring.

"The smaller builders and developers are trying to obtain funds to support construction, and the banks are not forthcoming to builders," he said.

Shrinking pool

Places such as Howard County, where farmland is still being carved up for sprawling custom homes, could be more susceptible. That's because many new-home builders have focused on the high-end segment and now are competing for a shrinking pool of buyers as values have plummeted and bank financing has become scarcer.

Demand for high-end properties, meanwhile, has been hurt by high interest rates on larger loans and the inability of potential buyers to sell their current homes.

"They're all under the same pressure, trying to find buyers for product at a time when buyers see no reason to buy," said Paul Revelle, a land developer in Howard County and a former partner with Dale Thompson on Scot's Glen's early development when sales were healthy.

In fact, demand in January 2006 was so strong the company was selling Scot's Glen homes before construction even began.

Multiple foreclosures

Caught in the downturn, Thompson is one of the first new-home developers in the Baltimore area facing multiple home foreclosures since the deepening of the recession.

The company has left unfinished homes and empty lots amid the sold and occupied ones in both Scot's Glen and Highland Overlook, the custom home development where five of a planned 15 homes have been completed.

Thompson, a well-known and award-winning Howard County builder of upscale homes, also owes $27 million to Sandy Spring Bank, a lender on other projects, Howard County Circuit Court records show.

Thompson, a structural engineer who has been building homes for 22 years, according to the Columbia-based company's Web site, did not return calls for comment. As of Thursday, his east Columbia office was shuttered, the furniture gone.

In an interview in February, Thompson indicated that lenders had withdrawn funding for work on eight custom homes he was building in Clarksville and Highland.

Just covering costs

Foreclosure has become a problem for many individual homeowners. The number of Maryland borrowers who face foreclosure or have missed mortgage payments topped 100,000 for the first time at the end of last year - a record 11.1 percent of loans in the state, the Mortgage Bankers Association said last month.

But many private builders in the area are struggling as well, just managing to cover costs and making no profits, after having cut staff and other expenses, said John E. Kortecamp, executive vice president of the Home Builders Association of Maryland, a trade group. But the area has largely avoided large-scale builder foreclosures, he said.

Dale Thompson was "locking up land at an aggressive rate, even when the market turned, and had huge exposure and extensive raw land in western Howard County and some speculative building," Kortecamp said.

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